Rajesh Jain

Six New Numbers – 2

3. Growth & Profit Balance (Rule of 40): Balancing Speed and Sustainability

The Rule of 40 provides an elegant solution to the growth-versus-profitability dilemma that plagues many eCommerce businesses. By stipulating that a healthy business’s combined revenue growth rate and profit margin should exceed 40%, it creates a flexible framework that accommodates different strategic phases while maintaining fiscal discipline.

This metric acknowledges that companies may legitimately prioritise growth over immediate profitability, but not without limits. A business growing at 50% annually can run at a 10% loss and still meet the Rule of 40 standard, while a mature business growing at 15% should generate at least 25% profit margins.

What makes the Rule of 40 particularly valuable for eCommerce is its ability to counterbalance the industry’s frequent over-emphasis on growth at all costs. By incorporating this metric into regular reporting, businesses create a natural brake against unsustainable practices like excessive discounting, over-reliance on paid acquisition, or margin-eroding free shipping policies.

4. LTV/CAC Ratio: The Ultimate Business Health Indicator

The LTV/CAC ratio stands as the definitive measure of business model viability. While most businesses track these metrics separately, their relationship tells the true story. A healthy business maintains a ratio of at least 3:1, meaning each customer acquired delivers three times their acquisition cost in lifetime value.

The power of this metric lies in its comprehensive nature. It incorporates acquisition efficiency, retention success, pricing strategy, and margin structure into a single number. When segmented by acquisition channel, product category, or customer cohort, it reveals which parts of your business create genuine value and which destroy it.

Unlike simplistic metrics like conversion rate or CPC, the LTV/CAC ratio forces long-term thinking. It prevents the common trap of celebrating a low CAC that comes at the expense of customer quality, or a high LTV achieved through excessive acquisition spending. It answers the fundamental question: “Is this business model structurally sound?”

5. Existing Revenue Ratio: The Retention Reality Check

The ratio between revenue from existing customers versus new customers provides a straightforward assessment of retention effectiveness. While most eCommerce businesses obsess over new customer acquisition, this metric reveals whether those expensive new customers actually stick around.

A healthy business typically generates 60-70% of its revenue from existing customers. When this percentage drops below 50%, it often indicates that the business is caught in a “leaky bucket” syndrome—acquiring customers at great expense who don’t return for subsequent purchases.

This metric serves as a powerful reality check on customer experience. No amount of marketing spin can obscure a declining existing-to-new revenue ratio, which represents the unvarnished verdict of customers voting with their wallets. It answers the critical question: “Are we creating relationships or just transactions?”

6. Segmentation Balance (BRTN Split): Strategic Customer Segmentation

The BRTN framework (Best-Rest-Test-Next) revolutionises how eCommerce businesses view their customer base. Unlike traditional RFM segmentation, which creates complex matrices, BRTN provides a clear, actionable breakdown:

• Best: Top 20% of customers who generate 60-80% of revenue and 200% of profits
• Rest: Middle 40-50% showing declining engagement who need revitalisation
• Test: Dormant 30-40% who have gone inactive and require reactivation
• Next: Genuinely new prospects who need conversion and onboarding

Tracking the revenue and customer count distribution across these segments reveals the true health of your customer portfolio. A growing percentage of “Best” customers indicates improving loyalty and engagement. An expanding “Test” segment signals retention problems requiring immediate attention.

The BRTN Split connects analytics directly to strategy, prescribing specific approaches for each segment: Velvet Rope Marketing for Best, personalised engagement for Rest, targeted reactivation for Test, and efficient conversion for Next. This creates clear ownership and accountability within marketing teams.

Six New Numbers – 1

The current eCommerce analytics landscape is cluttered with dozens of metrics that create data overload without driving strategic action. Most businesses diligently track conversion rates, AOV, traffic sources, and ROAS—yet still struggle with profitability. This disconnect exists because traditional metrics focus on transactions rather than customer relationships, campaign performance rather than structural efficiency, and short-term revenue rather than sustainable profit.

