The most successful e-commerce businesses haven’t got there by chance.
They measure their success based on data or metrics.
When we talk about metrics, it refers to data points that e-commerce sites collect and help business owners to make decisions.
The smartest companies are continually monitoring and optimizing their performance using vast amounts of data. This gives them a great competitive advantage and acts as an enabler for staying ahead of the competition.
The irony is, most of the time, they don’t do anything special. They are just putting the data that almost every website collects to best use and prioritizing that as part of their digital marketing strategy.
Understanding Ecommerce Metrics
Metrics are not the same as key performance indicators (KPIs). A business will usually set KPIs as something that hold subjective value to their company whereas metrics might be used to explain those KPIs.
For example, businesses will most likely have revenue as a key indicator of performance. E-commerce metrics will tell you all the things that have created that revenue like visitors to your website, conversions and spend.
12 Key Ecommerce Metrics to Track
This article looks at 12 key e-commerce metrics that are imperative to track if you are looking to drive business growth.
1. Conversion Rate
In e-commerce, the conversion rate usually refers to the percentage of visitors on your site who complete a desired action. In the majority of cases, that action will be purchasing a product, but some businesses will also track visitors who get a quote or subscribe to a service, noting that as conversion.
An increase in conversion rate is one of the strongest return on investment (ROI) arguments for better user experience on your website. This is because it measures what happened once people actually arrived at your site.
For example, if you had 100 visitors and 20 purchased, you have a 20% conversion rate. Imagine you change part of the website design and the following week, of 100 visitors only 10 purchase giving a 10% conversion.
Trending design changes and conversion is a great way to optimize your e-commerce website. You can see the exact impact that any amendment makes ensuring the correct decisions are made to enhance the user experience.
Conversions are generally measured on a monthly basis, but it depends on the nature of your website.
For example, if you are adding offers and changing your website details daily, you may need to keep a more regular performance check.
2. Average Order Value
Quite simply, this is the average amount customers spend when visiting your website. The metric helps businesses understand customer behavior on their website.
A higher average order value normally has a direct correlation with profit. Therefore, you want to try and influence customers to spend more and stay on your site for longer.
Usually, the average order value will be tracked on a monthly basis. It is important to be aware of unusually large or small orders that skew the figures. Some businesses will exclude the top 10% and bottom 10% of orders for that very reason.
Some of the methods for increasing average order value are by creating order thresholds e.g. $50 minimum order, adding upsell features at the checkout for add-on products that the customer might like, free shipping on higher value orders or discounts on future orders if they spend $XX amount this time around.
Average order value will give you a strong indication as to whether your upsell, cross-sell or offers are working on the website.
3. Customer Lifetime Value
This metric relates to an estimate of all future profits that will be accumulated from a relationship with a customer or group of customers. It is used to provide insight into how much time you should spend acquiring a certain type of customer. For example, if you know a customer is unlikely to return to your site in the future, there is little value in spending your budget on servicing them.
Let’s say a customer buys some shoes from your site for $100. They tend to do this twice per year and have an average lifetime with your brand of 2 years. The business profit margin is 25% from these customers. Therefore, the expected lifetime value of the customer is 2*2*100*25% = $100. Any future strategy should not exceed this cost per customer to ensure you make a profit.
4. Customer Acquisition Cost
The customer acquisition cost is the average marginal cost of acquiring one customer. It is generally used to determine whether your marketing budget is being used effectively when compared to the average order value and customer lifetime value. Essentially, it tells you whether you are being successful in your marketing efforts.
Let’s imagine your total marketing costs for one month are $5000 including things like web hosting, pay-per-click, social media and content design. In the same month, you acquire 500 new customers with a $20 average order value. Customer acquisition cost will be 5000/500 = $10. This means, that we are making $10 on every order after the cost of marketing.
Driving the cost of acquisition down means improved profit margins. Common ways of doing this are through better quality content and focussing on search engine optimization rather than reliance on pay-per-click traffic.
5. Customer Retention Rate
Also known as repeat customer rate, the e-commerce retention rate tells us how many customers place more than one order using your website. It is often measured on a 12 or 24-month basis (i.e. customers who bought in January 2018 also purchased in the 12 months up to January 2019).
The percentage will be calculated as the number of customers who shopped 12/24 months ago divided by the number of customers who shopped with you in the last 6 months. If you have put measures in to improve customer loyalty, these metrics will determine if it is working. Many brands will send out offers to existing customers for example and track retention rates to ensure it has made an impact.
6. Revenue By Traffic Source
A traffic source refers to the channel from which a customer finds your site. This will include organic, direct, social and paid search for example. Having the right mix of each of these is vital to success.
