Top Key Performance Indicators for E-Commerce
May 25th, 2017
Business management related to e-commerce is not an easy task. Juggling multichannel sales, search for suitable products, dealing with suppliers, working on marketing and customer relationships - this is only a tip of an iceberg of the tasks that are involved in managing e-commerce company.
Often there is not enough time to step back and look at the “business offspring” from the outside. At the same time, regular evaluation and analysis of the key performance indicators (KPIs) for the business is a very important element of the daily activities as well as strategic planning. It allows to see the progress and identify development challenges.
It is relatively easy to get access to data from a wide variety of sources these days. These sources might include various e-commerce platforms, services such as Google Analytics, and other tools. Considering the amount of the information, there is a danger of losing sight of what really matters under the rubble of reports, statistics, and numbers. Therefore, in the very beginning, it is smart to determine which metrics and KPIs to track.
For most companies, it is enough to choose from 3 to 10 KPIs to analyze their work. The choice depends on the nature of the business and the goals it seeks to achieve. The basic KPIs include the increase in sales, improved mobile experience for customers, referral traffic attraction, an increase in the customer database in a certain region, and finally, return on investment (ROI) improvement.
In this article, we will address the most important metrics and KPIs for e-commerce business owners.
Let’s begin with basics: all KPIs and metrics, but not all metrics are KPIs. The metric is just a number, while KPI is an indicator that affects the success of your business, cash flow, and sales.
All KPIs are metrics, but not all metrics are KPIs.
KPI is a metric that depends entirely on the company’s objectives and it shows whether the business is moving in the direction of those goals or not. For example, an online store can set an objective to increase traffic by 20% over the next 3 months. Thus the key performance indicators for such purpose will be following:
- Site Traffic helps to understand the popularity of the website, landing pages, or individual sections of the site.
- Traffic Sources (search traffic, direct calls, referrals, advertising (PPC, etc.), social networking, and other). This indicator allows you to see what channel your users use the most and therefore, which channel you should spend more time on.
- Unique Visitors. This number shows you how many different users came to your website, not just those who already know your business and come there all the time.
- Bounce Rate will let you know whether your website corresponds well with the keywords you’ve chosen, in other words, whether your site meets the user search query expectations.
Besides those four, you can evaluate such indicators as the number of pages per visit, time spent on the website, ads’ clickability, and CTR (click-through rate).
Let’s take a look at the main efficiency metrics for the e-commerce field:
Average Order Value (AOV)
AOV is considered a key indicator for the many online stores, because the higher your AOV is, the greater will be your shop’s income (quite logical, if you think about it.)
Formula: Derived Revenue / Number of Orders = Average Order Value
For example, your store’s revenue is $11,575 and this was a result of 285 orders. Therefore, your AOV is $40.61.
Just keep in mind that Google Analytics isn’t tracking all your store’s orders and to have a complete picture of your sales, you should use other instruments that allow getting 100% of your data. One such tool is RJMetrics.
Revenue per Visitor (RPV)
Revenue per visitor indicates how much money you generate from each customer's purchase through your site.
Formula: Total revenue / Number of Visitors = Revenue per Visitor
For example, if you earned $5,000 from 200 customers, your RPV is 4%. Again, don’t forget that Google Analytics don’t show the exact number of transactions.
Bounce Rate (BR)
When a visitor comes to your website and leaves almost immediately, this shows up in your Bounce Rate. Causes for this might include that they haven’t found what they were looking for or the website turned out too complicated, confusing, or overly annoying.
Formula: Number of visitors who left the website immediately / Total number of visitors = Bounce Rate
High bounce rate is a conversion rate killer. If your bounce rate for landing pages is over 80%, you have to deal with it: attract your target audience with correct keywords, improve the usability of the site, and fill it with unique and valuable content.
Shopping Cart Abandonment Rate (SCAR)
The studies show that average Shopping Cart Abandonment Rate (SCAR) is 68%.
Formula: Number of people, who didn’t complete the purchase / Number of people, who began making a purchase = SCAR
For example, if 500 people added items to their carts, but only 100 have actually bought what they wanted, the SCAR will be 80%. ((500 -100)/500 = 80%)
There may be various reasons why your almost-customers left: something distracted them (for example, someone called them), or the ordering form was too complicated and confusing. In the first case, you can’t really do anything. However, when it comes to the convenience of making a purchase, everything is in your hands.
Open Google Analytics, click on Goals, and then on Funnel Visualization. Here you will be able to see at what stage the visitors abandon the purchase process and why does it happen. Here are a few ideas how to decrease SCAR:
- Get rid of optional questions in your registration forms
- Make sure that the price and shipping options are visible
- Reduce the number of steps required to complete the purchase
- Launch a campaign to “bring back” the customers who have abandoned their carts (for example, remind them about the unfinished purchase or offer a discount for chosen products)
Cost per Acquisition (CPA)
The cost of customer conversion or acquisition is an important marketing metric that demonstrates the efficiency of the marketing budget.
Formula: Total budget for marketing activities / Number of conversions = Cost per Acquisition
In other words, CPA shows how much you pay for one paying customer. Why is it important? Because by evaluating this KPI, you can evaluate the efficiency of your investments into marketing. After all, if your expensive marketing campaign has brought you two customers and everyone else just clicked and left, your efforts were not successful.
To remedy the situation, you can try to attract more new customers by running paid advertising campaigns, improve SEO, advertise on social networks, create high-quality content. Or, you can reduce marketing costs, optimize efforts and abandon campaigns that don’t bring you any profit.
This parameter tells you where your customers come from, which channel brings most customers to your store, what social networks and keywords work best for your business. This knowledge will help you get a bigger picture about your customers’ sources and define the most useful as well as useless ones.
By studying the traffic, you can also investigate such metrics as traffic sources, unique visitors, bounce rate, the number of visitors from one source / channel, keyword popularity, etc.
Customer Lifetime Value (LTV)
Customer Lifetime Value measures the total amount of money the store gets from the customer during the entire relationship with him.
Why does this KPI matter? Because ideally, you should be getting more money from your customer than what you’re spending on attracting him. In other words, if you’ve spent $100 to lure the customer in, you should create a plan how to get more the than $100 from this customer within a year.
There are various methods to calculate this metric, but the basic one is this:
Formula: Average order value * Number of repeat sales * Average “relationship” duration
Say, you’ve got 100 clients, each one of them spends about $55.5 per visit, and an average number of visits per year is 3. You expect these people to be your customers for two years. Therefore, the CLV equals to $55.50 * 3 * 2 = $277.50
Instruments for tracking e-commerce metrics and KPIs
There’s no need to introduce Google Analytics to you. With this free tool, you can easily keep track of most of the indicators on your site to understand user behavior better and to monitor the KPIs and marketing campaigns.
The only disadvantage of this service is that it does not provide any information on net profit and doesn’t always give accurate data about the number of transactions.
RJMetrics collects all your data: databases, web traffic analytics, email marketing, customer support, advertising platforms and more.
The data from multiple sources is then compiled, giving you an opportunity to analyze the statistics at any time. You can customize your reports and share them with your colleagues, partners, and customers.
Choosing the right key performance indications begins with a clear definition of your business goals and your business model. In addition, it is important to remember that what works for one business may not be suitable for another, because usually companies have different goals and use different sets of KPIs.
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