As an e-commerce merchant, there are certain metrics that you need to keep an eye on. The question is: Which metrics?
E-commerce metrics are a source of rich insights that tell you not only how your business is performing, but trends in user behavior that could present new opportunities for growth. However, it’s vital that you’re focusing on the right metrics that can form the basis for sales and marketing KPIs.
In this post, we’re going to dive into the ten e-commerce metrics that your business should be tracking, and how you can use these metrics to create relevant KPIs for your business.
The terms 'KPI' and 'metric' are often used interchangeably in a sales and marketing context. However, they aren't always referring to the same thing.
An e-commerce metric is a way of measuring the performance of a certain aspect of your business. For example, tracking the number of customers returning to your online store is a good way of determining customer satisfaction and brand trust.
However, not every metric is a good measure of how well your business is performing. These are often referred to as 'vanity metrics’. For example, if a company is tracking the number of 'likes' they get on social media rather than comments or click-through rates, their perception of follower engagement may be inaccurate.
By contrast, Key Performance Indicators (KPIs) are a selection of metrics that are used to evaluate whether or not your business is achieving its goals for growth. Unlike metrics, KPIs should reflect your sales and marketing strategy.
In sum, e-commerce metrics are any source of data that requires interpretation and measurement over time. KPIs are subjective goals based on metrics and are custom-tailored to your e-commerce business.
While there are numerous e-commerce metrics that your business can track, this can quickly get overwhelming. When you have too much data to analyze properly, it ends up being white noise. But certain metrics provide a great gauge for the success of your e-commerce store. We've picked out these ten e-commerce metrics that will help you to measure the effectiveness of your sales and marketing strategies.
Conversion is one of the most straightforward e-commerce metrics to measure. Put simply, your conversion rate is the number of site visits you receive divided by the total number of transactions. So, if you receive 5000 site visits and 400 of those result in a purchase, you would have a sales conversion rate of 8%.
Your success at converting lookers into buyers is one of the biggest indicators of whether your offerings are attractive to your target audience. Conversion can also be used to track the success of specific marketing efforts, such as SEO or influencer campaigns.
As we demonstrated above, it's easy enough to work out your e-commerce conversion rate. However, this doesn't tell you whether there's a specific point in the shopping journey where potential customers are exiting the sales funnel. This is why it's a good idea to take a funnel-based view of conversion and get a better understanding of what's happening on your e-commerce website.
An e-commerce shopping journey is made up of a series of step-by-step touchpoints; entering your website, browsing product pages, checking FAQs, adding products to the shopping cart, and finally making a transaction. Knowing where and when you're seeing a major drop-off in customers will tell you where to focus your conversion rate optimization efforts.
For example, if your conversion rate drops sharply after site visitors look at your FAQs, this warrants further investigation. For example, if your e-commerce returns policy is strict where competing retailers aren't, you may need to adjust this to remain relevant to potential customers.
While the ideal scenario would be to attract customers entirely by organic means, this isn't the reality for most businesses. As e-commerce grows more competitive, brands are forced to spend more on acquiring customers.
But if the cost of attracting leads only results in a handful of conversions, it's a recipe for putting yourself out of business. This is because customer acquisition can cost up to 7 times more than selling to existing customers.
Customer acquisition cost is expressed as the sum of your total sales and marketing costs for a specified period, divided by the total number of new customers acquired. This includes email marketing, paid search, social media campaigns, and any other investment that's designed to increase the number of visitors and conversions on your site.
It's tempting to approach customer acquisition like spaghetti; chucking it on the wall and seeing what sticks. But when costs begin to outweigh the gains, you'll need to take a closer look at whether or not your sales and marketing efforts are paying off.
However, there are some caveats. Looking at acquisition cost alone can give an inaccurate perception of ROI. If a high CAC is outstripped by your average order value and customer lifetime value, this demonstrates a healthy bottom line.
Your average order value refers to the average transaction that takes place on your e-commerce site. Merchants should aim to increase their AOV over time as customer loyalty grows, which means higher customer lifetime value.
Average order value is a particularly favorable e-commerce metric because it's easy to influence without a lot of marketing spend. For example, customer loyalty programs, upselling/cross-selling, and online sales are all great strategies to increase AOV. This is much more economical can trying to add new customers or entice existing customers to purchase more often.
AOV is calculated by taking the total revenue over a specified period, divided by the total number of orders you've received. So, if your total revenue is $80,000 and your total number of orders is 600, your AOV is $133.
Social media is a critical marketing channel for direct-to-consumer brands that don't have a brick-and-mortar presence. As a major source of referral website traffic, you want to keep a close eye on how your social media content is performing.
Success on social media can be tricky for marketers to measure because it doesn't boil down to any one metric. Rather, you need to use a collection of e-commerce metrics to determine whether your content is resonating with customers.
As we mentioned earlier, social media metrics such as 'likes' are mostly cosmetic because they don't indicate that a viewer has taken any further action. These metrics provide much stronger insights into whether your marketing efforts are effective:
Click-through rate. This is a great metric to determine whether your followers are taking action in response to your CTAs. Your CTR is calculated by the number of clicks on your content versus how many times an ad or post is viewed. If your CTR is high, then this is a good indication that your content is effective.
Referrals. Referral traffic refers to users that come to your e-commerce site from another location i.e. a social media site. Google Analytics can also break can this down for you into separate social media channels so you can see which is giving you the highest number of referrals.
Social conversions. If a customer purchases on your site in the same session as a visit to one of your social media channels, this counts as a social conversion. It demonstrates that your social channels are playing a key role in driving nurtured leads to your site.
