2 min read
Saksham Mendiratta
Growth Velocity - daddy of all metrics

Drop everything else and check what's your GV curve

Hey You,

Another Sunday, Another Edition. But this one’s DIFFERENT. You’ll see it shortly.

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Yesterday, I had a super amazing conversion with Ananth Narayanan (Founder) of Mensa Brands and we recorded an episode of my podcast together. The sector of digital first businesses is evolving so rapidly in India that the emergence of new businesses and models is faster than ever in India. And it’s for this reason that I wanted you to just look back and see how well you’ve performed amidst this constructive chaos over the past few months of a bull run.

So today, we dive into something called Growth Velocity for e-commerce businesses. It’s an original framework that I’ve built based on my experience of working with high-growth businesses. And it’s one where you’ll have an amazing time with your product teams dissecting your GV so far.

(Heads Up: To all UX Teams, have a blast of a week ahead with this metric)

Let’s dive in: Growth Velocity

Who is it for?

This is a metric that works for digitally first (I’d not call them DTC) businesses & marketplaces. So largely anything e-commerce.

What’s GV?

GV is the growth at which your e-commerce site is pacing, across acquisition & conversion.

Growth Velocity has a simple formula:

GV = {Win Rate X ATC Rate X AOV} / CAC / 30

Win Rate: It’s the rate of your orders converted to the percentage of total orders. So it’s a PERCENTAGE.

ATC Rate: Add To Cart rate is the rate of your orders added to cart to the percentage of total orders. So once again, it’s a PERCENTAGE.

AOV is average order value, in $ or INR

CAC is your acquisition cost (only) and not loaded CAC. A lot of businesses load up the cost of the team, agency, etc on to CAC, which would misrepresent this number. It’s purely the cost spent on acquiring customers via performance marketing. 

And 30 because it’s wiser to calculate it over 30 days of a conversion cycle.

The Calculation:

Let's take an example of some realistic numbers.

You get 100 customers every month on your e-commerce site. Out of which 20 add to cart whereas 10 actually buy. So your ATC rate is 0.2 whereas Win Rate is 0.1

Let’s assume AOV to be 500 and CAC to be roughly 50% at 250 (all figures in INR)

So if you calculate: {0.1 X 0.2 X 500} / 250/30 = 1.2

The Growth Velocity of this business is 1.2. Let’s dive into understanding what it actually means.

The Rationale:

Lets understand one simple fact:

GV is a relative score.

But if you are getting a GV below 1, it’s definitely time to change gears on strategy. Anything higher up the order is great though.

It isn't like an industry standard. It’s just how well you’ve performed on GV from last month, vs this month. It’s a direction for you to lay down business strategies and for investors to evaluate the health of your company. And also have all your teams (product design, customer review, marketing) aligned.

And in times where investors are even more interested in bottom lines and dissecting businesses vertically, this metric gives a very accurate picture of how well you’ve performed over time. So if you don’t kill me for this, start with calculating your GV for the past 3-6 months and see if there’s an upward trend. 

  • Growth Velocity is calculated only on the conversions you make from your e-commerce site. Because your website should be your #1 revenue source as a digitally first business. And when you acknowledge this strategically, you realise your product team should independently focus on optimising every individual metric in this equation.
  • Every single metric in this equation is a leading indicator of how well you are performing as a business. In fact if investors had to look at just one metric every month, it should be Growth Velocity. Because it truly represents ALL the elements which need to be focussed on.

1.3 of the 4 metrics for the growth velocity calculation are made from orders WON. No better way to get aligned with your business performance.

1. It's much easier (and simpler) to defend your budget, prove ROI, and make a clear business case for increased budget to scale programs when you measure marketing this way.

1. Most businesses  only think about getting “more top of the funnel pipeline” by acquiring more customers. But this calculation acknowledges that there is more than one way to look at growth. You could optimise for brand or try newer ads and that would reduce CAC. 

2. Eventually, once you master Growth Velocity as a metric that you track internally, you could then break it down for different product lines. So while Blended GV stands at 1.2 (in the above example), perhaps a specific product line stands at 4.5 which means there’s so much scope for other product lines to optimise on.

That’s it from this one. I hope this one helps you get clarity in your growth roadmap ahead.

Until next time,

With gratitude,