Retailers are obsessed with the cost of acquiring customers — and rightly so.
Getting consumers’ attention is becoming more complicated and costly by the day as the amount of marketing noise hurled at consumers increases and the cost of buying digital ads on platforms like Google, Facebook and Amazon continues to rise.
After spending significant sums on attracting business, retailers go to great lengths to keep their newly acquired customers. They know consumers want to be able to buy what they want, when they want to, through the channel they prefer at the time.
And so merchants have launched ambitious omnichannel initiatives in order to keep up with or move ahead of Amazon. Initiatives, like ultra-fast delivery and buy online, pick up in store — which provide new logistic and fraud management challenges and come with the peril of adding so much friction to the buying process that you lose a sale.
Of course, the cost of losing a customer goes beyond one sale. When a customer gives up on a retailer because of a bad experience, the merchant loses all the future sales that customer represents — and it means spending again to acquire a new customer to take the place of the lost one.
Seeing Revenue Leakage Across the Entire Buying Journey is Hard To Do
While the problems of killing sales and losing customers are certainly on retailers’ radar, they don’t necessarily attract the attention they should, primarily because it’s hard for any one team to see all the trouble spots along the full buying journey.
Marketing, payments, fraud management, customer support, operations and finance each have their roles and tend to focus on their department’s profit and loss. Data silos often exist that leave the big picture in a fuzzy state.
But at each step along the way, revenue leakage occurs as orders are denied or unfulfilled. Consider the chart below. Marketing attracts customers to the site and a fraction of them click the buy button. But payment gateway rules deny as many as 8% of orders, including a significant percentage placed by legitimate customers who are declined for the misplaced fear of fraud.
Fraud review teams bounce another set of orders, again blocking legitimate orders along with those that actually are fraudulent. From there, some orders are not shipped because items are out of stock. And then, of course, there are returned orders and chargeback claims that an item was not received or that it was received, but wasn’t as advertised.
How 100% Becomes 70% Through Revenue Leakage
Those initial orders (100%) that marketing brought in might shrink by 30% along the way. So, what to do? Here are five steps to analyze and staunch your revenue leakage:
- Start with a comprehensive dashboard. By establishing your baseline, you can see where you stand in terms of revenue leakage. Many companies won’t have a chart like the one above. If you already do, that’s a great start. Putting together a revenue-leakage dashboard is a multi-department effort. It will break down silos and give everyone in the organization a clear view of how the buying funnel is performing.
- Take the next step and establish a revenue-leakage benchmark so you know where you stand compared to others in your vertical. There is a whole industry of consultants who make it their business to guide you in terms of benchmarking. They can help you analyze your position based on your vertical, basket size, the maturity of your brand and other key characteristics.
- Identify the area where your revenue leakage seems most severe and address that weak point. Optimize that area. Then measure and test. Then move on to the next problem area and repeat. From what we’ve seen, based on working with thousands of retailers, there is a key area where the risk team can dramatically staunch revenue leakage — at the payment level, as we explain in point No. 4.
- Trust your fraud professionals. Don’t let payment gateways dictate to you how well your risk management operation performs. The payment layer doesn’t have the same incentive to grow your revenue that you have — and that others in your organization have. If you’re confident in the fraud tools and manual review procedures you’ve created, experiment with disabling some of the rules and filters activated by your payment gateways, ecommerce platforms and card processors to see what orders are not getting through in the regular course of business.
- To understand whether you are suffering from an unreasonably high percentage of declines from your payment partners, it again helps to get a picture of where you are. There are several data sources that can help you do that. Signifyd partners with Visa, for instance, to provide benchmark comparisons for merchants.
Besides taking direct action to understand and staunch your revenue leakage, always remember that it all starts with your customers, which is the good news. They want to buy from you and you want them to buy from you. By fixing your revenue leakage problem, you actually grow your customer lifetime value by serving more legitimate customers in the way they want to be served. It’s something we’ve seen repeatedly with the retailers we work with.
After all, customer lifetime value ends the minute you lose the customer because of unnecessary buying friction. And when that happens, that’s not just leakage. When that happens, it’s a total loss.
Mike Cassidy is lead storyteller at Signifyd. A former journalist and a retail geek, he covers ecommerce and the way technology is transforming digital commerce.
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