Lessons from a VC: How to Understand and Grow Your Power Users and Profits

Bryan Karas

August 21, 2018

Paying every single time you acquire a customer (or purchase) is not a sustainable business practice for any company – so doing everything you can to encourage repeat purchases is vital for continuous growth. And knowing who those power users are and how they engage with your brand is even more important.

VC Andrew Chen from Andreessen Horowitz wrote an amazing essay on the topic of the Power User Curve – or the “smile” curve. Cheese!!!

Drew, we call him Drew, discusses the advantages of the Power User Curve and how you can measure your power users before you figure out how to grow them…or even keep them.

He says, “What matters is that, over time, the platform is able to retain and grow its power users: successive Power User Curves should ideally show users shifting over more to the right side of the smile.” So basically, when you figure out how to grow and optimize engagement, users should be returning on a more regular basis.

Since he’s making the argument against measuring Daily Active Users/Monthly Active Users, most of his examples refer to social platforms but this “smile” curve can be applied to Ecommerce business models as well.

A little decrease here and a little increase there…

In Ecommerce, it’s all about reducing your customer acquisition costs and increasing your customer lifetime value. So how do you do that? By building and growing a group of “power customers” that buy from you over and over again.

Lifetime value might be the most important metric in all of Ecommerce – an accurate LTV number can help you figure out a reasonable customer acquisition cost. Knowing when a customer becomes profitable also helps when budgeting marketing spend on specific channels or markets.

It provides insights on the effectiveness of your customer retention, or loyalty, programs. A LTV that goes up and to the right tells us that our customer loyalty programs are actually working…

Your customer expects more…

We all know it’s more expensive to acquire a new customer than it is to retain a current customer. That’s where customer loyalty and retention comes into play.

Here’s a sexy stat from a ClickZ article for you…

“Frederick Reichheld, who invented the net promoter score, found that increasing customer retention by 5% increases profits anywhere from 25 to 95%.”

So how can we capitalize on such a massive profit jump? It all comes down to the customer’s experience…

Create an epic loyalty rewards program that brings people back over and over again
Test your website navigation and understand that not every visitor on your site is ready to buy. Wayfair does a great job of with their Room Ideas page – located on the top of their navigation.
Optimize your checkout process and make it easy to buy something. BigCommerce lays it all out for us…
Personalize all email, transactional and promotional, communication with the customer.
Use on-site behavior technology that recognizes returning visitors…then offer them up something special.
Don’t just ship out the product in some basic box or ugly envelope. So take advantage of that Christmas morning moment and wow your customer with awesome packaging.

CASE STUDY: Learn how Zalando leveraged customer data to boost customer loyalty

Ecommerce companies need to stop thinking like retailers and start thinking like tech companies. That’s how Zalando, a major Ecommerce business in Europe, was able to optimize their customer experience which lead them to massive profits. They even sacrificed short term profits for long term gain – shocking…