What’s common with brands like Prose, The Farmer’s Dog, Misfit’s Market, Oura, Elvie, Lovevery, and several others?
Between Nike, Under Armour, and The Clorox Company ?
Or pure players DTC brands such as Peloton, Warby Parker, and HelloFresh ?
These companies are the fastest growing DTC brands, each clocking an incredible, gravity-defying, and eye-watering growth numbers.
What does it take to head off into the stratosphere? If you are an upcoming e-commerce brand, what should you keep an eye on to allow you to get on the same path as these fast growing DTC brands?
In short, what’s the criteria for fast growing brands, you ask? Here are some of them (not including product placement, product positioning, supply-demand mechanics, and branding):
Gather first party data
Most e-commerce brands tend to depend on third-party data such as those from ad platforms, web cookies, and social platforms. Twilio states that more than 81% of e-commerce companies (and other businesses) depend on third-party data.
For the most part, such third-party data is not only getting more expensive (and difficult to access) but is also vulnerable to ever-changing data privacy rules and regulations worldwide.
That’s why first-party data is now gold -- the data that an e-commerce business is already sitting on such as customer names, customer email addresses, phone numbers, and email conversations, email subscriber preferences, website usage trends, app usage, and so much more.
For a DTC brand to be classified as fast-growing, it should also be following a path that goes beyond cookies and ad platform dependence. Switching gears and moving to high-quality and real-time first-data dependence is at the very foundation of a fast-growing, successful, and promising DTC brand.
Higher CLV:CAC Ratio > 3:1 (CAC below 33% of CLV)
High-growth DTC brands have nothing to show for if that growth is spear-headed by a trail of burning cash. One of the key criteria for fast (or not) but sustainable growth is a higher CLV (customer lifetime value) or a higher CAC (customer Acquisition Cost) Ratio.
The ideal CLV:CAC ratio should ideally be less than 3:1. The Customer Acquisition Cost (CAC) should be below 20% of Customer Lifetime Value).
In simple terms, a fast growing DTC brand should be able to break even (per customer) in less than a few months (8-12 months maximum).
You can’t be spending too much to acquire customers. You can’t be spending too less either.
Retention rate of 35% annually
Fast-growing e-commerce businesses do grow with nothing. Some do, but that’s not our focus.
Growth is not just flash and bang, VC-backed funding, or the amount of press a particular brand garners in the press (all that’s called fame.
Fame isn’t the same as profitability. Nor is it a criteria for fast-growing DTC brands).
Customer retention is the secret sauce of eCommerce. The higher your e-commerce retention rate is, say more than 35% annually, the more chances that you’ll break even faster (see above) and the faster you’ll profit.
Fast-growing DTC brands have a combination of excellent products, great customer service, fast-moving e-commerce marketing strategies, and also a healthy customer retention rate.
Get the retention rate right and you have all the makings of a profitable e-commerce brand.
Website conversion rate of > 4%
Most e-commerce websites convert at a measly 2% average globally.
That’s a lot of bleeding on the ground assuming each of these e-commerce brands spend on resources, teams, content marketing, email marketing automation, marketing tools, support tools, and all the work that goes into getting customers to visit a typical website.
At 2% or less, you’ll barely get by, let alone trying to make it to the top to join the echelons of fast-growing DTC brands.
To classify as a fast-growing DTC brand, your e-commerce store should be converting at 4% or more.
The more, the better.
Higher conversion rate makes everything else fall into place, while giving you more time (and fuel) to focus on important aspects of e-commerce such as product fulfillment, customer retention, customer support, customer loyalty programs, and so much more.
Increase in Average Order Value
Another secret sauce for e-commerce success, you ask?
It’s all about increasing the average order value. Fast-growing DTC brands don’t just sit on one product for sale and leave it at that.
Remember that the criteria also includes trying to break even sooner, lowering the cost of acquisition, and increasing the customer lifetime value.
Upselling, cross-selling, layering services on top of products, suggesting other products, showcasing best sellers), and suggesting relevant add-ons -- these are all ways to increase the average order value.
If you are not doing that, you’ll find it hard to grow.
Email Marketing (open rate > 25% and a click-through rate > 3%)
Email marketing is an e-commerce money spinner. It still holds ground as one of the most trusted, dependable, and intuitive ways to grow your customer pipeline and to bring in revenue.
Assuming you are doing email marketing right, you’d already be dealing with email marketing frequencies, email marketing automation flows, and the email marketing prowess that some of the fastest-growing ecommerce brands boast of.
What should you aim for?
Healthy email marketing results such as an open rate of 25% or more, a click-through rate of 3% or more, and then actual purchases triggered by regular emails and email automations.
Revenue Growth Rate of > 30% & Unique Customer Growth Rate of > 50%
When your unique customers grow (not one customer buying once or one customer buying a few times) and when your revenue grows (sum total of all revenue -- one customer or many), you are on a healthy growth path. E-commerce growth is directly attributed to your revenue growth rate, unique customer growth rate, lower cost of acquisition, higher customer lifetime value, excellent customer service, and a naturally growing customer-base.
That’s the formula for e-commerce success, yes. To be a fast-growing ecommerce brand though, you’d have to be better.
Aim for a revenue growth rate of more than 30% year-on-year and a unique customer growth rate of more than 50% per year, every year, YoY.