Why does your digital team never seem to get ahead of its work? Why is your ecommerce growth stubbornly slow? Why can’t your team pull together in the right direction? In the realm of business metrics, selecting a North Star is pivotal for your organisations sustained success. The North Star, akin to a guiding light, serves as a quantifiable goal aligning multidisciplinary teams with overarching business objectives. It is the metric that each meeting should start with, what you should consistently celebrate, and what each employee should aligned their role to improving. In this article we will make the case for Revenue Per Visitor (RPV) as the North Star of choice for most eCommerce organisations, explain why it is an effective measure of progress, and give you a framework for prioritising the output that improves it.
Why your North Star Metric leads to greater success
Firstly, let’s look at North Star Metrics and how they align your team.
Adopting a North Star metric is more than just selecting a performance indicator; it serves as a unifying force that aligns teams towards a common purpose. The North Star provides a clear, quantifiable goal that transcends individual roles and departments, fostering a collective understanding of the organization’s overarching objectives.
This alignment becomes a catalyst for collaboration and effective communication. Each team member recognises their role as a piece of the larger puzzle, working together to drive the chosen North Star metric. This cohesion not only makes you more efficient but also cultivates a culture of shared responsibility and accountability. In practical terms, every staff member should be trained on what the North Star means, the metric should be highly visible within the business, it should be questioned and interrogated regularly, and everyone’s primary personal KPI should have specific reference to how it impacts the North Star.
Choosing and analysing a North Star Metric
This is all easy to say in theory but choosing the North Star metric can be a challenge for any executive team. There will be competing viewpoints and agendas as the aligning the metric to your team brings prestige, resources and influence. To make selection as objective as possible it’s best to have a way to analyse a variety of metrics. You can use this framework to test your chosen options of metric:
Category: Strategic Alignment
| Principle | Explanation |
|---|---|
|
Alignment with Business Goals |
The North Star metric should align directly with the overall objectives and mission of the business, reflecting its essence and long-term aspirations. |
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Measurability |
The metric should be quantifiable and easily measurable, providing clear and objective benchmarks for tracking progress and evaluating initiative success. |
|
Impact on Growth |
A good North Star metric should be a leading indicator that directly influences growth, positively impacting other key performance indicators and overall success. |
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Customer-Centric |
Ideally, the metric should focus on delivering value to the end user, emphasizing customer satisfaction and engagement as drivers of long-term success. |
Category: Operational Effectiveness
| Principle | Explanation |
|---|---|
|
Simplicity and Clarity |
The metric should be simple, easy to understand, and communicate, ensuring that all team members comprehend its significance regardless of their role. |
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Long-Term Focus |
A North Star metric, being a long-term indicator, should transcend short-term fluctuations, providing a consistent direction for strategic decision-making. |
Category: Organizational Culture
| Principle | Explanation |
|---|---|
|
Ability to Drive Behavior |
The metric should have the power to influence and drive behavior across the organization, motivating teams to align their efforts with overall business success. |
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Cross-Functional Relevance |
A good North Star metric is relevant across different departments, fostering collaboration and unity among teams towards a common organizational goal. |
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Adaptability to Changes |
While stable over the long term, the metric should allow adaptation to changes in the business environment, industry trends, and evolving customer preferences. |
|
Benchmark for Decision-Making |
The metric should serve as a benchmark for decision-making, enabling teams to evaluate choices based on their impact on the North Star metric and broader objectives. |
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Observable and Controllable |
A good North Star metric should be observable, allowing teams to track progress easily, and should be influenced or controlled by team actions for continuous improvement. |
|
Encourages Continuous Improvement |
The metric should foster a culture of continuous improvement, motivating teams to experiment, iterate, and innovate in efforts to enhance the North Star metric over time. |
If your teams primary focus is online commercial transactions – buying and selling goods or services through electronic channels such as websites or mobile applications – then you are an eCommerce company and your choice of North Star should reflect that.
Many companies choose popular North Star Metrics. Conversion rate, MRR and Churn are all popular. However, these are very SaaS-centric and don’t reflect the intricacies and challenges that retail and service ecommerce face. If you are trading goods and services online then Revenue Per Visitor should be your metric of choice.
Calculation of Revenue per Visitor:
The formula for calculating Revenue per Visitor is straightforward:
RPV= TotalVisitors
TotalRevenue
This can be shown as a rolling average and RPV by month, week and day. It provides a holistic view of the overall health and performance of an e-commerce website, taking into account various aspects that reflect the sustained success of the business over time. RPV is a robust long-term metric and a valuable North Star because it shows:
Sensitivity to Seasonal Changes:
RPV can reveal how the business performs during different seasons and events. Seasonal changes often impact consumer behavior, and monitoring RPV over time allows businesses to identify patterns, adapt strategies, and capitalize on opportunities specific to each season.
Audience Relevance and Segmentation:
Over time, the relevance of the audience may evolve. By tracking RPV, businesses can assess how well their products or services continue to meet the changing needs and preferences of their target audience. Additionally, segmenting the audience and analyzing RPV for different customer groups provides insights into the effectiveness of marketing efforts for each segment.
Multiple Levers Impacting RPV:
RPV is influenced by various factors such as traffic quality, conversion rate, average order value, marketing effectiveness, and website optimisation. These factors represent multiple levers that businesses can adjust and optimize over the long term to enhance RPV. By understanding the interplay of these levers, businesses can develop comprehensive strategies for sustainable growth.
