Is your online business a hunter/gatherer or farmer? Without a bit of context, you probably don’t know the answer to that question. Another way to look at it is this: does your business require you to actively go looking for your next sale?
"Does your business require you to go looking for each new sale?"
If you answered yes to the above question, you are a hunter. Now let me be clear - there is nothing wrong with being a hunter. It served our ancestors well for thousands and thousands of years. However, when it comes to running your business it is not a sustainable way to grow.
Let me explain.
Everyone Starts as an eCommerce Gatherer
Almost all online businesses start as ecommerce gatherers. Just as our ancestors searched the forests for food, these stores go foraging for what they can easily find close to home. That means finding sales from those you already know, such as friends, family, coworkers and, once you get on a roll, even a friend of a friend.
This is a great way to get started because it requires almost no up front investment or tools to start gathering sales. 1.8 million years ago, all you needed to get gathering was your hands and a basket (and a really good attitude). Today, that basket is your ecommerce platform. However, while our baskets are evolving our attitudes towards it are too, ushering in the era of the hunter.
The Downfalls of Being a Hunter
Hunting may not be the easiest way to get food, but it is definitely the most well known. It was the way our ancestors sustained themselves for tens of thousands of years. However, even though hunting has a purpose it is not the sustainable way to grow your business because it takes too many of your resources.
"Hunting/gathering is the only way to get started in ecommerce, but if you're always hunting you won't have time for anything else - particularly scaling up your business."
eCommerce hunting is the act of going out and finding each and every one of your sales. This is usually through social or search ads. This is the best way to start to accumulate some real sales, but just like our ancestors it leaves little time for anything else.
While ecommerce hunting is not the same time investment as actual hunting, it is a significant financial investment. Every year digital ads are becoming more expensive and less effective, eating into your margins and making the hunt for new sales a less viable strategy.
With such high costs per acquisition (CAC), sometimes you end up losing money on a sale. In spite of that, most businesses still fall into the trap of increasing their ad spend year after year. With every intention to reduce spending after establishing a customer base, the every-growing cost and competition keeps them from following through on this promise, sinking them deeper into the red.
"The average business dedicates 80% of its marketing budget to acquiring new customers (hunting) and only 20% to retention (farming)."
The evidence is in Adobe’s report on advertising that states that the average marketing spend is an 80/20 split between acquisition and retention. Clearly spending all of your resources on hunting is a dangerous and unsustainable game. You need to combine your early hunting tactics with the farming of the ecommerce world: retention! That is how today’s top online brands truly succeed.
The Most Successful Stores in eCommerce Are Farmers
Our ancestors were able to build massive civilizations because of one fundamental change: farming! They were able to create empires by farming for their food in a sustainable and predictable way, rather than always hunting it.
Farming (or better known to marketers as retention marketing) is the act of getting more and increasing value out of customers who have already shopped with you in the past. This is based on the fact that it is actually 7x less expensive to retain an existing customer than it is to go hunt down a new one.
"It is 7x more expensive to 'hunt' a new customer than it is to retain a customer who has shopped with you in the past."
Every ecommerce business needs to hunt to get new customers, but the great ones supplement that with a rock solid retention strategy. This strategy focuses around creating reasons and incentives to return and shop again, the simplest being a coupon for the next visit, or points and VIP programs that deliver long-term value.
Remember that customer retention (or farming) is the best way to grow your business. A 5% increase in your customer retention rate can create a 95% increase in your profitability, making it hard to believe that the average store sees only 8% of its customer base ever become a loyal customer.
A shift in how you view your business can have a massive return. Reach out to the Smile.io team to see how we can help move your business from transactional to emotional.