What to do when your business is stuck in a growth rut?
It’s possibly the question that I’m asked most by E-Commerce founders. It’s not that things are bad, and website sales are still coming through, but the growth rate seems to have slowed and it doesn’t seem as easy to recruit new customers.
Typically, I see founders and their leadership teams respond to being in a growth rut by simply working harder on existing campaigns and initiatives. Often, they’ll throw more money at the problem too, just to see whether the problem will go away by spending more money to recruit new customers. Rarely do I see this working.
What’s needed is a new way of thinking, and so whilst every E-Commerce business is different, I thought I’d share my thoughts on how to approach overcoming a “growth rut” and to offer up my seven-step process to help you break free.
Some context – it’s still a brilliant time for E-Commerce, but it is getting harder
There has possibly never been a better time to start a business in general, but an E-Commerce business in particular. At the start of 2021, there were 5.5 million small businesses in the UK according to the FSB, making up a whopping 60% of UK private sector employment. E-commerce now accounts for more than one-quarter of all retail sales and is expected to exceed £100 billion in 2022 (Statista). The pandemic seems to have accelerated the surge to online retail, and many consumers have formed online shopping habits that will shape their purchasing for years to come. Platforms such as Shopify and Magento have also made it incredibly easy and cost-effective to start a company and to sell effectively online.
Yet, on the other hand, existing businesses of all shapes and sizes have also woken up to this opportunity. It’s hard to turn the pages of a business or marketing journal without finding articles about new Direct To Consumer (DTC) businesses being formed, or about “transformation” projects at established brands that are throwing money at new DTC offerings. The result of all this is that whilst there are plenty of shoppers searching to purchase, there is also significantly more competition for those audiences. Those “golden days” of exceptionally low customer acquisition costs are over, as there is simply much more marketing spend competing for customer attention. Certainly, for the often most favoured channels, ads are becoming more expensive. The average CPM (Cost per thousand impressions) for Facebook in January 2022 has increased to $12.42 (Revealbot), and Amazon costs per click are up over 50% year-on-year (Marketplace Pulse). So the days of very low competition in established markets are behind us.
Even so, I believe that small, nimble E-commerce businesses can still develop a significant advantage. By focusing on specific niche audiences, strengthening the value proposition, thoroughly testing creatives and obsessing about the purchase funnel, small E-Commerce businesses can still win big. It would be most exceptional for an E-Commerce entrepreneur to not experience a slow down in growth rates at some point in their first 3 to 5 years of trading, most likely as the “newness” of the offer and original creative recedes. Just remember the old adage that what got you here, might not get you where you want to go.
Being stuck in a rut
If you’ve ever got your car stuck in the mud (a British camping holiday anyone?), you’ll have realised pretty quickly that hitting the accelerator and spinning your wheels doesn’t help. In fact, it often serves to make the mud ruts deeper and harder to escape. You need to come up with a different plan. Taking a moment to play with this analogy further, the advice for the wannabe off-roaders amongst us is to:
Take a moment to stop, get out of the car to assess your surroundings, and reduce air from your tyres if you really are stuck
Engage 4×4 mode if you have it so that each wheel can independently attempt to find some grip
Pick a line that represents the best chance of escape, and stick to it
Avoid existing ruts if you can; create your own path
Don’t brake, but keep monitoring everything closely whilst you’re trying to find traction
Be responsive and adaptive; if you find traction stick to what’s working and ditch what isn’t
Once you’ve escaped the mud, make sure you take time to clean your car, replace the fluids & replace the air from your tyres
Applying to E-Commerce – 7 steps to break free from a growth rut
So, whilst not wanting to overplay this analogy, I think there are some great lessons we can reapply back to the world of E-Commerce. Here’s my attempt to translate this into a seven-step process for E-Commerce businesses to work themselves free of a growth rut:
Recognise & accept the situation
It is what it is, and worrying about slow or no growth isn’t going to make it any better. Remember that this happens to the very best of companies (think of the 12 years hiatus at Apple since the original departure of Steve Jobs in 1985, compared to the recent $3 trillion valuation). Also, remember that what got you here won’t necessarily get you where you want to be. So take a moment to stop, get out of the day-to-day business operations to think and assess your unique situation.Engage E-Com mode
Remember the fundamental E-Commerce equation: Revenue = Visitors x Conversion Rate x Average Order Value. Everything comes back to this and breaking this data out for your business, across the last few months or even years, should help to shine a light on what the real source of the problem is. From my experience, £AOV is normally one of the most consistent metrics, so it’s likely to either be a decline in CR% or, more likely, a slowdown in visitor growth. To get even more insight, consider splitting this data by New & Existing Customers, by Device type, by Acquisition Channel and possibly by Campaign as well.Take a fresh look at targets
