This Metric Prevents Most E-commerce Businesses From Scaling Past $15K/month

Hey, I'm Zach Oldham, and today I'm going to be covering a metric that is ridiculously overlooked within e-commerce. It is arguably the most important metric within your e-commerce business and honestly within any digital business, but it's not talked about online very much at all. In fact, it's actually one of the reasons that most people get stuck at $10K to $15K per month and can't scale past it because they aren't able to break down this metric and understand it properly. So I'm going to be talking about this metric and then I'm going to be talking about the general concept around this metric. And again, before I get into the metric, this metric is one of the reasons that I've been able to scale my e-commerce growth marketing agency to multiple six figures. And it's one of the reasons that we're going to be on track to hit seven figures next year. So I'm going to jump onto my computer, I'm going to pull up a drawing tool, and I'm just going to talk about this metric a little more. And show you how you can start paying attention to this within your e-commerce business to scale to 7 figures and beyond. All right, time for the big reveal. This metric that we're talking about is lifetime value. Now, you might be familiar with this already, and you probably are, but if you're not, lifetime value is the value of your customer over the lifetime or the period of time that they are a customer, hence the name lifetime value. We say— we call this LTV for short. So if we were to graph lifetime value, it would look something like this. We have the y-axis, which is going to represent spend or dollar amount here. And excuse my horrible drawing. I cannot draw with a life— a trackpad. And this is going to be time here. So over the course of time, what we'd look like is if this line is our lifetime value, it goes something like this. Initial purchase. So let's say someone spends $10 with you and that's going to be flat for a couple of months. And then they really liked your brand. They really liked your product and they decided to order 2 for a friend. Boom. Lifetime value goes up and then it's going to stay stagnant for a bit. And then again, 6 months later, they like, they order a bunch more socks off of you and boom, your lifetime value goes up and it continues to increase, and if we were to graph that as a straight line, it would go something like that. Now, what most people look at is they look at their ROAS and they look at their ROI on their ad spend from the first purchase, and this is a horrible, horrible thing to do. It's an awful mistake because your ROAS is never going to be amazing off of the first purchase. You know, you might be able to do a 3, 4, 5x if you have amazing funnels an amazing website, great branding, great copy, and amazing content. But realistically, that's not going to happen for most people. And it happens, don't get me wrong. And you see results like that. We've had clients that scaled like an 11.3 ROAS off their first purchases, but that is incredibly unusual. What's more usual is that you'll get somewhere between a 1 or 2 ROAS and your CPA will be somewhere along this line. So let's say that that first purchase there was $10, $15 and your CPA was $6 or $7, which is insane. If you're getting below a $20 CPA, you're doing a good job. But after COGS and your shipping fees and processing, you find that you've lost money and you actually need a 2.5 ROAS to break even. Now, most people would stop scaling. They'd be like, damn it, I'm losing money. I can't scale this. This isn't a justifiable source of traffic. What they're not looking at is 3 months down the line over here, and 6 months down the line over here, 9 months down the line when somebody comes back and continues to order. When they continue to order and you've acquired that customer, they spend more with you over time. And my clients that understand this are the ones that are scaling to 7 figures and past that. The people that don't get this are the ones that get stuck at $10K, $15K, $20K and never make it past that because they kind of max out their organic traffic and they don't have a consistent way to funnel new customers through the door. And big brands, what they do is big brands know their lifetime value so well that their CPA might be over up here. They might be operating at a 0.2, 0.3 ROAS off the first purchase. But 9 months later, their $90 that they have spent is now $120. And after COGS and shipping, they've just broken even. But these big brands, the reason they run such giant marketing campaigns, the reason that Apple is everywhere is because they can spend $1,000, $2,000, $3,000 to acquire you as a customer, knowing that over the course of you being an Apple customer, you'll spend 10, 20, 30 times that. And it's the same at Flax, and it's the reason that we're able to scale past multiple six figures with relative ease because our lifetime value for a client at Flax looks something like this. It's kind of like a slow and steady line that continues to increase. And that's because we take performance fees. So we take a percentage of all of the money that we make our clients. And over time, as their business grows, that percentage grows and we can then put more time, more work, more resources into their account to continue to scale them upwards. But at Flax, if I looked at our ROI off of customer acquisition and if I looked at our ROI within just the first month or the first 2 months, then we'd be losing a lot of money and it wouldn't make much sense. But we're able to spend $1,000, $2,000, $5,000 to acquire a customer because I know that 5 months later, 5 months later, we suddenly become profitable. We suddenly make our money back and then we can continue to reinvest the profit into their account and into other areas of the business. But the reason that we can spend so much to acquire someone is because we actually understand our lifetime value. And we know that as a bare minimum, someone is spending $20,000 with us. And that's not in the first month or the second or the third month. That's over the course of them being a customer over several months and even years. So you need to start paying attention to this number and quantifying this number more. And when you do that, you'll realize how profitable your business already is and how a 2, the 2 ROAS and the 3 ROAS that you're getting is actually quite impressive and not only impressive, but it's quite scalable. So with that being said, don't run out of cash. Obviously cash flow is something that you need to take into account and you need to be monitoring your cash flows. And there's a lot of other cash flow issues with inventory and scaling there. But remember that number and remember this concept because without it, your business will not scale. So there you have it. That is lifetime value for you. It is again, the most important metric within your business, and it's something that you should begin to quantify. I'd recommend you go spend a few minutes right now, uh, looking through your revenue and dividing that by your total customers. And getting an understanding of your lifetime value so far out of all of the customers that you've ever had within your business, how much they've all spent with you in total. Start following that metric for your ROAS numbers instead of looking at your first order and worrying, wondering why your ROAS is a 2.5 and people talk about getting a 10, 13, 25 ROI. Understanding that number first and then seeing that you're also actually operating at a much higher ROI than you initially thought. Now, before you go, I'm going to be putting out a lot more videos on this. I'm going to be explaining LTV and talking more about e-commerce growth in general. So I'm supposed to say subscribe and turn on post notifications as well as liking this video. But seriously, stay tuned because I will be talking about how you can quantify this number a lot better. I'll be talking about how you can analyze this and you can use it to grow and scale your business. And if you'd like a free consulting call from myself and my team at FlaxLabs, then I'm attaching a Calendly link below this YouTube video so that you can book a call with us and get free consulting. No bullshit, no sales pitch, just 30 minutes, 60 minutes, 90 minutes of free help from myself and the team. So with that being said, enjoy your day and I'll see you in the next video.