Digital marketing evangelist Avinash Kaushik says, “Most businesses are data-rich but lack information.”
Hence, the importance of eCommerce key performance indicators (KPIs)!
Having so much data at one’s fingertips is incredible, but time and again, we see how overwhelming it is for business owners who have no idea how to read Google Analytics or what to keep track of.
In this blog, we’ll discuss everything you need to know about eCommerce KPIs.
Imagine we said you were going on a fantastic road trip, followed by a holiday at a seaside resort, but ridiculously, we didn’t tell you the end location. You would have no idea how to get there!
It’s the same with digital marketing and KPIs. eCommerce KPIs ensure you achieve the right objectives and fulfill stakeholder needs. KPIs trickle down to every team member within a business and direct their priorities.
The beauty of digital businesses is they’re data-driven. There isn’t a metric you can’t track. You can see and go through every transaction, every point of contact, and continually optimize your sales funnel to improve customer lifetime value and cost performance index.
KPIs are essential because they keep business operations on track and set benchmarks for success.
Well-designed KPIs provide clear indications of current levels of performance and help your team make better decisions that bring your business closer to accomplishing strategic objectives.
KPIs are measurable values that demonstrate how effectively eCommerce businesses are achieving key business objectives.
KPIs measure progress toward specific goals, whereas eCommerce metrics are the measurements that make up overall business health (KPIs).
So, by combining the number of sales you’ve made in addition to your website’s traffic; you’ll arrive at what we call a conversion rate. It’s determined by taking the number of sales, dividing it by the number of visitors, and then multiplying the result by 100.
Thus, a KPI might be to improve conversion rates by 20%. Therefore, it uses specific metrics to gauge achievement.
Why are eCommerce KPIs like conversion rates important? With proper conversion rate optimization services, you’ll be able to increase revenue per visitor, acquire new customers and grow your business.
Also, keeping track of the right eCommerce KPIs allows you to detect patterns you may not have seen otherwise.
The process of establishing and running successful eCommerce websites takes time and effort. Business strategies frivolously based on what you deem to be right, rather than backed by data, can fail. Even the most knowledgeable digital marketing specialists don’t rely on intuition to boost growth.
Thus, eCommerce KPIs provide a roadmap that helps you progress towards your business goals.
KPIs are purely objective, devoid of emotions. They are somewhat predictive in nature, allowing online retailers to better understand their customer’s end-to-end experiences and transform data (insights) into actionable business strategies.
Tracking the wrong key performance indicators can doom your eCommerce business. KPIs are strategic decision drivers, not accounting mechanisms. They should lead and not just track digital initiatives.
The seven common mistakes eCommerce store owners make when it comes to KPIs are:
Measuring the wrong KPIs may paint an inaccurate picture of your eCommerce store’s performance. Vanity metrics, for instance, can make your company look good to others, but they do little to move the needle or inform future strategies.
A typical example of a vanity metric is tracking page views, but not conversions. Knowing how many people visit your pages is great; however, it doesn’t indicate whether your visitors are becoming new customers or if your landing pages are effective.
As your company meets important eCommerce metrics, you’ll need to adjust your KPIs to reflect newfound growth. It’s normal to take time to reach your goals, however, having objectives to work towards keeps both you and your team members motivated.
Now that you’re in the process of determining which KPIs are appropriate for your company, there are a few you should stay clear of. The key performance indicators below often fill business owners and their marketers with a deluded sense of achievement.
Your eCommerce website is your business’s primary hub to make sales. The more visitors it receives, the higher its conversion rate should be.
Conversion rate is a key performance indicator that refers to the process of increasing the percentage of users or website visitors to take a desired action.
Generally, it involves taking one of the following steps:
Monitoring website traffic is important but is not necessarily indicative of increased sales. If prospective customers aren’t converting, they may as well not be there in the first place.
Instead of just getting more visitors to your website, try to focus on your conversion rate. Optimizing this metric persuades more people to become buyers.