Where do you want to be, and does this seem realistic when expressed in terms of the fundamental E-Commerce equation in step 2? This is where it’s very helpful to break down your ambition into a “Customer View”, with your targets broken down into Existing Customers and New Customers. For Existing Customers, how far can you push repeat rate, frequency and £AOV, and what specific activities would need to be put in place to achieve this. For New Customers, assuming conversion on £AOV will hold, how many new visitors would you need to achieve your targets, and is this achievable with planned marketing spend at realistic CPMs?Chart your own path
Whether it’s keywords, audiences or channels, there will be varying levels of competition in your chosen market. Now that some big brands (with some big budgets) are ramping up activity, there will be less green space to play in and a greater need to find cut-through. This can only be done by not following the same strategies as everyone else within your industry, but instead by forging new creative ideas that set out a clearly differentiated position within your chosen niche.Monitor the right metrics
E-Commerce businesses have so much data available to them at the touch of a button, and a myriad of KPIs which can be measured. It’s so very important to make sure you are obsessing about the right metrics for your business, and not falling into the trap of having 30 key performance indicators which don’t actually help you run your business. The focus should be on lead indicators (metrics that act as early alert signals), rather than lag indicators (metrics that only inform you of an outcome after it has happened). Let’s take an example. Measuring Return on Marketing Investment (ROMI) is generally seen to be a useful metric to monitor – for many businesses it can be – but for certain high growth businesses, this metric might actually act as a handbrake to growth. By focussing too much on efficiency (ROMI), we might lose effectiveness (finding as many incremental customers as possible at a CPA which is lower than the marketing allowable).Test, Test, Test
Make many small changes and test their impact, but please don’t try to change everything at once. There are so many tools out there that can help you run split or multi-variant tests (which are great), but don’t forget to also keep testing hypotheses for all elements of your business as long as you have the right metrics in place to either validate or invalidate. Remember that it’s not a real experiment if you already know that it’s going to work.E-Commerce basics
OK, so this should be an evergreen topic that is looked at regularly, but in the same way that it’s worth spending time on car health checks after an off-road excursion, it’s worth spending some time ensuring that the “E-Commerce basics” are working well. Here’s my top-10 checklist:
Speed (use a tool such as Web Page Test);
Mobile UX (for example, use Chrome Dev Tools to check device views or a tool such as CrazyEgg to dive deeper into the user experience)
Secure (ensure all website software and plugins are running the latest versions, and where appropriate use a tool such as Detectify to scan for vulnerabilities)
Data Layer (using Google Tag Manager directly, or one of the many available plugins to help install this on common E-Commerce platforms)
Payment options (the global average rate of cart abandonment is 75.6% according to SaleCycle, with lack of working payment options a key driver);
Shipping options (another key driver of cart abandonment, with both a free shipping option and a paid express option now arguably essential);
Ratings & Reviews (research shows that 91% of people regularly or occasionally use online reviews and 84% trust them as much as a personal recommendation);
High-quality images (research has shown that 93% of consumers consider visual appearance to be the key deciding factor in a purchase decision);
Prominent Search (users who search are more likely to convert and account for approximately 14% of e-commerce revenue);
Contact us (having easily accessible help and contact details are key to building trust, as Shopify summarises in this useful article).
What if that’s not enough?
After following these seven steps, should you still find a disconnect between your level of ambition and what looks realistically possible based on your core audience and product assortment, then it’s time to either rethink your ambition or to go hunting for growth via bolder innovation.
There are obviously many ways to do this, but perhaps the simplest way to think about it is via the Ansoff Matrix. To summarise, Igor Ansoff described four growth alternatives for growing an organisation, considering both existing and new markets, with existing and new products. The steps above assume existing markets with existing products, but of course, if this seems unrealistic to deliver the ambitions of the business, then it might be time to consider taking some more risk by expanding to new products, new markets or potentially even both.
To Conclude
As Jeff Bezos (Founder of Amazon) once said, “In business, what’s dangerous is not to evolve.” It’s entirely normal for all businesses to experience a “growth rut”, and E-Commerce businesses are no different especially considering the state of the market and increased competition in established niches. Working harder on existing initiatives and throwing more money at existing campaigns won’t help in the long term. What got you here is unlikely to get you there.
Instead, take some time to step back and away from the day-to-day operations, and engage “E-Com mode”. Break your business targets down into the fundamental E-Commerce equation and split this into existing and new customer targets. Work out the path that’s right for your business, and make sure you’re measuring the lead (not lag) indicators to judge progress when you’re testing new initiatives. And please don’t forget to spend time on the E-Commerce basics – you really won’t regret it!
If you’ve found some value in this article, or have some thoughts of your own to add, then please do take a moment to comment below.
