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10 Marketing Formulas to Scale Ecommerce Sales

Updated: Aug 6, 2024



Scaling an ecommerce store requires a strategic approach backed by data and effective marketing tactics, specifically within paid advertising.


By leveraging proven marketing formulas, you can gain insights into your business performance, optimize your strategies, and drive growth.


In this article, we will explore 10 marketing formulas that can help you scale your ecommerce store sales.


1. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is a critical metric that estimates the total revenue a business can expect from a single customer over their lifetime. Understanding CLV helps you determine how much you can invest in acquiring and retaining customers. By increasing CLV, you can boost profitability and growth.


How It Works:

  1. Calculate Average Order Value (AOV): This is the average amount spent by customers per order. For example, if your total revenue is $20,000 and you have 400 orders, your AOV is $50.

  2. Determine Purchase Frequency: This is how often customers make a purchase within a specific period. For instance, if customers make 4 purchases per year, your purchase frequency is 4.

  3. Find Churn Rate: This is the percentage of customers who stop doing business with you over a specific period. If you lose 20% of your customers each year, your churn rate is 0.20.

  4. Calculate CLV: Multiply the AOV by the purchase frequency and then divide by the churn rate. For example, if your AOV is $50, purchase frequency is 4, and churn rate is 0.20, your CLV is $1,000.


2. Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) measures the cost of acquiring a new customer. It's essential to compare CAC with CLV to ensure that your customer acquisition efforts are profitable. A lower CAC indicates more efficient marketing and sales strategies.


How It Works:

  1. Calculate Total Marketing and Sales Expenses: Add up all costs related to marketing and sales, such as advertising spend, salaries, and software costs. For example, if your total expenses are $10,000, this is your total marketing and sales expenses.

  2. Count Number of New Customers Acquired: Determine how many new customers you gained over a specific period. If you acquired 200 new customers, this is your number of new customers acquired.

  3. Calculate CAC: Divide the total marketing and sales expenses by the number of new customers acquired. For example, if your expenses are $10,000 and you acquired 200 new customers, your CAC is $50.


3. Return on Ad Spend (ROAS)

Return on Ad Spend (ROAS) is a key performance indicator that measures the effectiveness of your advertising efforts. It shows how much revenue you earn for every dollar spent on advertising. A higher ROAS indicates more efficient and profitable ad campaigns. Also, it's important to note, this is a key factor that our marketing agency in Seattle always prioritizes. will use when navigating how to scale a investment, so understanding your business metrics here are essential.


How It Works:

  1. Calculate Revenue from Ad Campaigns: Determine the total revenue generated from your ad campaigns. For example, if your campaigns generated $5,000 in revenue, this is your revenue from ad campaigns.

  2. Calculate Cost of Ad Campaigns: Add up all the costs associated with your ad campaigns, such as ad spend and production costs. If your total cost is $1,000, this is your cost of ad campaigns.

  3. Calculate ROAS: Divide the revenue from ad campaigns by the cost of ad campaigns. For example, if your revenue is $5,000 and your costs are $1,000, your ROAS is 5.



4. Conversion Rate (CR)

Conversion Rate (CR) measures the percentage of website visitors who complete a desired action, such as making a purchase. A higher conversion rate indicates a more effective website and marketing strategy.


How It Works:

  1. Count Number of Conversions: Determine how many conversions you had, such as purchases or sign-ups. If you had 100 conversions, this is your number of conversions.

  2. Count Total Visitors: Determine how many total visitors your website had during the same period. If you had 2,000 visitors, this is your total visitors.

  3. Calculate CR: Divide the number of conversions by the total visitors and multiply by 100 to get a percentage. For example, if you had 100 conversions and 2,000 visitors, your CR is 5%.


5. Average Order Value (AOV)

Average Order Value (AOV) measures the average amount spent by customers per order. Increasing AOV can significantly impact your overall revenue and profitability.


How It Works:

  1. Calculate Total Revenue: Determine the total revenue generated during a specific period. If your total revenue is $20,000, this is your total revenue.

  2. Count Number of Orders: Determine the total number of orders placed during the same period. If you had 400 orders, this is your number of orders.

