The distinction between e-commerce success and failure often depends on the numbers. The right numbers though, not just any numbers; the ones that provide you with a precise picture of your performance, lead your strategy, and assist you in making data-driven decisions. Your online business depends on these KPIs which stands for key performance indicators. These e-commerce KPIs are more than just metrics and figures on a spreadsheet. However, how can you know which KPIs are actually crucial for your e-commerce performance when there are so many to pick from? That’s where we come in with the appropriate information and advice backed by professionals.
Table of Contents
KPI stands for key performance indicator. Despite being widely used, futurist Bernard Marr thinks the phrase is “overused and misunderstood.” Because of this, companies rarely use them successfully.
He defines KPIs as follows:
“KPIs, or key performance indicators, offer a straightforward way to gauge how well organizations, business units, projects, or people are performing in respect to their strategic goals and objectives. KPIs, in their broadest definition, give enterprises (or their stakeholders) the most crucial performance data that helps them to determine whether or not the organization is on track to meet its stated goals.”
There are many types of key performance indicators (KPIs) you may track, but not all of them are crucial to the success of your eCommerce business. Therefore, while selecting eCommerce KPIs, you should concentrate on those that offer the most worthwhile information. How to select the ideal eCommerce KPIs for your company is provided below:
Your KPIs should support your business plan and have a direct influence on your revenue. They should represent your overall performance and assist you in monitoring your progress towards your particular objectives.
The best KPIs are quantifiable and offer unique insights into the development and outcomes of your organization. Your team should be able to measure and comprehend them with ease.
Depending on the stage of growth your eCommerce firm is at, different KPIs may have varying significance. Choose KPIs that are most appropriate for your stage, whether you are in the start-up, growth, maturity, or renewal/decline stage.
KPIs can be very different from one eCommerce business to another. Don’t only follow market trends or copy the metrics of another company. Select KPIs that are the most pertinent for your particular company situation.
It is useless to monitor numerous pointless KPIs because doing so will just make you feel overwhelmed. The finest KPIs for your company are ones that offer insightful information that can be used. You can make sure that you’re concentrating on the indicators that actually advance your business by carefully choosing your eCommerce KPIs.
We’ve pulled together some high level e-commerce KPIs which will provide insights to indicate the success of most e-commerce businesses regardless of their online maturity. Just keep in mind your business goals as you read through and you’ll be sure to find some KPIs worth tracking.
Monitoring sales figures is essential for every e-commerce store owner, and it’s advisable to do so on a daily, weekly, monthly, quarterly, and yearly basis. Depending on your store’s size and product range, there are two ways to approach tracking this metric. For smaller stores with a limited product range, monitoring the number of units sold is a logical approach. However, for larger stores with a diverse range of products and similar fixed costs, tracking gross revenue is more suitable.
In some instances, it might be beneficial to track both total sales and gross revenue simultaneously. This is particularly relevant for businesses aiming to achieve specific sales targets to unlock third-party fulfillment discounts. Additionally, this dual tracking approach can provide insights into the source of gross revenue growth, whether it’s due to an increase in customer numbers or higher average order values. While your e-commerce platform’s reporting dashboard will likely include this key performance indicator (KPI), utilizing tools like Google Analytics can also assist in keeping tabs on your sales data.
The net profit of your business is a measure of its overall profitability. It is your remaining income after deducting all of your expenses.
Here’s how to calculate it: Total revenue – total expenses
Though the math is straightforward, calculating net profit on your own might be a little challenging. Fortunately, your bookkeeping platform will automatically show net profit on the profit and loss statement and balance sheet of your business.
Net profit is an excellent measure of your store’s health. If your business is profitable, then you have a solid foundation for growth and the resources to engage in marketing campaigns that will help you expand even further.
It may also show whether the strategies you’re employing to increase sales are truly adding value to the company. The amount to which an increase in conversions is affecting your bottom line can be determined by tracking this measure along with marketing tactics like discounts, special offers, and free delivery. If it turns out that these tactics are costing you money, you might want to reconsider them. You don’t need to monitor this measure as regularly as sales. The timelines of monthly, quarterly, and yearly are adequate.
Customers’ average order value (AOV) is what they pay out for each order. Formula for average order value (AOV) is simple. You determine it by dividing your overall revenue by your total number of orders. You should monitor AOV on a monthly, quarterly, and annual basis, similar to net profit. Your e-commerce platform should calculate your AOV automatically. If not, the e-commerce tracking feature of Google Analytics will take care of it for you.
One of the first metrics that store owners often try to track and improve is the average order value. Your store’s revenue will grow if you can raise your AOV while maintaining or even increasing sales numbers. A greater AOV also implies you may provide additional incentives like free delivery without hurting your bottom line and bear higher customer acquisition costs.
The total quantity (not value) of orders placed with your store within a specific time period is the number of orders. Normally, you would monitor this on a monthly, quarterly, or annual basis. Inventory management requires having a clear understanding of how many orders customers are placing. You’ll be able to predict product orders and warehouse space with accuracy. Monitoring order volume over time will also show the effects of changes in product pricing, quality, and other factors on sales. This KPI can be found in your store’s e-commerce platform, so search no further. If you use an inventory management tool, it might also keep track of it.
Calculating this specific e-commerce KPI can be a little challenging. Even though we’ll utilize the simplest calculation, you’ll still need to perform some preliminary research. You must first calculate your average order value, the typical number of times clients make purchases from you each year, and your average customer retention. Then you must multiply the averages.
Customer lifetime value CLV formula = AOV x Average No. Annual Purchases x Average Retention in Years
Customer Lifetime Value / CLV calculations and analysis can be challenging, but they are very worthwhile. Knowing the value of each customer to your company is crucial since it displays the level of return on your customer acquisition costs.