Bounce rate refers to the number of people who navigate away from your site after viewing only one page. This is expressed as a percentage of your total visitors.
While it's desirable to keep your bounce rate as low as possible, a bounce rate lower than 25% could be an indication that something is going wrong with your website. The same goes for high bounce rates over 80%. In that 25%-80% range, what is classified as a 'bad' bounce rate will depend on what your website does. For e-commerce stores, a bounce rate of 45.68% is considered average, as consumers are likely to be browsing multiple product pages.
High bounce rates can be caused by a variety of factors, such as poor user experiences, slow site speed, or low-quality content.
However, it can also be a sign that your customers have found exactly what they're looking for. That's why it's important to look at your bounce rate in the context of Average Session Duration on Google Analytics. If people are consistently spending more than two minutes on your page, it's a good sign that they're interested in your products.
This is one e-commerce metric that many merchants would prefer to ignore. We all know that returns are a major problem in e-commerce, but ignoring them certainly won't make them go away. The average return rate in e-commerce is 20%-30%, but this can jump as high as 40% for product categories such as apparel. So, your business must understand why this is taking place and whether it's something that's within your control.
If you've made any changes to your e-commerce return policy, it's really important to monitor whether this is having a knock-on effect on return rates. Remember: High return rates aren't necessarily a bad thing. If you have a generous exchange and returns policy, this is more likely to attract more consumers to your store and even result in repeat purchases; 92% of shoppers say they would buy something again if they are happy with a return policy.
However, returns could also be a symptom of something else, such as poor sizing information or imagery on your product pages that drives customers to bracket their purchases. So, in addition to measuring your return rate, you also need to be gathering information from customers about their reasons for returning.
Getting consumers to put items in their cart is one thing, but persuading them to follow through with a purchase is a much bigger challenge. Just like returns, shopping cart abandonment is an inevitable part of e-commerce. But those almost sales can quickly add up to a lot of lost revenue. That's why it's important to investigate what's causing cart abandonment, such as:
It's possible to drill down on cart abandonment in much more detail to figure out what's causing customers to abandon their carts - including at what point in the journey this takes place.
For example, checkout abandonment looks specifically at how many customers abandon their cart after beginning the checkout process. This allows you to focus your efforts on eliminating friction within the payment process and opt-ins such as email and T&Cs.
Your percentage of new vs. existing customers is a reflection of your customer retention rate and is closely tied to your customer acquisition costs. If returning customers are already familiar with your brand and offerings, the cost of acquisition will be much lower.
Ideally, you want to have a slightly higher percentage of returning customers than new customers. If the opposite is true, this indicates that you could be having trouble fostering brand loyalty in your customers - and your CAC will be considerably higher.
You can find the new vs returning visitor report in Google Analytics, which will also supply information on average session length and the number of transactions resulting from each user type. This allows you to spot key differences in customer behavior, such as the length of time they spend on product pages.
Something you'll likely spot right off is that conversion rates will be higher for returning customers than they are for first-time customers. This is because first-time customers will want to invest more time comparing options before committing to a purchase.
It's a serious error to measure the value of your customers one sale at a time. A customer who splashes out on a high-value item and never stops with you again will be worth less than one who makes several smaller purchases over a longer period of time. That's why we use customer lifetime value (CLV) to track the revenue that customers generate throughout their relationship with you.
The easiest way to measure customer lifetime value is to multiply your average order value by the average number of purchases per year by the average time a customer is retained for. So, if your AOV is $100, average purchases 7, and customer retention 5 years, your CLV would be expressed like this:
100 x 7 x 5 = $3500
However, it's a good idea to factor customer acquisition cost into this equation by deducting it from your CLV. This is a better reflection of how your marketing spend is contributing to CLV.
Customer satisfaction is a vital e-commerce metric, but also very subjective. How can you substantiate what customers think about your brand and the service they receive? Customer surveys are very popular for this purpose, but getting customers to fill them out can be quite a challenge. Net Promoter Scores (NPS) offer a much less time-intensive alternative by simply asking customers on a 1 to 10 scale how likely they are to recommend you to others.
Net promoter score segments your customers into groups depending on how they answer your survey. This allows you to tailor your nurturing strategies accordingly and help recapture customers who may have had a negative experience with follow-ups:
The relevance of different e-commerce metrics as KPIs will depend on several factors, such as:
They'll be certain e-commerce metrics that aren't relevant to your business. If you don't use email marketing extensively, you're not going to be tracking the success of email campaigns or email list growth. Hence it makes little sense to include these as KPIs.
But they'll be other benchmarks that are critical to ensuring your profitability. For example, an online store that offers free shipping on all orders should be setting a KPI for average order value. Otherwise, the cost of shipping could result in you making a loss on certain sales. If you're struggling to hit this KPI, it may provide an indication that you need to explore other strategies, such as introducing a threshold to qualify for free shipping.
But if you're a subscription-based business, your KPIs are likely to be very different than a regular e-commerce store. One of the biggest challenges for subscription models is that customers only become profitable if they're retained over several cycles. This makes churn rate an incredibly important KPI of the success of your business.
In sum, e-commerce metrics don't just set the basis for KPIs; they also exert a lot of influence over how you go about achieving them. If a certain KPI is critical to business success, you'll need to invest in targeted strategies to make this a reality. This makes KPIs invaluable for providing your sales and marketing teams with direction, and also the satisfaction of knowing when they're performing well or when they need to adjust their approach. By taking the time to track the e-commerce metrics listed above, you'll be in a much better position to grow your online store successfully.
