If you ask any ecommerce merchant what the most important performance metric for their online store is, you’re likely to hear total sales or total revenue. And while these are certainly important metrics, they don’t really tell you anything about how your store is performing or what you can do to make improvements.
If you really want to understand how your site and marketing campaigns are performing, you need to go beyond the top-level vanity metrics. Tracking specific key performance indicators (KPIs) for ecommerce businesses allows you to use data to make informed optimization decisions, helping to reach, engage and convert more customers.
Here are the top 6 KPIs that ecommerce merchants should be tracking:
1. Average Order Value
Average Order Value (AOV) measures the average total of every order placed with a merchant over a defined period of time.
By increasing AOV for every customer (versus focusing solely on increasing the total number of orders) you can make a major impact on your total revenue in a more efficient manner. Rather than bleeding ad spend into every paid channel, trying to game Google’s ever-changing algorithm, and testing your hand at each new social channel the day they’re released, focusing on AOV let’s you be smarter with your marketing resources. Because it’s far easier and less costly to retain customers than it is to find new ones.
To increase AOV, you can try various tactics to see what works best for your business and products. Some ideas:
- Offer free shipping on orders above a certain price
- Offer a free gift on orders above a certain price
- Include “recommended,” “related” or “you also may like” product links on product pages
- Create sampler packs or bundles of related products
- Create limited time offers and show a count down
2. Cart Completion Rate
Cart completion rate measures the ratio of people that add products to their shopping cart compared to those that complete the purchase.
The cart completion rate can tell you a great deal about your shopping cart, and provide insights on how to improve it.
A low CCR tells you that customers are already engaged and looking to buy, but something stopped them dead in their tracks during your checkout process. Further digging can reveal at what stage of the cart they abandoned--was it when you asked them to create an account as a first step, triggering their commitment phobia? Or was it when you showed a coupon code field that encouraged them to go search for a code? Or maybe when you asked for more information than is truly necessary, making them feel imposed upon and quite frankly, creeped out?
Closely watching cart completion rates and digging into where and why can help you make small improvements that have a big impact on your bottom line.
3. Profit Margin
Profit margin measures the ratio of sales revenue to the cost of running a business.
Sales revenue is simple to calculate, but loads of things go into running an ecommerce business. Staff, tools and software, fulfillment centers, shipping, advertising and marketing, office space, utilities, R&D, inventory, and the list goes on.
Just tracking your profit margin won’t tell you much, but understanding which products contribute the most sales and which have the highest margins will. Let’s say your best selling product only has single digit margins, but other, less popular products are upwards of 30% margin. Highlighting these higher margin product--through on-site placement, email campaigns, paid media, or social promotion--can help to offset the costs of lower margin products and make you more profitable overall.
4. New Customer Acquisition Ratio
New customer acquisition ratio measures the number of new customers divided by the total number of customers.
While it generally costs more to obtain new customers than it does to retain them, it’s still important to grow your customer list, especially for companies selling products that last a long time (e.g., people usually only buy a new mattress, car or patio furniture once a decade).
New customer acquisition ratio on it’s own is not a very helpful metric, but understanding the ratio by channel can tell you a lot and help you use your marketing dollars more wisely.
5. Customer Lifetime Value
Customer lifetime value (LTV) is the projected revenue that a customer will generate in their lifetime. A few variables go into calculating LTV, such as average customer lifespan and customer retention rate, which you can learn about in this infographic.
If you have a low LTV, it likely means that your customers are making one purchase but never come back. As we know, focusing on retaining customers and driving repeat purchases is more cost efficient, so working to increase LTV is a profitable endeavor. Creating email campaigns to keep customers engaged and to reinvigorate dormant customers can help to improve LTV. Automated email campaigns, like cart abandonment and purchase follow-up emails, are a great way to make this process more efficient.
LTV is also important because it can help you determine how much you can spend to acquire new customers. As a general rule, LTV should be more than the average customer acquisition costs.
6. Bounce Rate for Particular Campaigns or Product Ads
Bounce rate is the percentage of visitors that only visit one page of your site. As a general rule, the lower the bounce rate the better.
Looking at bounce rate as a whole across your site it’s helpful, because there may be pages where a high bounce rate isn’t necessarily a bad thing. These pages include location pages, blog posts or contact us pages with only a phone number. When a visitor lands on these pages, finds the info they need quickly (e.g., phone number, address, single article), and then leaves just as quickly, they may still be engaged and have the potential to make an in-store or phone purchase.
However, if you look at bounce rate for a particular marketing campaign or for product pages, you can better understand performance and how to make improvements.
Let’s say your average bounce rate across all product pages is 30%, but a single product has a bounce rate of 60%. There’s something wrong here. Maybe it’s that the page is ranking on Google for unrelated or non-transactional keywords. Or maybe the product doesn’t have enough images or content to allow users to make an informed purchase. Use this KPI to alert you of issues, and then dig in further to find the culprit or identify areas to test optimization efforts.
Reporting for reporting sake is pointless. Tracking your ecommerce site’s performance is only worthwhile if you’re measuring KPIs that will reveal optimization opportunities.