The six numbers I propose represent a paradigm shift. They serve as second-order metrics—measures that derive their power not from tracking isolated activities but from revealing the systemic health and efficiency of your entire business model. Each addresses a critical blind spot in conventional eCommerce analytics. Together, they form a nice acronym: EAGLES.

• Earned Growth – This metric serves as the perfect starting point since it directly measures the core NeoMarketing principle of building value from existing relationships rather than constant acquisition. It sets the philosophical foundation for everything that follows.
• AdWaste Percentage – Following Earned Growth, AdWaste creates the natural counterpoint – showing what happens when retention fails. This creates the immediate tension and business case for change.
• Growth & Profit Balance (Rule of 40) – After establishing the retention-acquisition balance, this metric naturally extends the discussion to the broader business balancing act between growth speed and profitability.
• LTV/CAC Ratio – This metric then provides the economic engine that powers both growth and profitability, connecting the macro business measures to the unit economics.
• Existing Revenue Ratio – The percentage of revenue from existing customers serves as the operational bridge that connects strategic metrics to day-to-day business reality.
• Segmentation Balance (BRTN Split) – Finally, the BRTN framework provides the actionable implementation path – the “how” that brings all the previous metrics to life through specific customer strategies.

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1. Earned Growth: The Quality of Revenue

Earned Growth measures the percentage of your revenue that comes from existing customers and their referrals rather than paid acquisition. First popularised by Fred Reichheld, this metric distinguishes between “bought” growth (expensive and often unsustainable) and “earned” growth (organic and highly profitable).

From an earlier essay: “Earned Growth is mathematically represented as Net Revenue Retention + Earned New Customers (ENC) – 100. Reichheld, Darnell and Burns discuss this in an article in Harvard Business Review: “Once you have organized revenues by customer, you can determine your NRR. Simply tally this year’s revenues from customers who were with you last year, divide that amount by last year’s total revenues, and express that figure as a percentage. ENC is the percentage of spending from new customers you’ve earned through referrals (as opposed to bought through promotional channels).” They offer an example: “Company A’s revenues grew from $100 in 2020 to $130 during 2021, or 30%. In 2021 customers who were on the books in 2020 accounted for $85 of revenues. Some of them expanded their purchases by a total of $5, but that growth was more than offset by other customers who reduced purchases by a total of $20, resulting in an NRR of 85%. New customers accounted for $45 in revenues—$25 from earned new customers (referrals) and $20 from bought new customers. Adding the NRR (85%) and ENC (25%) and then subtracting 100% results in a 10% earned growth rate.””

The brilliance of Earned Growth as a metric lies in its simplicity and its power as a predictor. Companies with high Earned Growth percentages typically outperform their competitors in profitability and show more resilient growth during economic downturns. It serves as an indirect measure of customer satisfaction—people who return and refer others are demonstrating their approval more meaningfully than any survey response.

For eCommerce businesses, tracking Earned Growth creates a crucial shift in mindset. Rather than celebrating all revenue equally, it distinguishes between revenue that strengthens your economic engine and revenue that merely keeps it running at considerable cost. A business with a high Earned Growth operates fundamentally differently than one with a low Earned Growth, even if their top-line numbers look identical.

2. AdWaste Percentage: Marketing’s Hidden Profit Leak

AdWaste represents perhaps the largest overlooked opportunity in modern eCommerce. This metric—the percentage of your marketing budget spent reacquiring customers who already exist in your database—typically reveals that 60-70% of acquisition spending is effectively wasted.

This waste occurs through three primary mechanisms:

• Retargeting existing customers through expensive platforms
• Paying to acquire “ghost users” who never provide identifiable information
• Failing to activate newly acquired customers, necessitating reacquisition

What makes AdWaste particularly valuable as a metric is its direct connection to profit improvement. Unlike incremental optimisations of click-through rates or cost-per-click, reducing AdWaste delivers bottom-line impact at scale. Each percentage point of reduction flows directly to increased profitability.

