As an e-commerce merchant, understanding how your business is performing is crucial to making sure you’re growing. Analyzing key performance indicators (KPIs) allows you to measure success and determine where improvements need to be made for your e-commerce store to reach the next level.
In this article, we’ll break down some of the most important KPIs that can help all e-commerce merchants track their progress and strategies. Let’s dive in!
What are E-commerce KPIs?
Key performance indicators (KPIs) are milestones on the road to online retail success. KPIs measure the performance and success of an online retail business. These indicators assist e-commerce businesses in tracking progress, identifying areas for improvement, and making informed decisions to achieve their goals.
Why are KPIs important?
- Measuring progress
KPIs provide a way to measure the progress of a business toward its goals and objectives. They offer quantifiable and tangible data that helps track performance over time. With KPIs, it would be easier to assess whether the organization is moving in the right direction or improving.
- Data-driven decision making
KPIs enable data-driven decision-making (DDDM). By analyzing KPI data, businesses can identify trends, patterns, and areas that need improvement. This helps make informed decisions and prioritize actions based on actual performance metrics.
- Goal alignment
KPIs provide a clear basis for evaluating performance and holding individuals and teams accountable for their roles. They also help align individual, collective, and departmental goals with organizational objectives. When everyone knows the KPIs they are liable for, they can focus on activities contributing to the company’s success.
- Identifying strengths and weaknesses
By monitoring KPIs, organizations can identify their strengths and weaknesses. Understanding these areas allows them to capitalize on what they do well and address areas that require improvement, ultimately enhancing overall performance.
- Communication and transparency
KPIs foster communication and transparency within an organization. When everyone is aware of the key metrics and goals, it facilitates collaboration and encourages a shared understanding of the company’s performance.
- Focusing on the bottom line
Ultimately, KPIs are crucial for bottom-line results. They help businesses focus on the most critical aspects of their operations, ensuring that efforts and resources are directed toward achieving the best possible outcomes.
How to choose the best E-commerce KPIs for your business
Align with business goals
When KPIs are aligned with business goals, they provide a clear direction for your e-commerce business. Each chosen metric reflects your strategic objectives, ensuring all efforts and resources are directed toward achieving those goals.
Ensure measurability
Choosing KPIs that can be easily measured allows you to track progress, make data-driven decisions, identify areas for improvement, set realistic goals, and allocate resources effectively. Measurable KPIs provide concrete insights that drive the success and growth of your e-commerce business.
Match with growth phase
The significance of specific KPIs can vary depending on the growth phase of your e-commerce business. Whether you are in the startup, growth, maturity, or renewal/decline phases, prioritize the most relevant KPIs tailored to your current stage.
Reflect your reality
Remember that KPIs can differ substantially among e-commerce businesses. Avoid irrationally adopting industry trends or imitating another company’s metrics. Instead, focus on selecting KPIs that align with your unique business context and accurately reflect your e-commerce reality.
Keep it concise and impactful
Avoid tracking numerous irrelevant KPIs that may lead to overwhelm. The best KPIs for your business offer meaningful and actionable insights, making them more effective in driving your success.
The most important e-commerce KPIs for tracking & growing sales
The choice of KPIs can vary based on the specific objectives and strategies of the e-commerce company, but some common and important ones include:
Conversion Rate
Conversion Rate is a crucial metric used in e-commerce to measure the percentage of website visitors who complete a desired action, such as making a purchase. It indicates how effective the e-commerce site is at turning visitors into customers.
Conversion Rate = (Number of Conversions / Total Number of Visitors)
A high conversion rate indicates that a significant portion of visitors are taking the desired action, and is generally considered positive as it leads to more sales or desired outcomes.
On the other hand, a low conversion rate might signal that improvements are needed in the website’s design, content, or user experience to encourage more visitors to convert.
Customer Lifetime Value (CLV)
CLV is used to track the average amount paid by a customer in a single transaction. A higher CLV usually suggests that customers are making larger purchases.
CLV = (Average Purchase Value) x (Number of Repeat Transactions) x (Average Customer Lifespan)
CLV is calculated by estimating the potential revenue a customer will likely generate from their purchases, subscriptions, or engagements with the business throughout their entire lifetime as a customer.
This metric considers the initial investment, the repeat purchases, and any additional revenue generated from upsells, cross-sells, or referrals over time.
Customer Retention Rate
Customer Retention Rate is an invaluable measure of the percentage of customers they have retained over a specific period. It reflects the ability of a company to retain its existing customers and keep them engaged and loyal to the brand.
Customer Retention Rate = ((Number of Customers at the End of a Period – Number of New Customers Acquired During the Period) / Number of Customers at the Start of the Period)
A low Customer Retention Rate may suggest issues with customer satisfaction, product quality, or the overall customer experience, leading to customer churn and the need for improvements in customer retention strategies.
