The e-commerce industry has been something of a savior for many of us during the recent and ongoing pandemic. With high street shops closed online businesses became the sole option. This has brought many new converts to online retail and services, and now that life is slowly returning to normal e-commerce stores need to be on the ball to keep the customers they have gained and also bring in new customers and website visitors.
In the article that follows we are looking at the main key performance indicators (KPIs) and other metrics that are essential to understand, monitor, and analyze if an eCommerce retailer is to keep and grow its share of the market.
Understanding these metrics means understanding not only where you are going wrong, but how you can improve. We will also be looking at some solutions to common problems. Let’s not hang around, we’ll get straight down to business and see what are the most important ecommerce metrics to track.
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Is your eCommerce site getting the traffic you hoped for? If not, why not? A website is just part of the web that you weave to bring in leads, yet it starts a long time before anyone reaches your landing page. You will have paid ads that are designed to work for your website; you’ll also have a social media marketing campaign; you may have affiliate programs and other advertising mediums. All of this is essential, but if it is not bringing in the leads, it is costing money and losing customers.
It is not only whether you are getting the traffic and traffic source you need to look at, but also the behavior of those who visit your e-commerce store or who read your ads and social media content. The following few sections cover some of the most important KPIs regarding website traffic, so we recommend you consider these carefully.
What do we mean by impressions? Your ads, your articles on other sites, your blog content, and your social media pages are all there to grab the consumer’s attention. An impression is an instance in which any of the above – indeed any marketing material created by a business – is presented to a consumer. Therefore impressions as a key performance indicator are measured as the following:
The above is by no means a complete list but should give an idea of how to measure impressions. What does your impression rate tell you? It’s a firm indicator as to the effectiveness of your SEO campaign, of your ads, and of your social media presence. It tells you whether you are getting the brand out there to the level it requires.
But impressions only tell you the performance of your attempts to grab consumers’ attention. You now need to consider the link between impressions and conversions.
Let’s assume you have a decent rate of impressions and you’re happy your marketing is getting attention. How many of those impressions are you converting? The click-through rate is the ratio of clicks – that is people going that step further and clicking on your ad or link – to impressions.
For example: if you have 1,000 impressions and 10 clicks, your click-through rate (CTR) is 1%.
This is an important metric as it gives you a good idea as to the actual success of the advert or other media. In other words, whereas your impression rate shows you those that have seen it, the CTR tells you the proportion that is interested in it. For the record, the average CTR for Google Ads is slightly less than 2%, and between 4 to 5% is considered good.
It is also important to look at which ads or media are getting you the best CTR. It could be that Instagram, for example, is performing more positively than Twitter. Or perhaps your paid ads are not getting the attention you wanted. It’s possible your SEO is not doing its job – you may be looking at the wrong keywords – and needs work.
Being able to see your CTR for certain pages is also important, as there may be products or services that consumers are purchasing more readily than others. You need visitors to be looking at your product or service pages more than they are at, say, your About Us page. If this is not happening, work is required.
We’ll move on now to look at the behavior of visitors who do hang around on your site, and what different aspects of this can tell you.
Time on Site and Page Views per Visit
Those people who do click through and visit your site: how long do they spend there, and how many pages do they check out?
This is important information as it tells you a number of important things. First, let’s consider a consumer who visits your site and stays around, clicking through various pages. Yet, they don’t buy anything. If this is happening often then it might be there is something confusing or off-putting about your website.
The modern consumer wants to get to where they need to be quickly and easily and find the information they require equally easily. They want to be reassured that you have the product or service they need in order to trust you enough to buy it. If most visitors to your site are behaving as above the likelihood is your ads and marketing may be doing the job, but the customer is not satisfied when they get to the end result.
Having many consumers visit your site and spending time there is on the face of it a good thing, but you’re not there for them to read and spend time. Like them, you want things done quickly and efficiently, and the transaction completely there and then.
There are many factors that could influence this sort of behavior. Your prices may be too high, or your products are simply not what the consumer wants. You might have poor descriptions, or your delivery costs may put people off. All of these potential problems can be dealt with by researching competitors more thoroughly, and uncovering where they are scoring over you.
So, remember that getting the customers in is great, but having them hang around and not buy is not. Just the same as with a physical store. Now to another problem with customers visiting but not buying, the Bounce Rate.
A consumer is impressed by your ad or your social media page and clicks through to the site. Without visiting other than the landing page, they leave. This is what we call a bounce. The consumer gets to your site and is simply not interested. However, they responded to the marketing media, so why is this so?
Clearly, there is a gulf between what the consumer expected to find – as inspired by the media that caused them to click through – and what they found. It may be that your product is not what they thought, is too expensive, or that your page simply didn’t inspire them to buy from you.
A high bounce rate is an indicator that work needs to be done to your website copy and further research into what your competitors do differently to you. The bounce rate is an important metric for website development and improvement. Another major problem with many eCommerce stores is cart abandonment. Let’s talk about this in more detail.