Most importantly, AdWaste identifies a structural inefficiency rather than a campaign-level problem. By highlighting the systemic disconnect between acquisition and retention strategies, it forces organisations to bridge their marketing silos and create more coherent customer journeys.

Previous Writings

PxL: Transforming eCommerce P&Ls

I had reproduced this funnel view from Smart Insights and tracking these numbers is a good idea. Of these, the key is how many sessions convert to a transaction.

I had added: “The ProfitXL (PxL) framework focuses on three categories of customers: the top 20% Best customers, the 80% Rest customers, and then the Next acquisitions. This is a categorization which can work across eCommerce companies. Key to this is segmenting customers by their lifetime value… The one-word missions for the three teams: Maximise (Best), Energise (Rest), Minimise (Next). Done right, there is no reason why eCommerce companies should not be able to drive an additional 10% upside on revenue (and gross margin), and a halving of spending on new customer acquisition costs. This will address the twin problems of low conversions and rising CAC, thus having a multiplier impact on EBIDTA, supersizing profits, and transforming the brand’s P&L.”

The Profipoly Quest: Maya’s Story

I had discussed the BRTLNG framework:

• Best and Rest (for existing customers), with Best being the top 20%, and Rest being the other 40-50% who account for a significant chunk of revenues.
• Test and Left (for exiting customers), who have become dormant (the bottom 30-40%) or churned. These are customers who eventually get retargeted via Adtech, resulting in a AdWaste because there is an existing communication channel available to them.
• Next and Guest (for entering customers), who are the new customers. “Next” customers are prospects yet to engage with the brand and will probably be acquired via Adtech, while “Guest” customers are anonymous visitors to the brand’s platforms​​ who come organically.

I also wrote about the EnCoRe triad – Engagement, Conversion, Retention. Linked to the funnel, it as a combination of three key metrics:

• Engagement: the percentage of contacted consumers who engaged in the last three months
• Conversion: the percentage of all visitors who made a transaction in the past three months
• Retention: the percentage of customers who made more than one transaction, serving as a crucial health check for martech​​

Profipoly Score: The North Star Metric

I had designed a framework for the Profipoly Score: “The Profipoly Score is a tracker for measuring the progress in the transformational journey towards exponential forever profitable growth. It is a leading indicator for the health of the business, a metric which will indicate the capacity of a business to maximise the profits pool in an industry. The Profipoly Score needs to become as important as earnings per share and NPS in the management lexicon.”

How to Boost eComm Profit Margins by 1000 Basis Points

I had outlined a 5-step roadmap for marketers to boost profit margins:

1. Optimise Customer Segmentation: Utilise the BRTLNG framework (Best, Rest, Test, Left, Next, Guest) to understand customer behaviours and value.
2. Reactivation for Revenues: Prioritise re-engagement of ‘Test’ and ‘Left’ customers to reduce ad spend waste, employing Email 2.0 Reactivation Progency to revive dormant and churned relationships and convert them into profitable ones.
3. Enhance Customer Experience: Implement Velvet Rope Marketing to provide ‘Best’ customers with VIP treatment and use the Profipoly Stack to predict and influence ‘Rest’ customers’ behaviours.
4. Refine Acquisition Strategy: For ‘Next’ customers, adopt a near-zero acquisition cost approach. Leverage the Best Customer Genome for better targeting, encourage referrals, and maximise identification of anonymous ‘Guest’ visitors.
5. Performance-Based Profit Uplift: Capture a 1250 basis point increase in profit margins by sharing a portion of the gains with martech partners. By doing so, brands can keep a substantial 1000 basis point rise, thereby significantly improving profitability and paving the way for reinvestment in innovation and growth.

Only Once in Action

I had written: “Marketers are paying for four distinct audience segments, but only one represents genuine new customer acquisition. The other three segments – especially known non-buyers and existing customers – represent pure AdWaste.”