The percentage of customers who keep coming back to your store over time is known as your customer retention rate. It can be tracked for a full quarter, a full year, or even longer. The formula and calculation for customer retention rate is simple.
CRR = (E-N)/S X 100
Where, E represents the total number of customers at the end of the period. N stands for the number of new customers acquired during the period. S is the number of customers you had at the start of the period.
You may determine how well you’re serving consumers and how loyal they are by evaluating your customer retention rate.
The average amount of time visitors spend on your website before leaving is known as time on site. For this KPI, no calculations are required either. You can easily see it under Avg. Session Duration in Google Analytics, where it is automatically calculated. Similar to traffic volume, it is advisable to monitor this KPI over a period of a week, month, quarter, or year.
A great way to determine how engaging your store is, is by looking at time spent there. Additionally, customers are more likely to make a purchase the longer they stay on your website browsing your products or reading your content.
Even if your website may receive a lot of traffic, how many of them actually make purchases? The conversion rate of your store will demonstrate this. The proportion of visitors to your store that take a specific action is known as the conversion rate. You may compute the conversion rate for things like email signups, however, the majority of store owners will want to know their purchase conversion rate.
Divide the number of orders by the number of customers who visited your store, then multiply the result by 100 to get the percentage. It’s important to note conversion rates vary drastically between stores.
Your conversion rate can reveal a variety of information, including how appealing your products are, how entertaining your site is, and how well-optimized it is for conversions. You might want to rethink your price or checkout process if you have a lot of traffic but no sales are coming from it.
The full form of ROAS is Return on Ad Spend. ROAS demonstrates how much you have made for the money you spent on advertising and serves as a measure of how successful your marketing investment has been. ROAS formula and calculation is easy. Simply divide the amount of money an advertising campaign brought in by the campaign’s overall cost. However, it’s not often presented as a figure. Typically, ROAS is displayed as a ratio. Therefore, if you spent $1,000 on an advertising campaign that resulted in $5,000 worth of sales, you would have a ROAS of 5:1.
A high ROAS demonstrates that your advertisements are particularly successful at attracting high-paying customers. Theoretically, increasing advertising expenditures will increase revenue. A weak or negative ROAS indicates that you should cut back on spending on advertising or boost conversion rates. Once again Google Analytics is your friend in this situation. Every visitor who clicks on your ad will have their customer journey identified by GA tracking of your digital marketing campaign.
When customers add items to their online shopping carts but leave the website without making a purchase, it’s referred to as cart abandonment. This is a significant metric to monitor, as it reflects the percentage of shoppers who engage in this behavior. The average cart abandonment rate is approximately 77.13%, though it varies depending on factors like the device used, geographic location, and industry.
Understanding and tracking this metric is crucial, as it provides insights into customer behavior. For effective analysis, it’s recommended to monitor cart abandonment rates over extended periods—monthly, quarterly, or annually. E-commerce platforms usually offer this KPI on their reporting dashboards, aiding in tracking and decision-making. Although calculating this rate might yield a substantial figure, it’s important to remember that high cart abandonment rates are common.
The formula to compute the cart abandonment rate involves dividing the total number of completed purchases by the total number of initiated shopping carts, then multiplying the result by 100 to express it as a percentage. Various factors contribute to cart abandonment, such as steep shipping costs, limited payment options, or a complicated checkout process. Occasionally, visitors abandon their carts because they’re not yet ready to make a purchase. While it’s impossible to entirely prevent cart abandonment, knowing the rate allows businesses to take informed actions and address the issue proactively.
The customer acquisition cost (CAC) is the cost of acquiring a new client. This KPI typically has connection to advertising campaigns. Calculating your CAC for particular campaigns is a fairly simple process. Simply divide the sum of customer acquisition costs by the entire number of new consumers. Let’s say you invested $2,000 in an advertising campaign that brought in 100 new customers. Your CAC would be $20.
For your marketing campaigns to be successful, you must be aware of your CAC. Unless you introduce new products, your average sale price is likely to remain fairly consistent; therefore your CAC can tell you how lucrative your store is. More profit equates to a lower CAC. It also enables you to properly plan your campaigns. For example, if you know how much each customer would cost and you want to recruit a certain number of them, it’s much simpler to allocate a budget.
A highly effective strategy for reducing your overall customer acquisition cost involves generating substantial traffic without incurring expenses. An impressive 33 percent of the traffic directed towards e-commerce websites originates from organic search results. This underscores the immense potential of search engine optimization (SEO) and underscores the necessity of closely monitoring your website’s standings in organic search rankings.
Numerous ways are available for enhancing your online store’s organic rankings, as detailed in our comprehensive article on the subject. However, the crucial starting point for elevating these rankings is gaining a clear understanding of where your website currently stands.
Are your customers happy with their shopping experience? High sales and low cart abandonment rates might imply that everything is well, but until you determine your customer happiness level, you can’t be sure.
The optimal time to conduct a survey to assess customer satisfaction is just after a sale or delivery, when the customer is most likely to reply. It is sufficient to ask a straightforward question like “How satisfied were you with your experience?” before providing a scale from one to five.
Your CSAT is the sum of all the 4 and 5 scores divided by the total number of respondents x 100. But you don’t have to end there. Start with your CSAT and follow up with customers who gave the experience a negative rating. Qualitative feedback may help you understand how to engage clients more effectively.
Remember, the goal isn’t to drown in a sea of data, but to use these KPIs as guiding stars on your journey toward e-commerce success. Armed with this knowledge, you’ll be better equipped to make informed decisions, optimize your strategies, and adapt to changing market dynamics. By harnessing the power of e-commerce key performance indicators (KPIs), you can steer your online business with precision and purpose, inching ever closer to your marketing goals and securing a prosperous future in the digital marketplace.
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