Experts Share Their Most Important eCommerce Metrics
Choosing your key performance indicators (KPIs) is a crucial step in making sure you’re measuring the right data for your eCommerce business. Without the right KPIs, you could be making data-driven decisions with the wrong data.
Key performance indicators are metrics that are directly related to your business goals, and help you measure how well you’re performing for these goals.
Particularly for eCommerce businesses, there are numerous possible metrics that you could choose to measure. From conversion rate to average order value, profit and customer lifetime value and so on. But how do you choose which ones to use?
Really, you’re looking for the KPIs that are relevant to your business objective, that you can take actions away from it, and overall that it’s simple to understand.
To give you a bit of a helping hand, we decided to ask 12 eCommerce experts which KPI they’d choose as the most important if they could only pick one. The results are below (tl;dr: conversion rate, average order value and customer lifetime value are big hits).
The Shopping Cart Abandonment rate is an obvious choice since we see such a large percentage of visitors leave the site during this process. But this is the obvious, low hanging fruit.
Instead, let’s focus on Average Order Value. Increasing your average order value can have a dramatic effect on your bottom line. It’s one of the most effective ways to grow an ecommerce business that sells more than one product.
Bonus: How about a few easy ways to increase your average order value?
- Set a free shipping threshold: Customers are often willing to spend a bit more to get to that free shipping minimum purchase amount.
- Display related products and best sellers on product category and product detail pages. This puts additional options in front of the people most likely to want them.
- Add an additional x percent off if their order exceeds a certain value. To really ratchet up the effectiveness of this tactic, make it a time sensitive offer to create urgency.
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I think the obvious is conversion rate, revenue per visitor and repurchase rates, but what’s often overlooked is segmentation — understanding which customer groups (geographic, profile information, categories browsed and purchased, etc) and visitor context (device, campaign, referral source, etc) do what, when, why and how is what will really drive your merchandising and continuous improvement strategies.
Overall website conversion rate – don’t worry about industry standards, just look at what you have already and try and improve it by 1%. Get a funnel set up in Google Analytics so you can see where exactly people are dropping off in the buying process.
Customer Lifetime Value (LTV) – this is the total amount a customer will spend with you, it’s a crucial figure because it allows you to work out how much you can spend on acquiring new customers, so long as you know your gross margin, which brings me to….
Gross margin – in any business you need to know what your actual profit margin is. Gross margin is the profit you make on a product after the cost of the production (or Cost of Goods Sold, COGS) has been deducted, before you take in to account your fixed costs like your website, rent or salaries. It’s calculated as a percentage, so Revenue minus COGS, divided by Revenue. Compare which products have the highest gross margin so that you know where to focus your marketing efforts.
If I had to pick a single metric, it would be something around retention, repeat purchases and customer lifetime value. Good ecommerce sites can sell, but the best aim to keep customers coming back for more. To keep customers happy in the long-term you need to not only have great products, but to provide a high class customer experience which puts your business at the front of their mind when looking to make a purchase.
These repeat, loyal customers tend to be the most profitable and, if retailers are looking long-term, this is what they should aim for.
KPIs should always be upon your business objectives, so can vary alot depending on what you are aiming for. However you should always be tracking your average order value (AOV), conversion rate of different sections of the site (split out homepage, category pages, product pages, etc) and your checkout abandonment rate (and where exactly they are dropping out). These three key elements of your business are crucial to growth, there are easy ways to send huge amounts of traffic to your site, but you need to make sure that traffic converts and spends enough to make it all profitable.
I don’t care what you do— if you sell products, services, or even yourself online, then you are in the list-building business. That’s your most important KPI. How big is your email list? The bigger that list, the bigger your audience, the more diversified your risk is, and the more money you can make. Your list is everything in an online business. Email marketing is the single most effective and highest ROI channel for any ecommerce business.
For the small business owner, it’s all about which actions drive the most consistent revenue streams. Quick boosts of sales are great, but to be truly successful you need to focus on long-term, consistent revenue generated by loyal customers.
Ideally, you want to know which actions resulted in bring the most people in the door, and how many of those people came back. It’s the difference between using Groupon and investing the time in building a real audience. For example, many Groupon users only visit certain types of places when there’s a Groupon deal to buy. They will rarely visit those businesses when there’s no great sale or discount. Loyal customers, however, will partake in deals, but are also willing to pay full price because they love the business.
You need to look at the steps you’re taking to both acquire new customers and retain existing ones, and determine the revenue generated as a result. Pay close attention to customer churn (you will often need to ask customers why they left), and take appropriate action to minimize turnover.
Most businesses that I see just keep track of everything they can and worry afterwards about what they actually want to know.
Sessions? Ok. Device type? Fine! Average repeat purchases per customer? Why not.
But what if instead you only looked at one metric? One metric that tells you exactly what’s going on and whether your efforts are paying off.
This metric depends on the stage your business is at and what you are focusing on.
For stores that are just starting out, validating the concept is essential so the metric might be number of sales. The ones that have validated their store might be looking at which channels can deliver customers at the lowest cost so customer acquisition cost is the metric to watch. Once you’ve got traffic and sales rolling in, you can start to focus getting more sales from repeat customers so you could look at your customer lifetime value. And finally when you’ve got your CAC & LTV nailed down, you want to scale up and start looking at overall revenue.
I like the the approach above because it keeps you focused on the parts of your store that really matter while safely ignoring the rest.
For fledgling businesses, the most important KPI is the conversion rate or how many visitors end up turning into buyers. In a world where traffic is increasingly hard to come by, you need to make sure you are getting the most possible value out of each visitor.
How you extract this value is up to you. You can try to directly convert as many visitors as possible, or at least grab their emails and set up a sales funnel to eventually get them to buy.
Average order value is an important KPI since it’s relevant no matter what your business size / order volume, and optimizing it is usually easy since it doesn’t require driving additional traffic or optimizing for additional conversions — you just have to make the most of the orders you already have. I wrote a bit more recently on this here: Getting Store’s Average Order Value
Revenue is an obvious one, but aside from that, retention rate is an interesting metric to keep an eye on.
How this is calculated will depend on the kinds of products you sell, but a good benchmark is to look at the proportion of customers who were acquired, say, 12-24 months ago who have shopped again within the past 6 months.
Put simply, retention rate helps you understand how loyal your customers are. This is important because nurturing repeat shoppers is key to the long-term health of an ecommerce business.
If your retention rate is low or falling, you may want to consider creating campaigns aimed at activating existing shoppers – for instance, encouraging one-off purchasers to make a follow-up purchase, or winning back once-loyal customers who have since become inactive.
Revenues, conversion rate and traffic are all KPIs that store owners immediately focus on – and for good reason. They’re critical for getting a sense of how your business is running. But my personal favorite KPI is profit and, specifically, profit per visitor. I love this metric because it helps you focus on what’s most important: maximizing the value you earn from each and every person who visits your site.
I can be a little tricky to compute which is why I wrote a tutorial on how to do it. But if you can experiment with your pricing and optimize for this KPI, you’ll be able to maximize your business’ earnings.
Want to learn more about choosing the right KPIs for your business? Sign up to our Data Driven Culture email course, we’ll help you get on your way to data driven decisions by identifying the right KPIs for your business.