I listed critical questions every marketer needs to answer to understand their AdWaste:

1. Reacquisition AdWaste

• What percentage of “new” users acquired through paid channels already exist in the CRM database?
• How many are known non-buyers and existing customers? (These should never have been reacquired; they should have been retained.)
• What is the total spend on reaching these already-known users? This is Reacquisition AdWaste.

1. New Acquisition AdWaste

• Of your genuine first-time users, what percentage provided a digital handle (email/mobile)?
• The rest are essentially “ghost users” you can never reach again.
• What is the cost of these unidentifiable acquisitions? This is New Acquisition AdWaste.

1. True CAC Calculation

• What is the actual customer acquisition cost (CAC) when measured against truly new identifiable customers?
• True CAC = Total digital ad spend ÷ New email IDs or mobile numbers added
• This reveals the true cost of acquiring actionable customer relationships

To summarise: Total AdWaste = Reacquisition AdWaste + New Acquisition AdWaste, where

• Reacquisition AdWaste = Cost of reaching known users
• New Acquisition AdWaste = Cost of unidentifiable acquisitions

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Many of the numbers and metrics I have discussed are not being tracked by marketers — and that’s precisely the opportunity. To unlock sustainable growth and true profitability, we need to shift focus from vanity metrics to value metrics. This is where EAGLES comes in.

Most Important

I then asked Claude to list out the top 5 metrics and the most important North Star Metric.

Based on their impact on business sustainability and growth, these are the five most critical metrics for B2C/D2C eCommerce companies:

Rank	Metric	Why It’s Critical
1	Customer Lifetime Value (CLV/LTV)	Represents the total revenue potential of your customer base and serves as the foundation for sustainable growth. A rising LTV indicates improving product-market fit, customer satisfaction, and business health.
2	Customer Acquisition Cost (CAC)	Determines the viability of your growth strategy. Alongside LTV, it forms the core ratio that defines whether your business model is fundamentally sound.
3	Conversion Rate	The most direct lever for revenue growth that doesn’t require additional marketing spend. Improvements cascade throughout your business model.
4	Retention Rate / Repeat Purchase Rate	The primary driver of LTV and a key indicator of product satisfaction. Acquiring customers is meaningless if they don’t stay and purchase again.
5	Contribution Margin	Provides the clearest view of unit economics by accounting for all variable costs associated with each sale. Essential for understanding true profitability.

Customer Lifetime Value (CLV/LTV) should be your North Star Metric because:

1. It comprehensively captures the health of your entire business model in a single number
2. It reflects both acquisition efficiency and customer retention success
3. It accounts for critical factors like repeat purchase rate, AOV, and margins
4. It inherently measures product satisfaction and customer experience
5. Improvements in LTV directly correlate with business sustainability and valuation
6. It aligns all departments (product, marketing, operations) toward the same goal: creating more value for customers

While many companies choose metrics like GMV or revenue growth as their North Star, these can be misleading if they’re driven by unsustainable acquisition costs or poor retention. LTV provides a more holistic view that encourages building lasting customer relationships rather than short-term growth tactics.

My next question was on how to calculate CLV/LTV.

There are several methods to calculate Customer Lifetime Value, ranging from simple to complex. Here are the most common approaches:

1. Basic Historical Method

Formula	CLV = Average Order Value × Average Number of Orders per Year × Average Customer Lifespan (in years)

Example:

• Average Order Value: $75
• Average Orders per Year: 3.2
• Average Customer Lifespan: 2.5 years
• CLV = $75 × 3.2 × 2.5 = $600

Pros: Quick to calculate, requires minimal data
Cons: Doesn’t account for profitability, acquisition costs, or time value of money

2. Gross Margin Method

Formula	CLV = Average Order Value × Average Orders per Year × Average Customer Lifespan × Gross Margin

Example:

• Using data above + 40% gross margin
• CLV = $75 × 3.2 × 2.5 × 0.4 = $240

Pros: Incorporates profitability
Cons: Still doesn’t account for time value of money or varying retention rates

3. Predictive Method (Retention-Based)

Formula	CLV = Margin × (Retention Rate ÷ [1 + Discount Rate – Retention Rate])