Firstly, it highlights the most valuable sources. For example, if 90% of revenue is coming from organic searches then you will want to put more focus into your SEO work and review how you are managing paid keyword campaigns. If you are getting very little revenue from social media sources, it is worth considering if that is the right channel for promoting your business or if there is a problem with the content itself.
Spending money on unreliable traffic sources that do not produce revenue is a fast way to e-commerce failure. Just because other brands are successful on social media, it doesn’t mean yours will be.
7. Shopping Cart Abandonment Rate
This metric tells you the percentage of website visits who adds products to a checkout or cart but leave the site before making a purchase. It can flag what potential there is for revenue if everybody were to complete the purchasing journey.
Studies have shown that the average person gets an interruption once every eight minutes. They are not necessarily leaving your site for process reasons but are simply provided with something else to do. If somebody is at work, the interruption propensity is even higher than this. Businesses should have processes that contact the customers as a reminder they have left items in the cart. Emails of this nature can be very efficient.
However, cart abandonment can be an indicator of how intuitive and trustworthy your website is. If you are getting a lot of dropouts at a certain point, perhaps look at whether the site seems secure and what changes you can make to give customers a little more comfort in what they are doing. Small amendments to a cart can make a big difference. Remember, these are customers who did show an initial interest.
8. Net Promoter Score
The net promoter score gives an indication of how satisfied customers are with their experience on your website. It is closely associated with growth in sales and profit. Net promoter score is based on one question:
How likely would you recommend our [company, product, or service] to a friend or colleague?
The answers are measured on a scale of zero to 10. A zero represents “very unlikely” (or “not at all likely”). A 10 is “extremely likely.”
Those who score the company with a 9 or 10 are known as promoters, 7 or 8 are passive and 6 or less are called detractors. These figures combine to provide a percentage satisfaction score known as NPS.
A high net promoter score tells you that people are very happy with your business and likely to be recommending you to others whereas a low score would be quite the opposite. In e-commerce, a score of 45% would be considered an excellent result (% promoters – % detractors).
Regardless of how good your designers believe the experience is, there is no better way than hearing it from the customers themselves.
9. Margin Rate
The average gross margin for e-commerce stores is at 40% but every store will be different depending on the type of products it sells.
Regardless of order volumes and high average order values, if you are not keeping any of that money, having those customers becomes fundamentally redundant. Having low margin products is not necessarily a problem but you need customers to purchase those alongside higher-margin items wherever possible.
If you are getting a high proportion of visitors only buying the low margin products, you will soon start to have problems. You could spend more marketing the high margin items, increase prices for lower-margin ones or change the website design to see if highlighting “loss leaders” differently makes an impact.
10. Refund and Return Rate
Item returns are terrible for business profits. Statistics have suggested that as many as 41% of consumers have purchased multiple variations of items with the intent of returning the ones they don’t like e.g. different sizes of clothes.
92% of consumers say they are likely to purchase again from an online store if they offer free returns. Many e-commerce retailers have started to offer this as standard but a high return rate can make a massive dent into profit margins and must be monitored incredibly closely.
The key to managing the return rate is in balancing it out against average order values and customer lifetime value. For example, if 50% of customers are returning items, there is clearly an issue with a product or service and needs more orders of high value to account for it. Segmenting your return rate by product or service can highlight any specific issues.
In a modern age where we are competing with the likes of Amazon Prime (free next day delivery and free returns), customers have new expectations, and this has become a key metric.
11. Support Rate
Before making a purchase, support rate tells you how many of your visitors needed help. This could be via live chat service, email or a phone call to to your customer support team. Every time a customer needs help via one of these channels it is at a cost to your business and needs to be closely monitored.
To address a high support rate, you need to work out why these customers are needing to reach out in the first place. For example, is the information on your website unclear is there something completely missing. Changes to the website design can reduce the reliance on support mechanisms and the impact on acquisition costs.
12. Return On Ad Spend (ROAS)
ROAS measures the efficiency of digital advertising. It is designed to evaluate which methods are working and how they can be used to drive future efforts.
For example, a company spends $1,000 on an online advertising campaign in a single month. In this month, the campaign results in revenue of $5,000. Therefore, the ROAS is a ratio of 5 to 1 (or 500 percent) as $5,000 divided by $1,000 = $5.
When looking at ROAS alongside other metrics like customer lifetime value, you can get a very good idea of how campaigns impact the bottom-line profit as well as planning the best marketing strategy e.g. where should you be investing your money.
As an industry-standard, $4 revenue for every $1 spent is considered a good ROAS but as with a lot of these metrics, it depends on the business and the products they sell in a lot of cases.
Summary
While there are numerous metrics to track e-commerce performance, this article covers some of the key ones that will definitely help you drive your business forward. Even if you are starting small, track these metrics now so they don’t get out of hand once the inevitable growth happens. The better understanding you have of your e-commerce data and how it influences your decision, the greater the chance of success.
