Benchmarks for a Winning Web Business

by Rob Spiegel

There are five critical benchmarks to determine if your online business is moving in the right direction.

Leo Tolstoy wisely observed that all happy families are the same, while unhappy families are unhappy in their own ways. Stretching that view a touch, the same can be said of retail Web ventures. Failures come with thousands of different stories, but successful Web businesses share certain similarities. In its report, "Winning the Online Consumer 2.0: Converting Traffic into Profitable Relationships," a study of 3000 online consumers, the Boston Consulting Group (BCG) finds there are visitor and buyer ratios that winning Net businesses share in common.

The report advises Web merchants to address five important benchmarks that help determine whether your site is growing in the right direction. Once a retailer gets these numbers moving in a healthy direction, it can begin its road to profits.

  1. Visitor-to-buyer conversion rates
  2. Traffic, measured by the number unique visitors
  3. The proportion of repeat customers
  4. Orders per customer
  5. Ratio of repeat-order revenue to first-time revenue

The numbers above will vary wildly from retailer to retailer, but numbers produced by companies that reach profitability follow a positive pattern. "Converting traffic into profitable customer relationships is a challenge few online retailers have mastered," said Peter Stanger, Boston Consulting Group's vice president and leader of the company's Business-to-Consumer Topic Area. "A business model that is based on spending $100 to acquire a customer who places a $50 order and never returns to the site is destined to fail."



The online audience is certainly ready to support companies that their Net business right. By early 2001, the online purchasing population had reached 68 million. They spent their dollars in more categories than they did just one year earlier, and they're optimistic about their future of their online spending. One in five expects to move at least half of his or her spending online in each of six major categories over the next year. These include leisure travel, event tickets, music and video, computer software, books, and computer hardware.

Yet many of the retailers attempting to serve these eager buyers fall woefully short of retail competence. BCG found that 11 percent of consumers reported ordering and paying for a product they never received in 2000, double the 1999 rate. Forty one percent reported they had stopped shopping at a site because of a purchasing failure. These experiences have a direct impact on the amount of money consumers are willing to spend online. BCG found that the least satisfied customers spent an average of $428 online over the past 12 months, while the most satisfied customers spend $673.

"Today's online consumers are more technologically savvy, more impatient and most importantly, want to spend more of their shopping dollars online than they ever have before," says Michael Silverstein, senior vice president and global leader of BCG's Consumer Practice group. "Unfortunately, online retailers haven't kept pace. Consumer enthusiasm for the online channel is growing faster than online retailers' capabilities. Elusive profits will occur when the online retailers get the profit equasion right."

The BCG report finds that some categories are doing a better job of satisfying customers than others. The books and health-and-beauty categories stand out as the best performers, with customers saying they are satisfied with their experiences 31 percent of the time. The leisure travel and computer hardware categories have the lowest numbers with only 20 percent experiencing satisfaction with their shopping. These last two categories, are big-ticket purchases. Consumers naturally have higher service expectations when buying a $400 plane ticket or a $1500 laptop than they do when they purchase a $15 book. Yet the service at a book site is often better than the service at a travel site.

Web sites need to address the five critical benchmarks simultaneously to be successful. The report finds that a piecemeal approach will not bring positive results to the bottom line. All of these benchmarks are tied intrinsically to the buying experience. "Online retailers need to tailor their offerings for the high-value customer segment and cement loyal relationships by delivering a flawless consumer experience," says Stanger.

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur’s Guide to Internet Start-ups (St. Martin's Press). You can reach Rob at robspiegel@comcast.net

 
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