Where:

• Margin = Average profit per customer per period
• Retention Rate = Percentage of customers who return (e.g., 0.7 for 70%)
• Discount Rate = Cost of capital (e.g., 0.1 for 10%)

Example:

• Margin per year: $100
• Annual retention rate: 60%
• Discount rate: 10%
• CLV = $100 × (0.6 ÷ [1 + 0.1 – 0.6]) = $100 × (0.6 ÷ 0.5) = $100 × 1.2 = $120

Pros: Accounts for time value of money and actual retention behaviour
Cons: More complex to calculate, requires more data

4. Cohort Analysis Method

This involves tracking specific customer cohorts (grouped by acquisition date) over time to measure their actual value.

Steps:

1. Group customers by acquisition month/quarter
2. Track each cohort’s purchases over time (12-24+ months)
3. Calculate the cumulative revenue or profit per customer for each cohort
4. Project future value based on observed retention and purchase patterns

Pros: Most accurate, based on actual customer behaviour
Cons: Requires significant historical data and analytical resources

5. Advanced Predictive Methods

For more mature businesses, advanced methods incorporate:

• Discount rates to account for the time value of money
• Varying retention rates across customer lifecycle
• Different segment-level calculations (e.g., by acquisition channel or customer type)
• Monte Carlo simulations to account for uncertainty

Practical Implementation Tips

1. Start simple: Begin with the basic historical method if you’re just starting out
2. Segment your calculation: Calculate separate LTVs for different:
   • Acquisition channels
   • Product categories
   • Customer demographics
   • First order value brackets
3. Validate with cohort analysis: Compare predictive models with actual cohort performance
4. Update regularly: Recalculate quarterly to track changes
5. Set forward-looking targets: Use LTV projections at different time horizons (30-day LTV, 90-day LTV, 1-year LTV)

Common Pitfalls to Avoid

1. Using too short a timeframe: LTV calculations become more accurate with 12+ months of data
2. Not accounting for returns/refunds: Always use net revenue, not gross sales
3. Ignoring customer acquisition cost: LTV should always be viewed alongside CAC
4. Overestimating customer lifespan: Be conservative in lifespan assumptions
5. Not including all variable costs: Marketing, shipping, and customer service costs should be factored in for true contribution margin

Remember that LTV is both a backward-looking metric (measuring what has happened) and a forward-looking projection. The most sophisticated eCommerce businesses use both historical values and predictive models to inform their decisions.

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While these are undoubtedly important metrics, I believe eCommerce businesses should also adopt a new set of metrics that offer deeper insights into the true health and sustainability of the business.

Key Metrics

I asked Claude and ChatGPT to list out key eCommerce metrics.

