10 Key Performance Indicators to Track for Optimizing Your Ecommerce Business
By Michael Sacco, Partner, National Leader - Consumer & Industrial Products
In the ecommerce industry, an inventory of great products is just the first step on the road to success. And, with projections suggesting that by 2025 ecommerce spending will exceed $1.34 trillion annually in the fashion category alone, your consumer goods brand has every opportunity to reach a lucrative market online.
Using the analytical skill and operational savvy that you’ve developed through your sourcing, fabrication, distribution, and design efforts, you’re already well-equipped to create a data analytics program that will help you compete in a global marketplace.
Build a program that highlights the following ten key performance indicators (KPIs) and you’ll have the visibility to transform raw data into crucial insights. These metrics will show you where you stand today and prepare you to make the changes necessary to outpace your competitors.
Building a useful data analytics infrastructure does not have to be time-consuming or expensive. In fact, most commercially available ecommerce platforms ship with simple data analytics capabilities that offer insight into your online store’s key metrics right out of the box.
Build a site from scratch, however, and you’ll need to take extra care. There are a variety of software programs designed to help ensure your data tracking and recording is accurate. For the basic KPIs described below, it’s essential to know how many visitors your site is attracting, where they are coming from, and what actions they’re taking as they navigate your digital store.
Keep in mind that data protection laws are designed to protect consumers and may require you to feature disclaimers or allow users to opt out of tracking features.
Ten KPIs to Prioritize
The following ten KPIs can be referenced as often as you’d like but should be top of mind anytime you’re making changes – whether that’s launching a new product, testing the efficacy of a campaign, or tracking overall performance.
Useful data analytics analysis can drive profitability and company value. According to a McKinsey & Company report, “retailers that overemphasize ecommerce revenues could actually be damaging their prospects. Indeed, digital growth is not enough; only profitable digital growth will create value. Since ecommerce is a significant contributor to growth for most retailers, they must not only have a strategy generating more growth from this channel but also ensure that the strategy creates value for the organization.”
Use the basic tracking capabilities of your software or ecommerce platform and the formulas that follow to generate insights that will help you take your business to the next level.
1. Conversion Rate
Calculates the percentage of users who have completed a desired action. A company’s conversion rate is indicative of how successful your strategies are in leading consumers to take a particular action on your website. Besides online sales, the conversion rate can also be used to track visitors that opt-in to marketing campaigns, click on affiliate links, complete transactions, and take other actions.
How do I measure my conversion rate? Divide the total number of website visitors by the number of those who successfully completed a desired action over the total number of all website visitors.
2. Cost per order (CPO)
To ensure that your total cost per order doesn’t negatively impact your profits on each sale, it’s essential to understand your non-advertising or non-marketing costs, such as shipping costs, fulfillment, operating expenses, and other variable expenses, as well as how these get allocated to an individual order basis.
How do I measure my cost per order? Total costs divided by the number of orders in that same time period.
3. Net Profit
Turning a profit is the key to the continued growth and success of a company. Net profit is a useful barometer for the health of your business, allowing you to see at a glance what your ecommerce channel is making (or losing) overall.
How do I measure my net profit? Calculate net profit by adding up your total earnings, then subtracting cost of sales, operating expenses, and interest.
4. Customer Acquisition Cost (CAC)
Similar to your CPO, your CAC is the cost, in terms of marketing expenses, to acquire a new customer. This includes any sales or marketing-related expenses, including expenses associated with producing, placing, and maintaining customer acquisition efforts. CAC may be most revealing when studied alongside Customer Lifetime Value.
How do I measure my customer acquisition cost? Calculate your customer acquisition costs by adding all sales and marketing expenses, then dividing that figure by your total number of customers.
5. Customer Lifetime Value (CLTV)
The total value of a customer to the business over the entire relationship. Insight into CLTV can help a brand understand how likely a customer is to repeat their business and, when analyzed alongside CAC, offers an idea of the total value of the business’ marketing, advertising, and sales initiatives.
How do I measure my customer lifetime value? The total expenditure associated with a customer’s account over its lifetime is that account’s customer lifetime value. It may be beneficial to encourage users to purchase from an account rather than as a guest to help ensure you’re capturing this data accurately.
6. Revenue per visitor (RPV)
RPV offers insight into the value of the engagement your store earns. This metric can help you understand which promotions bring window shoppers and which bring customers, or get a better sense of whether your promotional campaigns should prioritize a certain profile of shopper or simply reach as many consumers as possible.
How do I measure my revenue per visitor? Divide your total revenues by the total number of unique visitors to your store.
7. Average Order Value (AOV)
Measures the value of orders placed over a specified time period. Knowing your AOV can help you create levers that might increase revenues – minimums for free shipping, upsell opportunities, bundle deals, loyalty programs, and time-limited promotions can all drive your AOV.
How do I measure my average order value? Calculate your average order value by adding up all your orders and dividing by the number of orders.
8. Shopping Cart Abandonment Rate
The rate at which a potential customer backs out of an order. According to Shopify, the average rate of shopping cart abandonment is roughly 70%. Analyze your process to make sure shipping times, additional costs, user experience, and security aren’t turning customers away at the last moment.
How do I measure my shopping cart abandonment rate? First, make sure your ecommerce site is configured to track this metric. Then, calculate it as:
(1 – (the total number of completed transactions)/(number of all initiated sales))*100
9. Return Rate
Tracking your store’s return rate will give you crucial insight into any operational issues that may be occurring between the time your customer completes their transaction and receives their order. Review your customer return process to ensure you’re asking for feedback on any issues the customer encountered – here the numbers aren’t going to be as revealing as your customer’s experience leading up to the return.
How do I measure my units sold? Most likely, you already have a return process that makes reporting the total number of returned orders easy to reference. Just make sure that your customers are submitting explanations for the return. That insight will help you determine whether your issue may be, for example, a manufacturing error, distribution issue, or competitor undercutting you on price.
10. Product Performance KPIs
Tie product sales to revenue so you know how well each of your products is moving. Visibility into your product performance can help you adjust your inventory so you can meet demand, rescope your product line, and rethink the sales, advertising, and marketing efforts that aren’t paying off.
How do I measure product performance KPIs? This may be where your data analytics program becomes a data analytics department. There are many ways to gauge and measure product performance and what is most revealing for your purposes will depend on your industry, products, competitive landscape, and other factors.
KPIs are just one set of tools available to you in your ecommerce growth journey. If you have any questions about effective reporting processes or putting your analytics process into practice, contact a Marcum professional today.