Shopping Cart Abandonment Rate
Everyone with an eCommerce outlet has experienced shopping cart abandonment. The customer responds to the ads, clicks through, has a look around, and starts shopping. Then, with several items in their shopping cart, they leave without having completed the checkout process.
Why? Usually, it is due to them finding delivery costs they were not expecting when they get to the final stage. Similar is that many people will go to the checkout to compare your delivery costs with others. Finding it higher than a competitor, they leave.
There are other reasons, such as:
There is nothing that can be done about the last one as people will always ‘window shop’ but the other reasons can be solved by ensuring your shipping costs are displayed openly before checkout, ensuring that you have a guaranteed payment portal with all the major options available, and being open about delivery times early in the process.
In other words, no hidden extras. For this purpose, pop-ups are your friend. When an item is added to the cart you could have a pop-up explaining how much more they need to spend for free delivery. By offering free shipping to reduce the bounce rate.
As for registration, offer the option to shop as a guest. If a customer is satisfied with your service, product, and the price they will register when they return.
Let’s now move on and talk about those customers who do complete their checkout and purchase goods or services, and what KPIs are important with regard to improving your sales.
Customer Lifetime Value
You have a decent number of existing customers, many of whom return to your online store, and you need to apply several ecommerce metrics to ensure you are getting the most out of your ecommerce store. Customer Lifetime Value (CLV) is one of the driving ecommerce metrics that are essential to understand.
What is the customer lifetime value? It is the figure you get when you take away the customer acquisition cost from the revenue you gain from them. If that’s a little complex, don’t worry, everyone finds it so. We’ll try and explain in simple terms.
A customer comes to your store and makes a purchase. What brought them there? Your ads will likely have played a part, so that’s one cost. You may offer an incentive, a discount for a first purchase perhaps, so there’s a further cost to you. Add up all the factors that led to the one paying customer. That’s your customer acquisition cost.
The challenge of the customer acquisition cost is spending the right amount to drive new customers to your service without jeopardizing the lifetime value and revenue from that customer. This is known as the LTV/CAC ratio, and it’s one of the most important ecommerce metrics of many successful online retailers. To simplify this – take your total marketing expenses, divide them by total new customers acquired and you’ll get the total customer acquisition cost.
Now, we’ll assume that customer returns – CLV is linked with customer retention which we’ll talk about later – and buy again, and perhaps become a regular. The CLV is the revenue you get from the customer less the cost of acquisition. Try it with an average customer and you may find their CLV – pick a period of, say, 12 months to work with – is not particularly impressive.
They may spend only small amounts each time (average order value is another metric we will cover) which means you did a lot of work for not much return. Then there are the higher value customers who perhaps spend a lot in just one visit. You can use this metric to analyze the behavior of visitors to your store and look for ways of improving your CLV.
A couple of points to think about: a lot of consumers will take advantage of discount offers, which reduces your average Customer Lifetime Value. Think about targeting the type of customer you’ve seen visiting your site and spending big rather than those that spend little and regular, as the latter will continue their retail behavior. We mentioned average order value just now, so let’s see what this metric has to offer.
Average Order Value
The Average Order Value (AOV) is also one of the vital key performance indicators and ecommerce metrics. In the above section, we talked about the customer acquisition cost. That led us here, as the average order value at your e-commerce store ideally needs to be as high as possible to enhance your CLV. In other words, you need customers to spend as much as possible every time they visit.
How can you enable this? You can’t force people to spend more at your store, but there are marketing tricks you can use to encourage them. Ideally, you want to do this without discounting products, which as we have seen reduces your CLV.
Think about the following for increasing Average Order Value:
Consider that the higher-priced products tend to be those that need maintenance and can be used with a variety of accessories, so perhaps push these to raise your average order value. Also, remember to compare this metric across your advertising and marketing media as it will help you understand where the most valuable customers are coming from.
Retention Rate and Share of Repeat Customers
Retention and repeat is a phrase you need to keep in mind at all times. Before we look at this aspect of e-commerce in more detail, take a step back to the section about CLV. We know how to calculate the acquisition cost of a customer, and we know that CLV is the result of the revenue from that customer minus the cost.
Therefore, it follows that – in general – the repeat customer rate is one you want to concentrate on. In fact, to achieve the best possible performance, retention is your ultimate goal. Repeat customers who come regularly are ones who will quickly pay off their costs, bringing ongoing revenue to your ecommerce business.
How do you calculate your customer retention rate? Take a given period – say six months – and look at the number of customers who keep coming back. You may also want to deduce if there is a correlation between retained customers and particular products or services. If there is, these are areas to concentrate on.
How can you encourage and improve your customer retention rate? Consider the following:
A retained customer is a profitable one, and the more you can do to encourage them to spend more with you, the more valuable that customer becomes for your ecommerce business.
A final word on this: new competitors will enter your market frequently and with enticements that may be attractive to your customers. Do all you can to keep them on your side, as customer loyalty is important to a growing business.
