How to Calculate Key Ecommerce Metrics
As I’m sure you’ll know ‘old may be gold’, but the old way of running commerce companies is not going to help online retailers much. Consumer demand is evolving, expectations are increasing, the way they connect is changing, and technology is always creeping ahead.
With all that happening, if you mean to keep your head above water and at least sail along with others, (though obviously you want to be in front), you need to be focused on the big picture. That’s possible only if you know which ecommerce metrics matter.
To help guide you through the maze that is your business’ data, we’ve already previously spoken to some top Ecommerce experts who shared with us which KPIs you should be tracking for your store.
I thought we’d go through some of those metrics and explain what each one means and how to work them out.
Customer Lifetime Value
Customers are the heartbeats of business and knowing their worth is important. Customer Lifetime Value or CLTV is an important metric that helps gauge how much money a customer spends during his relationship with your store.
Keeping track of this metric tells you whether you’re making more off them than you spent in acquiring them, and knowing this helps you formulate a strategy whereby you’re never in the red. If you can ensure this then you need never worry about your business not growing.
Working out your Customer Lifetime Value can be a little on the complicated side, but luckily Conversion XL has a great article to get you started.
How to work it out:
(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years)
Customer Acquisition Costs (CAC)
Taking this one step further, it pays to measure another allied but crucial marketing metric—customer acquisition. It’s a no-brainer that reduction on customer acquisition is going to up your profits.
Working out your CAC may differ from business to business, campaign to campaign, so while we’ve included a simple formula below, you need to define what counts as costs spent acquiring customers for you business.
How to work it out:
(Costs spent acquiring customers) / (number of customers acquired)
Conversion Rate
An obvious metric would be tracking your conversion rate—put simply that’s an indication of how many prospects actually turn buyers – the greater this percentage, the better your books look. Creating a great conversion rate and maintaining it is all about generating a great customer experience.
It’s not really hard to have a great conversion rate—all you need to do is to give customers what they want, entice them enough to make them want to buy, improve the customer journey, make the process of buying quick and easy, help customers at every point and if they do have problems, find out what they are and resolve the issue. In essence, streamline everything so that the customer experiences a hassle free journey and watch the profits climb!
How to work it out:
(total number of sales / number of unique visitors )* 100
Repeat Customer Rate
Repeat customers are a delight to business for they can be great referrals. The greater the repeat customer rate, the more likely you’ll do great business. This is one metric that every business needs to keep track of very diligently, and here’s why– If every customer you have returns within a specified time period to make additional purchases, there’s no reason why your ecommerce business won’t thrive!
Remember, this will happen only if the customer is happy and satisfied the first time. It’s easy to hook a happy customer—provide great customer service, reward them for being loyal, send them relevant promotions and discounts and watch the way your products fly off the shelves.
How to work it out:
Customers that purchased more than once / unique customers
Average Order Value
The Average Order Value per customer is bound to increase—so this is another value that you need to keep a tab on. This KPI will give you one of the best representations of how your business is doing.
What’s more if you want to increase sales, you can use this figure as a benchmark for how you’ll go about it; maybe you could increase your free delivery threshold, or offer a product bundle?
How to work it out:
Total Revenue* / Total Number of Orders
*This metric isn’t an accurate representation of your margins, so, as Alex from Sweet Tooth Rewards recommends, you might want to consider removing the cost of goods sold and expenses.
Profit Per Customer
In the ultimate analysis, the goal of an ecommerce business is to maximize the profit per customer – the rest will automatically fall into place. So this is a metric that’s really handy when you’re looking at the overall picture.
How to work it out:
Profit / No. of Visitors