The old axiom goes: “You need to spend money to make money,” which is true, yet a lot of new eCommerce businesses focus on gross profit without looking at net income. Many don’t even consider a marketing budget.
For fledgling companies, exposure is possibly the most critical component needed to grow a brand. Establishing your eCommerce business is easier when you employ strategies like paid advertising, SEO-related campaigns and email marketing tactics.
Businesses solely focused on their bottom line have a tendency to squander valuable funds that could be put into other important business areas like marketing.
Industry standards dictate marketing budgets are a percentage of projected revenue. B2B companies typically spend between 2% to 5% of their total revenue on marketing, whereas B2C companies allocate between 5% to 10%
Although it’s thrilling to know you’ve just surpassed 5k followers on Instagram or that you’re being ranked on the first webpage of Google with the most popular keywords you’re tracking, those numbers don’t necessarily equal sales.
These key metrics are positive indicators, but should never be mistaken for conversions or profit. Acquiring a bird’s eye of your company can help you identify gaps and alter your strategy when needed.
KPIs aren’t merely relegated to marketing. A company can have many KPIs to improve customer service, talent acquisition, employee upskilling, and so on. Therefore, you have to distinguish marketing KPIs from overall business KPIs.
Only measuring marketing KPIs isn’t a reliable representation of your company’s financials. Every department should have unique KPIs. Most areas of business have between four and 10! Of course, these key metrics can be further segmented into mini-goals, too, etc.
All KPIs start with strategy. Experienced business professionals will tell you which KPIs matter most, depending on your business and industry. When developing your marketing KPIs, the key consideration is always whether measuring them will actually assist business growth.
You don’t need tones of KPIs, just the right ones!
Every eCommerce KPI you track should:
We recommend keeping track of the following KPIs to monitor your eCommerce business:
Sometimes called attrition rate, churn rate is the rate at which customers stop buying from you over a period of time. It may also apply to the number of subscribers who cancel or don’t renew a subscription.
To determine your churn rate, you subtract the remaining customers at the end of the month from the total number of customers you had at the beginning of the month and multiply it by 100.
You can also divide this number by 12 and then divide the result by 12 to determine your annual churn rate.
This is the average number of days a customer takes between purchases over a 365-day period.
Take the purchase frequency of the customer and divide it by 365 days. If you notice the number of days passed between transactions is greater than you’d like it to be, you may have to work on improving your marketing campaigns and sales funnel to increase profits.
Additionally, getting more customers to buy from your eCommerce store more frequently also builds a loyal customer base.
This is the average amount of money customers spend on every order. To work it out, simply take the total amount divided by the number of orders you’ve received.
AOV directly correlates with how much consistent profit and revenue you make. It informs your marketing and pricing strategy and directly impacts revenue growth.
COGS are all the direct costs incurred to create the products or services a company sells. Some tend to be variable—for example, materials and labor—while others are fixed, like storage space rent.
To determine this figure, take the cost of your inventory at the beginning of the year and add it to other inventory costs aquired during the year. Then, subtract the end inventory value at the end of the year.
The most important eCommerce KPI to monitor is gross profit. It’s calculated by taking the cost of selling goods after subtracting your total value of sales.
Gross profit helps determine the general profitability of your eCommerce business. It also shows how effectively you use raw materials, labor and other supplies to make and sell your products and services.
How much will your eCommerce store invest to gain an additional customer? The cost of acquiring a customer provides insight into the capital required to increase your customer base.
All internet-based businesses strive to keep CAC as low as possible to maximize profits.
To calculate CAC, take the sum you’re spending on new customer acquisition and subtract it from the total number of new customers acquired.
Ideally, CAC should be 3:1, meaning the value of your customers must be three times more than the cost of acquiring them.
This is the number of people who visit your site to make repeat purchases. A healthy repeat purchase rate indicates you’re providing increasing value to customers and reveals a degree of customer loyalty.