We believe the above rank as the most important metrics and KPIs for any e-Commerce business, but there is more we want you to look at, so read on for further essential metrics and how they can help your business.
Assuming you have a referral program in place – perhaps you offer a discount or other incentive to customers who refer others to your store – it is important to keep in touch with the numbers of new customers gained this way. By looking at referrals from different platforms you can build a picture of a typical customer who is most likely to purchase your products and concentrate your marketing in that area. This is a way of looking at who to target.
As with the method above, take a period of time and have a careful look at all referrals within that timeframe to get accurate data.
The term conversion rate covers many areas of your marketing. A conversion in KPI terms is a person who has been inspired by any area of your marketing to go to your site and complete a given task. This could ask a question, place an order, or request a quote.
Conversions come from many different angles, so you need to look at your ads, your social media engagement, and all other aspects of your marketing campaign. This not only tells you the level of conversions you are achieving but should give you a clear indication of where your conversions are mostly from. Define your macro and micro conversions in Google Analytics to easily track your conversion rates and successfully perform conversion rate optimization. Google Analytics will help you not only track data such as traffic sources, bounce rate, and conversion rate, but it will also help you identify any barriers to purchase every step of your sales funnel.
This metric is one that is fluid, so if you change something on your site or in your campaign and the conversion rate alters as a result, you need to be on top of those changes whether positive or negative.
When it comes to the sales conversion rate, this metric measures the effectiveness of your sales team at converting leads into paying customers. It’s an important metric for aligning your sales and marketing team as both teams will use this metric to determine the quality of leads.
Average Profit Margin
This KPI is related to your CLV as we explained above. Your average profit margin is the total revenue of all customers over a given time minus the cost of goods and materials. This includes all costs including package and postage and customer acquisition methods. Naturally, you want your profit margin to be as high as possible.
Influencing this margin will be the likes of cost of materials, wages, and other business outgoings, plus average spend per customer. This is another area in which encouraging your customers to spend more will help.
The next few KPIs are for e-commerce businesses that have a newsletter and use email marketing.
Newsletter Subscribers Rate
Email marketing is often a useful method of keeping regular customers informed and also inviting potential new business to your pages. However, you need to keep an eye on the level of success your newsletter is achieving. For example, how many visitors subscribe to the newsletter but don’t buy from your shop? If it’s quite a percentage, you need to find out why.
A newsletter should be informative, engaging, and – most of all – needs to encourage readers to visit your store and make purchases. If it is not achieving this it is wasting time and effort that could be diverted elsewhere. If it is bringing in custom, how much, and how can you improve it?
Email Open Rate and Email Click-Through Rate
In the above paragraph, we mention the value of a newsletter and whether it is performing. That is equally true of emails. If you use email as marketing – and it is recommended that you do – then you need to know if the recipients are taking notice of them. A great proportion of sales emails – even those from brands the recipient is loyal to – go straight to the bin.
This can be for many reasons, including:
You should measure the number of emails that are opened against those that are not. If the latter make up the majority, a clean-up of your mailing lists may rid you of consumers who are not of interest to you. Also, keep an eye on the click-through rate from emails as it may be higher than other methods you are using, and therefore more attention should be diverted here.
Make sure your email title is relevant and engaging and that it is clear who has sent it for the best results.
Paid Ads Performance
Are your paid ads doing the job you expect them to? We have already mentioned the example of Google Ads, and the fact an average click-through from these is below 2%. A 4% to 5% click-through is considered good and anything above that excellent. If you are achieving average or below you need to reassess your ads campaign and restructure it. It is worth spending time looking carefully at the performance of ads as if they are not outsourcing your social media and emails, for example, something is wrong.
Refund and Return Rate
How many of your customers return products they have bought? Here’s a couple of statistics: across all market sectors, returns to a physical store are on average around 8.9%. Returns to online stores exceed 20% and in some markets much higher.
This figure will depend on your product – clothes, for example, will have a higher return rate – but those are quite alarming figures. If your return rates are high, you need to find out why. Ask the customer if they would kindly give a reason, and then work with that to solve the problem. Obviously, if many customers return goods that are faulty you need to talk to your suppliers.
Best Performing Products and Categories
Many e-commerce stores fail to capitalize on their best-performing products, largely as they have not put in the time and effort to find out which products sell the most. It’s important as spending time on a product or line that few people buy is wasting your efforts. Improving a product range or expanding one that is a runaway success in place of the underperforming range is a must. It’s simple to get these figures from your past sales.
Our final point is this: you will get complaints about faulty goods, those damages in transit, or other problems customers experience with your ecommerce business. Always act on complaints, communicate with the customer, and do all you can to make good. Perhaps offer a discount on their next purchase, and remember the acquisition cost of that and every customer.
The above is by no means a comprehensive list as there are many more KPIs related to those we have mentioned, but we believe it should help you get a grip on many of the factors that influence growth, encourage conversions for e-commerce businesses, and measure ecommerce success. There are many tools that can be purchased and used to analyze each of the above and more, and we recommend you look at the market for the correct one for your needs.