The universal formula for e-commerce operations!

Recently I have been sorting out the e-commerce projects I have done before. When talking about e-commerce projects, the most important thing is this formula: Sales = Traffic * Conversion Rate * Average Order Value. This is the most basic formula for e-commerce and also the golden formula for the e-commerce industry. In business meetings, you can hear the two data indicators of sales volume and average order value every day. The basic concept of sales is nothing more than the amount of orders placed by users, and the average order value is the ratio of the order amount to the number of ordering users. If we only understand this level, it will be difficult to formulate strategies for business guidance. This formula can be analyzed in two parts:

1. Formula analysis: Sales = traffic * conversion rate * average order value;

2. Implementing the business: See how to use this formula in business.

1. Formula analysis

Looking at “sales = traffic * conversion rate * average order value”, the most important thing is traffic, because only with traffic can transactions be generated. The sources of traffic can be divided into two categories: the first category is consumer users, who are users who directly generate transactions on the platform and are the existing stock; the second category is potential users, who are users who have not yet generated transactions with the platform and are the incremental users. So, under the indicator of traffic, we may need to think more about where the new traffic comes from (incremental)? How to maintain existing traffic (stock)?

When it comes to traffic indicators, it is easy to think of fission. Now that we have traffic, how do we achieve conversion? Traffic can be divided into effective traffic and lost traffic. The converted traffic is effective traffic. For example, in e-commerce products, Pinduoduo's gamification strategy and Taobao's live streaming strategy turn traffic into effective traffic, and then into active traffic, and finally achieve the goal of conversion; in education products, users are attracted through free courses, live classes and content, and customer service telemarketing is used to achieve the goal of conversion.

Conversion rate is mainly driven by the operations side, with the product side providing auxiliary support. It is to think around the three steps of operation (attracting new customers, retaining existing customers, and promoting activation). John also sorted out the growth methods of high conversion rate in the knowledge planet, which are mainly in the following four directions:

Social growth. Fission is actually just the manifestation of social growth in customer acquisition. In addition to customer acquisition, social media can also play a very good growth effect in retention and conversion. The most typical case is Pinduoduo.

Content growth. A typical product that relies on content growth is Xiaohongshu, which has an average next-day retention rate of about 40%. Such high retention is due to massive amounts of high-quality content and a complete content growth system.

Explosive product growth. Last year, the Operation Research Society's hit product "Operation Skills Map" sold 20,000 copies in two days and acquired 100,000 users. A hit product may be able to achieve others’ growth targets for a year.

Channel growth. Many people mistakenly believe that spending money does not count as growth. For example, a certain Internet insurance project does not engage in fission and only invests in WeChat every year, generating 1 billion yuan in revenue with 100 million yuan.

Finally, let’s talk about the average order value: average order value = (sum of all users’) consumption amount / number of users. There are two factors that affect the average order value: the unit price per transaction and the number of purchases per person. That is: the larger the single consumption amount, the higher the average order value. Within a certain period of time, the more purchases per person, the higher the average order value. Next, let’s talk about specific business.

2. Landing business

Faced with specific scenarios and in actual business, when the boss asks: "How to increase GMV? What kind of solutions are there?" In the formula of "sales = traffic * conversion rate * average order value", there are only three indicators that affect sales, and you can improve any of the traffic, conversion rate and average order value.

1. Traffic

Traffic is the core resource of e-commerce, and even all Internet companies. E-commerce platforms strive to obtain more traffic from the outside, retain existing traffic, and master the power of traffic distribution. The invitation system is the most direct and effective way to attract new customers. There are two ways to do the invitation system:

• Invite new users to download and register, and the inviter can directly obtain cash rewards (the advantage is that appropriate cash rewards can quickly acquire users, and the growth level is far beyond imagination; the disadvantage is that the acquisition of high-quality users depends on the specific conversion effect, and more importantly, the anti-brush mechanism and wool party infiltration, invalid traffic will increase costs)
• Virtual currency (such as points, gold coins, etc.) can be introduced. Virtual currency can be obtained by inviting users, and virtual currency can be exchanged for goods, etc. (The advantage is that cost investment can be reasonably controlled, and the rewards for each step must be clear; the disadvantage is that the growth effect may not be particularly obvious, and it is not suitable to quickly acquire users in a short period of time)

The general invitation process is:

The cost of acquiring a new user for an e-commerce product is 5-10 times that of maintaining an old user. How to convert users into payment is the next key consideration. Of course, in order to obtain product traffic, e-commerce can also develop related marketing plans such as product free orders and group buying. But there is a big premise, it is very important to choose the average order value and universality of the product.

2. Conversion rate

There are two aspects to the conversion rate here:

• Convert potential paying users into paying users: optimize the product payment process based on the conversion rate from selecting products to forming an order.
• Convert new users into paying users: from the moment a user enters the product, how to get them to stay based on the product performance (users who directly purchase and convert are a minority after all);

There are two reasons for new users to buy products:

• First, the product speaks for itself (the product’s reputation), which comes from the evaluation and feedback from old users after purchase;
• Second, merchants/referrers can speak, including live broadcasts of popular merchants, content streams from Xiaohongshu users, etc.

Content information flow process:

The operational strategy must also be very clear to effectively improve the conversion rate.

3. Average order value

• The average customer spending must be combined with the sales frequency of the product.
• Sales volume is high, regardless of the average order value: regular sales are sufficient;
• Low sales volume and high average order value: From the product side, you can make a product trial plan;
• Low sales volume and low average order value: customer acquisition sales and product bundling sales can be carried out.

Of course, there are many factors that influence the average order value. The key is to make good bundle distinctions and effectively differentiate the groups of people, and then you can implement a "user-product" recommendation strategy. All of the above is just what John thought about in the process of sorting out the project based on the formula "sales = traffic * conversion rate * average order value". The prerequisite is that you must be clear about the company's business.

Author: Product Dog Gathering Place

Source: Product Dog Gathering Place (ID: Johntalking)

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