It is calculated by dividing the total number of customers who have purchased products more than once by your total number of customers.
Roughly 70% of shoppers don’t complete a transaction. When online shoppers add products to their shopping carts but don’t buy them, we call this shopping cart abandonment.
There are a couple of reasons for this; long delivery times, lack of brand trust and additional shipping costs.
To improve CAR, you can streamline the checkout process, offer popular payment methods, and free shipping.
You can calculate CAR by taking the number of transactions completed and dividing it by the number of abandoned carts. Multiply by 100 to determine the percentage.
On the flip side, it’s beneficial to keep track of the frequency at which your shopping carts checkout. It helps you identify where your sales funnel works.
To figure out this KPI for eCommerce, take the number of conversions and then divide that number in relation to the total number of people who visit your website. Thereafter, multiply this total by 100 and determine the conversion rate for your carts .
Conversion rate optimization is a critical eCommerce KPI. To recap: it’s the percentage of users who visit a website and take a desired action, like making a purchase or filling out a form.
More often than not, it is used to determine how many website visitors land up making a purchase.
To figure out how conversion rate, calculate the total number of visitors to your site and divide it by the number of conversions. Then, multiply that number by 100.
You can determine different conversion rates according to the particular conversion goals you’re following. For instance, you could be tracking various rates of conversion for lead capture forms, telephone calls, the use of social media, and more.
The average profit margin is a reference to the amount of profit you’ve earned during a specific time. To work out this eCommerce KPI, you must calculate your gross profit and then divide it by your revenue.
5% is generally considered a low-profit margin, 10% is healthy, and 20%+ is high.
Your profit margin represents the overall financial health of your business. Remaining fiscally healthy is always attractive to potential investors.
Revenue-per-click is calculated as follows: total income divided by the number of clicks you receive for the duration of a specific campaign.
Comparing what you earn per click provides a good indication of the profitability of a given keyword. Earning more revenue can justify an increase in ad spend, whereas a loss often means marketing spend should be reallocated.
Every person who contributes a dollar amount to your company has a lifetime value metric. Focussing on establishing an excellent relationship with your clients and ensuring high customer satisfaction will increase the customer lifetime value of each client.
To determine customer lifetime value, calculate the annual profit contribution of the customer multiplied by the average number of years that they have been purchasing from you, and then subtract their acquisition cost.
CLV helps companies balance short and long-term marketing goals, and have a better grasp of their financial return on investments.
This key performance indicator is the number of purchases a customer makes over a period of time. It can be a useful KPI for assessing how loyal customers are to your company and will pinpoint the most successful products, as well as those that require additional marketing.
To calculate purchase frequency, divide your total number of orders by the number of unique customers for the same time frame.
This lesser-known KPI is the percentage of visitors who place at least one item in their cart during a session.
As an eCommerce metric, it is useful to track since it tells you about the success of your product selection, UX design and general marketing efforts.
To figure out this number, simply take all the times that a customer has added items to their cart and then subtract it from the total number of their sessions.
As with most responses regarding digital marketing, the answer is dependent on several variables like:
Furthermore, the frequency with which you check your KPIs is contingent on the KPI. Some require intensive monitoring, while others are less so inclined.
Certain metrics should be evaluated on a weekly basis to monitor and track progress. For instance, web traffic or participation on social networks, or total impressions.
Any metrics with paid ads that have, let’s say, a three-month campaign life also requires constant monitoring because you can pivot and adjust your marketing campaigns more quickly, especially if a particular campaign is time-sensitive.
Shorter campaigns may need daily or even bi-weekly monitoring.
If you’d like to collect more data than a snapshot of weekly KPIs, think about tracking certain data points biweekly. This gives you a more precise representation of the numbers.
Examples of biweekly KPIs include the average value of an order as well as customer acquisition costs, or shopping cart abandonment rates.
Cost-per-lead, search engine rank based on your SEO campaigns, average email click-through rates and social media metrics are good to track on a monthly basis.