Category	Metric	What to Track	Why It Matters
Growth & Revenue	Gross Merchandise Value (GMV)	Total value of all merchandise sold before returns, discounts, etc.	Provides high-level view of business scale and growth trajectory; essential for investors and industry benchmarking.
	Net Revenue	GMV minus discounts, returns, and cancellations.	Shows actual realized revenue and more accurately represents financial health than GMV.
	Revenue Growth Rate	Month-over-month or year-over-year percentage increase in revenue.	Indicates momentum and scalability; declining rates may signal market saturation or competitive threats.
	Monthly Recurring Revenue (MRR)	Predictable monthly revenue from subscription customers.	Provides predictability for cash flow forecasting and demonstrates revenue stability.
Customer Metrics	Customer Acquisition Cost (CAC)	Total marketing and sales expenses divided by number of new customers acquired.	Determines if acquisition strategy is sustainable and helps optimize marketing spend across channels.
	Customer Lifetime Value (CLV/LTV)	Projected revenue a customer will generate throughout their relationship with your business.	Helps determine appropriate acquisition spend and guides pricing and loyalty strategies.
	LTV Ratio	Ratio between lifetime value and acquisition cost.	Key indicator of business sustainability; healthy ratio is 3:1 or higher.
	Active Customers	Number of unique customers who made a purchase in a given period.	Reflects actual size of customer base and helps detect early warning signs of disengagement.
	Churn Rate	Percentage of customers who don’t return within a specific timeframe.	High churn indicates product-market fit issues or poor customer experience.
	Retention Rate / Repeat Purchase Rate	Percentage of customers who return to make additional purchases.	Demonstrates product satisfaction and brand loyalty; repeat customers typically have higher LTV.
Unit Economics & Profitability	Gross Margin	(Revenue – COGS) / Revenue, expressed as a percentage.	Shows how much revenue remains to cover operating expenses and generate profit.
	Contribution Margin	Revenue minus COGS minus variable costs (marketing, shipping, etc.).	Provides clearer picture of profitability per unit by including all variable costs.
	Average Order Value (AOV)	Total revenue divided by number of orders.	Increasing AOV can significantly improve profitability since many costs are fixed per order.
	Orders per Customer	Total number of orders divided by number of unique customers.	Measures depth of customer relationship and success of cross-selling efforts.
	Return Rate	Percentage of sold items that are returned.	High return rates impact profitability through reverse logistics costs; can indicate product quality issues.
	First Order Profitability	Profit or loss on a customer’s first purchase.	Determines if you can afford aggressive first-order promotions while maintaining sustainable economics.
Marketing & Funnel	Traffic Sources Breakdown	Percentage of visitors from different channels.	Helps diversify acquisition channels and identify which to prioritize.
	Conversion Rate	Percentage of visitors who complete a purchase, segmented by channel and device.	Direct indicator of website effectiveness; small improvements can dramatically increase revenue.
	Cart Abandonment Rate	Percentage of users who add items to cart but don’t complete checkout.	Represents “low-hanging fruit” revenue opportunity; may indicate UX issues or payment friction.
	Email Metrics	Open/click/conversion rates for email campaigns.	Email often delivers highest ROI of any marketing channel when properly segmented.
	ROAS (Return on Ad Spend)	Revenue generated per dollar spent on advertising.	Measures advertising efficiency and helps optimize campaign spending across channels.
	Blended CAC vs. Paid CAC	Overall CAC across all channels versus CAC for paid channels only.	Helps understand true efficiency of marketing mix when scaling.
Operations & Fulfillment	Order Fulfillment Rate	Percentage of orders delivered successfully on first attempt.	Directly impacts customer satisfaction and operational costs.
	Average Delivery Time	Time from order placement to customer receipt.	Speed of delivery is a key competitive differentiator.
	Logistics Cost per Order	Total shipping, handling, and fulfillment costs divided by number of orders.	Often a substantial portion of total costs; optimization can significantly improve margins.
	Inventory Turnover Ratio	Cost of goods sold divided by average inventory value.	Measures inventory management efficiency; low turnover ties up capital.
	Out-of-Stock Rate	Percentage of SKUs unavailable when customers attempt to purchase.	Results in immediate revenue loss and potential customer defection to competitors.
	Cancellation Rate	Percentage of orders cancelled before dispatch.	Indicates issues with inventory management, payment processing, or customer commitment.
Customer Experience & Brand Health	Net Promoter Score (NPS)	Likelihood of customers to recommend your brand (promoters minus detractors).	Predictive of future growth; promoters drive referrals and have higher retention rates.
	Customer Satisfaction (CSAT)	Rating of customer satisfaction with specific interactions or overall experience.	Identifies pain points in the customer journey that need immediate attention.
	Product Rating & Reviews	Average score and sentiment analysis of product reviews.	Directly influences conversion rates for new customers.
	Customer Support Metrics	Resolution time, satisfaction, ticket volume relative to order volume.	Support interactions are critical moments that determine retention.
	Time on Site & Pages per Session	How long visitors engage with your site and how many pages they view.	Indicates content engagement; longer sessions typically correlate with higher conversion.
	Bounce Rate	Percentage of visitors who leave after viewing only one page.	High bounce rates suggest landing page issues, poor targeting, or site performance problems.