Monitoring and improving Customer Retention rates is essential for businesses to build long-term customer relationships, foster loyalty, and drive sustainable growth.
Average Order Value (AOV)
AOV is the average amount spent by a customer in a single transaction. A higher AOV generally indicates that customers are making larger purchases.
According to Andrea Rijna, an expert from Sana Commerce, increasing your AOV is one of the most efficient ways to boost your e-commerce revenue.
Net Profit
Net Profit represents the total revenue or earnings remaining after deducting all expenses, taxes, interest, and other costs associated with running a business or generating income.
Positive net profit indicates that the company is making money and is profitable, while negative net profit (net loss) means that its expenses exceeded its revenue during that period.
Net Profit is essential for investors, shareholders, and management since it provides a clear picture of the company’s financial health and profitability. It is also used to calculate other financial ratios and performance metrics to evaluate the business’s overall financial performance.
Cart Abandonment Rate
Cart Abandonment Rate is the percentage of online shopping carts left abandoned without completing the purchase. It helps identify checkout issues and obstacles that may be stopping customers from completing their transactions.
Cart Abandonment Rate = (Number of Abandoned Carts / Number of Started Carts)
Reducing the Cart Abandonment Rate is crucial for increasing conversion rates and maximizing revenue in e-commerce. Businesses can improve the checkout process, provide clear pricing information upfront, offer multiple payment options, and enhance security measures to encourage customers to complete their purchases successfully.
Additionally, sending targeted follow-up emails or implementing cart recovery strategies can help recover abandoned carts and convert potential customers into buyers.
Number of Orders
This is a metric that counts the total number of orders placed by customers over a specific period. This helps you track the volume of sales transactions and understand how many orders your online store receives.
Analyzing the “Number of Orders” trend over time can help businesses identify sales patterns, peak periods, and seasonality. It also assists in measuring the effectiveness of marketing campaigns, product launches, and promotional activities.
Click-Through Rate (CTR)
CTR is a critical performance metric used in e-commerce to measure the percentage of users who click on a link within a page or asset. It is a valuable metric used to measure user engagement and the effectiveness of marketing campaigns.
CTR = (Total Clicks / Total Impressions)
A higher CTR generally indicates the content or ad is relevant, engaging, and capturing the audience’s attention. On the other hand, a lower CTR may suggest that the content needs improvement or that the targeting or messaging is not resonating with the intended audience.
Customer Acquisition Cost (CAC)
It is the average cost incurred to acquire a new customer. It helps in assessing the effectiveness of marketing and advertising campaigns.
CAC = Total Marketing and Sales Expenses / Number of New Customers Acquired
CAC is used with other key performance indicators (KPIs), such as Customer Lifetime Value (CLV), to assess the efficiency and effectiveness of customer acquisition strategies. Ideally, the CAC should be lower than the CLV, meaning that the revenue generated from a new customer should outweigh the cost of acquiring that customer.
Return on Advertising Spend (ROAS)
It’s the revenue generated from advertising campaigns compared to the cost of those campaigns. It helps evaluate the effectiveness of different marketing channels.
ROAS = Revenue Generated from Advertising / Cost of Advertising
By tracking ROAS, businesses can identify which advertising channels or campaigns are most effective in driving revenue and maximizing return on investment (ROI). This information can guide decisions on resource allocation and marketing budget optimization.
It is essential to note that ROAS is different from Return on Investment (ROI). ROAS focuses explicitly on the revenue generated from advertising. At the same time, ROI considers the overall return from an investment, considering all costs and revenues associated with that investment, not just advertising costs. Both metrics are essential for assessing marketing efforts’ financial performance, success, and overall business strategies.
Return on Investment (ROI)
Return on Investment (ROI) is a widely-used financial metric that assesses the profitability and efficiency of an investment relative to its cost.
ROI = ((Net Profit from Investment – Cost of Investment) / Cost of Investment)
ROI is a versatile metric that can be applied to various types of investments, including marketing campaigns, business projects, real estate ventures, stocks, and more.
A positive ROI indicates that the investment has generated a profit, while a negative ROI indicates a loss.
Repeat Customer Rate
It’s the percentage of customers who make multiple purchases, highlighting customer loyalty and retention. It provides insights into customer loyalty and the effectiveness of a company’s efforts to retain customers.
Repeat Customer Rate = (Number of Repeat Customers / Total Number of Customers)
To increase the Repeat Customer Rate, businesses should focus on providing excellent customer service, personalized experiences, loyalty programs, and incentives to encourage customers to return for future purchases.
Repeat customers can also be valuable advocates who refer others to the company, contributing to organic growth and brand loyalty.
Conclusion
In conclusion, monitoring the right Key Performance Indicators (KPIs) is essential for every e-commerce merchant looking to thrive in the highly competitive digital landscape. By focusing on the top KPIs outlined in this blog post, businesses can gain valuable insights into their performance, identify areas for improvement, and make data-driven decisions to enhance their overall success.
