Benchmarks for a Winning Web Business

Rob Spiegel 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.

· Visitor-to-buyer conversion rates

· Traffic, measured by the number unique visitors

· The proportion of repeat customers

· Orders per customer

· 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.

About the Author

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring
Entrepreneur's Guide to the Best Home-Based Businesses (St. Martin's Press).
You can reach Rob at spiegelrob@aol.com.