Find out if you have a Viable Ecommerce Business, Before it’s too Late

Airbnb wouldn’t be valued at $31 billion today if Brian Chesky and Joe Gebbia had given up when they were struggling to attract their first clients. They relaunched their site three times and even sold boxes of cereal to make ends meet while they worked to generate their first bookings.

If Colonel Sanders had given up on his his fried chicken recipe after it was rejected 1,009 times, Kentucky Fried Chicken, one of the largest restaurant chains in the world today, would have never launched.

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Colonel Sanders on the left. Chesky and Gebbia’s themed cereal boxes on the right

Stories like these further the romantic notion that perseverance is the key to success. And sometimes that’s true. But not all businesses are worthy of your persistence.

According to a 2016 report by the Small Business Administration (SBA), 78% of businesses advance to their second year, but only half of them survive more than five years.

So how do you know if your business will be one of them?

It’s hard to decide if you should give up now, saving the thousands of dollars you’d invest in a business that’s doomed to fail, or persevere, potentially making it big like Airbnb or KFC.

Disappointing early sales can be misleading. The internet is a noisy place, making it difficult to know if bad numbers are caused by fierce competition or the lack of a viable business model.

Luckily, you don’t have to wait until you’re broke to find out. There are clues in your data that can help evaluate your business to determine if it’s worth your perseverance while you’re struggling to attract your first customers.

We call these data clues Product / Market Fit metrics. Product / Market Fit is a criteria that helps evaluate if there’s a market for a particular product. Stores that achieve Product / Market Fit are ones that offer:

  1. Products their customers can’t live without
  2. A great shopping experience, so customers come back to the store over and over again
  3. Great value to their customers while remaining profitable

These three criteria can be empirically measured through six metrics you can check today. They are:

1. Bounce rate

The percentage of users who visit a page on your website and then leave before taking any action is the Bounce Rate. A high Bounce Rate (usually above 57%) means that your site is not giving the right first impression, probably because it’s disconnected from what the visitor wants.

High bounce rate doesn’t necessarily mean that your business is a lost cause, though. A user may also bounce because of poor design or slow page loading time. Try fixing those issues first, then re-evaluate. But if your potential customers keep bouncing from your site, it’s a sign that you’re not meeting their expectations with what you’re offering them.

2. Time on site

Once visitors get past the first page, you want them to spend as much time as possible on your site. Spending time on a website is a sign that people are having a good experience.

According to our analysis, a good average time on site is above 120 seconds. If your average time on site is much lower than that, it could be an indication that your visitors aren’t seeing value in your online store’s products.

3. Pages per visit

This is the average number of pages a user navigates on your site during a single visit. A high number of pages per visit (around 4) indicates that people are interested in what you are selling.

4. Returning Visitors

Returning Visitors is the percentage of visitors that have been to your online store before and choose to come back. According to Compass’s studies, if the percentage of returning visitors is above 20%, that’s a good indication that people like what they see.
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Screenshot of Compass’s Benchmark report

5. Customer Lifetime Value (LTV)

Hopefully you’ve made your first sales and you have a few customers coming back. If so, it’s time to look at the average profit from each customer during the entire time they remain your client, or the Customer Lifetime Value. To have a sustainable business, you need to profit from these repeat customers.

If your average client comes back to your store three times to buy something and spends an average of $100 per purchase and your profit margin is 10% ($10), their LTV is $30.

This is important because LTV is directly linked to profitability. A company with a high average LTV will be able to spend more to attract customers and will have a higher profit margin. Compass calculates your LTV instantly, in your Revenue Report. Read more about LTV here.

6. Must-Have Score

Send customers a survey with one simple question: “How would you feel if our store was no longer available?” Your clients can respond “Very disappointed,” “Somewhat disappointed,” or “Not disappointed.”

This survey, created by Sean Ellis, is designed to verify if your customers would miss you if you were gone. If 40% of your customers respond “Very disappointed,” you have a clear indication that your store is a must-have and you should persevere.

How to measure Product Market Fitness

Aside from LTV, which Compass can calculate for you, and the Must-Have Score, which can be measured through a survey, the metrics above can be easily accessed in Google Analytics. They appear on the Audience Overview:

Google Analytics

Google Analytics gives you absolute numbers, but Compass compares these numbers with the averages of your peers. It’s by benchmarking your metrics with companies that are most similar to yours that you’ll have the best picture of your situation.

For example, 120 seconds is the average time on site for ecommerce but stores that sell complex and expensive products should expect their customers to spend more time than that researching before buying. Get a personalized benchmark report by signing up to Compass. It’s free and it takes two minutes.

If any of the metrics above are below average, try putting yourself in the shoes of your customer, brainstorm ideas on what can be improved, and test solutions until you see those numbers improving. If the metrics still don’t indicate improved performance, it’s probably best to reconsider. A new store, a new angle, or even an entirely new set of products may do the trick.