Customer Lifetime Value (CLV) Consideration:
RPV is closely linked to Customer Lifetime Value (CLV), which measures the total value a customer brings to the business over their entire relationship. By focusing on RPV as a long-term metric, businesses indirectly address the goal of maximising CLV, emphasizing the importance of customer retention and loyalty.
Continuous Optimization:
RPV encourages a mindset of continuous optimisation. By regularly monitoring and analysing the factors affecting RPV, businesses can identify areas for improvement, test hypotheses, and implement changes to enhance overall performance.
How to use RPV for business analysis
The reason I find Revenue Per Visitor (RPV) so compelling lies in its demand for a holistic approach to improvement. Unlike some metrics that can be easily manipulated in isolation, RPV requires a comprehensive strategy that addresses various facets of the business. By focusing solely on metrics that are easily manipulated, certain areas of the business may be artificially boosted, leaving underlying issues unaddressed. RPV, on the other hand, requires attention to customer experience, marketing effectiveness, and overall operational efficiency, ensuring that improvements are genuine and contribute to the sustainable growth of the entire platform.
You can use it to for:
- Profitability Measurement: RPV helps measure how much revenue a website generates for each visitor. This is essential for assessing the profitability of the business.
- Conversion Effectiveness: It indicates how well a website is able to convert its traffic into actual sales. High RPV suggests effective conversion strategies.
- Performance Benchmark: RPV serves as a benchmark for the performance of marketing campaigns, user experience improvements, and overall website optimization efforts.
- Decision Making: Businesses can use RPV data to make informed decisions about marketing budgets, investment in user experience enhancements, and other strategies to boost revenue.
Improving your RPV
So it’s a month down the line, you’ve chosen RPV as your metric, got the team aligned, set up your calculations and posted the metric across your dashboards: what are the next steps?
Each business and business strategy is different and every team is has limited time and resources. Your next job is to prioritize the initiatives that will give you the most impact on your RPV. Prioritizing factors affecting RPV involves considering their relative impact on the overall metric and aligning them with business goals. Here’s a general list of the factors to choose from.
Factors Affecting RPV:
| Type | Impact |
|---|---|
|
Traffic Quality |
The source of website traffic is crucial. Initiatives to enhance traffic quality focus on attracting targeted and relevant visitors, increasing the likelihood of conversions and a higher RPV. |
|
Conversion Rate |
Improving the percentage of visitors who make a purchase directly impacts RPV. Initiatives in this category aim to optimize the user journey and enhance conversion rates for sustained revenue growth. |
|
Average Order Value (AOV) |
Increasing AOV contributes to higher RPV. Initiatives focused on AOV encourage customers to make larger or additional purchases, positively influencing overall revenue and RPV. |
|
Marketing Campaigns |
The effectiveness of marketing campaigns plays a pivotal role in shaping the quality of traffic and subsequent RPV. Strategic marketing initiatives are crucial for attracting and retaining high-value customers. |
|
Website Optimization |
User experience, design, and navigation are central to RPV. Initiatives for website optimization ensure that visitors easily find and purchase products, leading to an overall improvement in RPV. |
|
Customer Segmentation |
Targeting specific customer segments enhances the relevance of products, positively impacting RPV. Initiatives in customer segmentation personalize offers and recommendations to improve the overall customer experience. |
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Seasonal Trends |
Understanding and adapting to seasonal trends influence consumer behavior and, consequently, RPV. Initiatives in this category ensure businesses align strategies with seasonal variations for optimal results. |
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Customer Retention |
Repeat customers contribute to higher RPV. Initiatives focused on customer retention involve strategic efforts to build lasting relationships and encourage loyalty for sustained revenue growth. |
|
Mobile Responsiveness |
With the rise in mobile device usage, a positive mobile experience is vital for higher RPV from mobile users. Initiatives in this category prioritize mobile responsiveness and usability. |
|
Competitive Landscape |
The competitiveness of the market influences visitor spending. Initiatives for competitive positioning focus on differentiating products or services to positively impact RPV in a competitive landscape. |
By analyzing RPV in conjunction with these factors you can make informed decisions about which strategies could drive higher revenue. Choose 3 – 4 of these factors to start with based on the available team expertise.
Now break down these factors into specific outputs. They could be a task, experiment or change in process. Just state them clearly and simply. If you have too many outputs then use the I.C.E framework to assess the importance of each.
The I.C.E. (Impact, Confidence, Ease) framework assigns scores to potential work based on three key factors. “Impact” measures the expected positive outcomes and significance of the output, “Confidence” assesses the level of certainty in predicting these outcomes, and “Ease” gauges the relative simplicity of implementing the output. Give each output a score out of ten and have your senior team do the same. By combining these scores, your team can systematically prioritise outputs, focusing on those that promise high impact, possess a reasonable level of confidence, and are logistically feasible.
This entire framework is simply structured and repeatable. It can function as a weekly, fortnightly and monthly cycle (though I recommend weekly as it regulates progress better by focusing on weekly achievables).
eCommerce, to the outside world, seems a simple game. However, the realities are very different. It has so many disciplines that need to be mastered, so many pitfalls to be avoided, and so many competitors to be thwarted. By choosing RPV as your North Star Metric and implementing the framework to drive performance you can see the growth your business and team needs.