  3. Calculate AOV: Divide the total revenue by the number of orders. For example, if your revenue is $20,000 and you had 400 orders, your AOV is $50.

AOV=$20,000400=$50AOV = \frac{\$20,000}{400} = \$50AOV=400$20,000​=$50


6. Churn Rate

Churn Rate measures the percentage of customers who stop doing business with you over a specific period. A lower churn rate indicates better customer retention and satisfaction.


How It Works:

  1. Count Number of Customers Lost: Determine how many customers you lost during a specific period. If you lost 50 customers, this is your number of customers lost.

  2. Count Total Customers at Start of Period: Determine how many total customers you had at the beginning of the period. If you had 1,000 customers, this is your total customers at the start of the period.

  3. Calculate Churn Rate: Divide the number of customers lost by the total customers at the start of the period and multiply by 100 to get a percentage. For example, if you lost 50 customers out of 1,000, your churn rate is 5%.


7. Net Promoter Score (NPS)

Net Promoter Score (NPS) measures customer loyalty and satisfaction by asking customers how likely they are to recommend your business to others. A higher NPS indicates more satisfied and loyal customers.


How It Works:

  1. Calculate % Promoters: Determine the percentage of respondents who are promoters (score 9-10). If 70% of respondents are promoters, this is your % promoters.

  2. Calculate % Detractors: Determine the percentage of respondents who are detractors (score 0-6). If 10% of respondents are detractors, this is your % detractors.

  3. Calculate NPS: Subtract the % detractors from the % promoters. For example, if 70% are promoters and 10% are detractors, your NPS is 60.


8. Customer Retention Rate (CRR)

Customer Retention Rate (CRR) measures the percentage of customers retained over a specific period. A higher CRR indicates better customer satisfaction and loyalty.


How It Works:

  1. Count Customers at End of Period: Determine how many customers you have at the end of the period. If you have 950 customers, this is your customers at the end of the period.

  2. Count New Customers Acquired: Determine how many new customers you acquired during the period. If you acquired 100 new customers, this is your new customers acquired.

  3. Count Customers at Start of Period: Determine how many customers you had at the beginning of the period. If you had 1,000 customers, this is your customers at the start of the period.

  4. Calculate CRR: Subtract the new customers acquired from the customers at the end of the period, then divide by the customers at the start of the period and multiply by 100 to get a percentage. For example, if you have 950 customers at the end, acquired 100 new customers, and started with 1,000 customers, your CRR is 85%.


9. Sales Growth Rate

Sales Growth Rate measures the percentage increase in sales over a specific period. A higher growth rate indicates successful marketing and sales strategies.


How It Works:

  1. Calculate Sales in Current Period: Determine the total sales generated in the current period. If your sales are $30,000, this is your sales in the current period.

  2. Calculate Sales in Previous Period: Determine the total sales generated in the previous period. If your sales were $25,000, this is your sales in the previous period.

  3. Calculate Sales Growth Rate: Subtract the sales in the previous period from the sales in the current period, then divide by the sales in the previous period and multiply by 100 to get a percentage. For example, if your current sales are $30,000 and previous sales were $25,000, your sales growth rate is 20%.



10. Marketing Efficiency Ratio (MER)

Marketing Efficiency Ratio (MER) measures the efficiency of your marketing and sales expenses in generating revenue. A higher MER indicates more efficient marketing strategies.


How It Works:

  1. Calculate Gross Revenue: Determine the total revenue generated. If your gross revenue is $50,000, this is your gross revenue.

  2. Calculate Total Marketing and Sales Expenses: Add up all costs related to marketing and sales. If your total expenses are $10,000, this is your total marketing and sales expenses.

  3. Calculate MER: Divide the gross revenue by the total marketing and sales expenses. For example, if your revenue is $50,000 and your expenses are $10,000, your MER is 5.


By leveraging these marketing formulas, you can gain valuable insights into your business performance, optimize your marketing strategies, and drive growth. Implement these formulas in your decision-making process to achieve sustained success and profitability for your ecommerce store.

 
 
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