We suggest this time frame because something like SEO won’t yield results in a day or even a week. Checking keyword rankings at the end of the month is also a good idea to determine if your target keyword selection is working.
Quarterly KPI analysis can help optimize a digital marketing plan and provide an overall picture of how your business is growing. These metrics also reveal more significant patterns and trends affecting your company.
Common KPIs to monitor each quarter include customer lifetime value, as well as the average profit margin and the rate of repeat purchases.
Honestly, tracking KPIs is not only critical to a business’s success, but also to its survival. If you really have no time to get stuck into granular data, we recommend hiring a digital marketing agency to do the work for you.
It’s worth the investment and will undoubtedly improve your business. Remember, the digital world is fast-paced, and it’s an agency’s business to keep track of industry changes, customer markets, and target audience behavior.
Businesses with limited resources would do well to keep track of these key performance indicators:
As we mentioned earlier, you have to invest money to acquire customers. There just is no way around it. Because your marketing efforts cost money, you should keep track of them.
Monitoring cost-per-acquisition and customer lifetime value is essential to your business’s financial health.
It’s basically the difference between how much you have to spend to get customers and how much they’re willing to invest in your company throughout their lives.
The link between the two data sets is vitally important. For instance, if you pay $50 to gain an additional customer, yet their lifetime value is $45, this indicates the cost-per-acquisition is excessive.
If this was to continue across the entire scope of your company, then it would not be worthwhile having an online store in the first place.
It is ideal for eCommerce businesses to have countless customers who have a greater purchasing longevity than its acquisition costs.
This is especially true for eCommerce businesses that have a subscription model with the potential to maximize their return on the investment they make each month.
As a general rule of thumb, when reviewing the results of the KPIs for eCommerce, make sure you begin by looking at your cost to acquire customers as well as their value over time.
This KPI offers insight into how much profit an average order from your site visitors generates.
When you are calculating this number, be sure to look at the time frame like a month, one quarter and even a year to determine the effectiveness of your sales strategies.
If your store doesn’t attract loads of customers, but the average order value is very high, that’s a great thing. The most efficient method for an eCommerce store to boost revenue isn’t to get new clients but to maximize the spending habits of repeat customers.
Repeat purchasers usually have the highest spending, when compared to a customer who has only made one purchase and is likely never to do it again.
Customer AOVs can also help determine shipping limits. For instance, if you observe your average purchase is worth $40, you may offer free shipping on orders of over $50 to encourage more spending.
As your business grows, so do your KPIs. You should always be willing to tailor your list of eCommerce metrics when the following happens in your business:
Reviewing KPIs is a normal business activity. If something isn’t working, you can change it. Just do it sensibly.
This process also depends on two things:
Key performance indicators are only useful if your business acts on them. In the end, it doesn’t matter how brilliant your marketing strategy is or how well your eCommerce KPIs align with your business plan, if you don’t use them to inform decisions and improve customer satisfaction, they won’t be much help.
At first, concentrate on eCommerce metrics that are most important to your business, and then begin adding additional KPIs over time. This strategy will help you determine business strengths and weaknesses.
Knowing KPIs like customer retention rate and conversion rate ensures you develop your marketing budget appropriately and establishes you as an industry leader.
Short for key performance indicators, KPIs are measurable values that demonstrated how a company is achieving key business objectives over a specific time. Monitoring eCommerce KPIs helps online businesses progress towards growth and revenue goals.
The most important KPIs that benchmark success are:
If your KPIs are vanity metrics or do not align with your business objectives, they are a waste of time. The wrong KPIs will delay you from achieving your business goals and maximizing profits.
This depends on your marketing campaigns and business objectives. At the very least, we recommend setting monthly, quarterly and yearly KPIs, and measuring them accordingly. Reviewing them every one to three months gives adequate time for data to meaningfully accumulate. Ideally, you want to monitor major KPIs every three months and then again at the end of the year.
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