Selling online without keeping track of your ecommerce metrics is like driving with eyes closed. No business can survive if you don’t follow how you’re doing and compare progress over time.
We know it’s hard to decide what performance metrics to monitor, especially if you’re at the beginning of your entrepreneurial journey. That’s why we compiled this short guide to the most important KPIs in e-commerce to start with.
While gathering as much information as possible can give you valuable insights, don’t jump so deep before you have your essential controls in place.
First, you need the overall picture of your business performance – every day. The KPIs you need to look at for potential problems are not so many.
A decent ecommerce metrics dashboard should have them all monitored for you.
This ecommerce metric measures how much it costs to acquire a new customer. What’s tricky is that you pay for traffic, but not all of it converts to customers.
If you want to ever make a profit, you have to optimize your acquisition channels so you only pay for quality traffic and keep cost in check.
Sometimes, less traffic with higher conversion rate may prove more profitable than huge traffic that barely converts.
Analyze all acquisition channels you have – social media, ads, review sites, referrals, etc. to evaluate which ones really make the difference for your business. Spending your marketing budget in the right places means you’ll be paying only as much as you can afford for acquisition.
Make sure you know what that maximum cost is and never exceed it. Otherwise, you might actually be losing money in the effort to bring in new customers.
Also, remember to segment costs by location, because prices are different for Europe, North America and the rest of the world.
For an in-depth analysis of the main acquisition channels suitable for eCommerce, check out our article on Acquisition (part of the AARRR Metrics).
CLV measures how much any given customer spends with your online shop throughout the customer lifecycle. It’s calculated by subtracting the acquisition cost from the revenue earned from them.
See where things get complicated?
You may be getting good revenue from a customer, but when the acquisition cost is too high, you’ll need a lot more orders to break even.
It’s hard to predict CLV but once you notice really high-value customers, examine their behavior and try to replicate their experience with others – their journey discovering your products and offers (can be used as a basis for site redesign), incentives that worked, all-star products that always trigger loyalty, etc.
CLV is naturally tied to retention. Add spending habits to your list of behaviors to watch when analyzing customers.
Loyalty and regular orders not always mean higher value of orders – many people shop only at a discount. Shift your best retention magic tricks to the few unicorns who spend $500 with you at one sitting.
CLV brings us to this ecommerce metric. It’s the cost-effective alternative to getting new traffic. After all, it means more revenue at a fraction of the cost – less acquisition and transactional costs.
Why is it important?
Because it’s an insight into how mad about your products people are. We all want to be that store that captures customers with everything they’ve ever wanted and get orders for $1000 at a time.
Of course, it also depends on your products In the general case, though, it’s important to monitor average cart value from different acquisition channels and geo locations, as well as products that usually drive order value up (products that require regular maintenance and accessories) or bigger/bundled packs).
Some of the bullet-proof ways to increase AOV include:
For more ideas, visit our article on AOV- increasing tactics.
The customers you manage to keep as returning. It’s measured by calculating how many customers acquired in a certain past period of time came back after that to purchase more.
Returning customers are far more profitable than acquiring new ones. The acquisition is not cheap and those returning customers pay off their acquisition cost times over.
How can you influence it?
People have to be happy with your product and service to come back – as simple as that.
If they completed an order once, your sales funnel worked with them once (that’s a good indicator for flow, functionality and so on), but it doesn’t mean they’ll come back.
You’re not done with the sale.
Delivery times need to be kept as promised and shipping condition should be top-notch; then, the product must be what they ordered – don’t ever believe you can get away with it.
And follow up on customer’s satisfaction – what can you do better next time. Awesome experience – make them feel special and appreciated – will help your brand name stay on top of their mind.
Also, use baits that will make switching cost higher and hook them to you: loyalty programs, maintenance, accessories, personal expert advice, flexible delivery and whatever else is suitable your products. If they get additional value out of shopping from you, they’d be less willing to switch.
Retention closely impacts average customer lifetime value and therefore – profitability. The better retention, the more profitable customers become.
Probably the most important among all ecommerce metrics.
This is how many visitors convert into customers. One of the most common problems of e-commerce entrepreneurs is getting tons of traffic and no sales at all.
To give you heads up, the average conversion rate for the e-commerce industry tends to be around 2,5%. See the Smart Insights’ report for detailed benchmarks.
Since conversion is basically how successfully you turn visitors into customers, you definitely should analyze the shopping experience you provide with the help of sales funnels.
Don’t forget that overall conversion rate is one thing, but different segments will have varying rates, too. For a precise analysis, segment conversions by traffic sources, marketing campaigns, location and search keywords.
The process of influencing this metric is called Conversion Rate Optimization (CRO). By looking at your sales funnel, visitor behavior on site, page views and exit pages, you will identify where the problem is and hopefully fix it.
All steps along the customer journey to checkout should work smoothly – you lose conversions with every obstacle on the way.
In case you’re ready to start CRO now, here’s a long and thorough checklist by Moz of all steps necessary.
What different variations of buttons. product categories, search options and product images to test in the process? The Optimizely blog shares interesting and unexpected results from A/B testing case studies.
This is what you earn from each product after deducting what you paid for supplying it (presented as a percentage of the retail price – what portion of the retail price is your profit).
That’s what you work for. You may be selling tons, but as long as you’re not making any profit, you might as well quit the business. Always try to keep the margin higher than the average acquisition cost if you want to have a sustainable online business.
It’s completely normal to have high-performing products that yield you a sweet margin, whereas others barely make you anything. Try to keep in check the average margin of each category as well as the overall margin.
What can you do about it?
As the formula suggests, the margin increases as retail price goes up and cost of goods sold goes down. Working upwards with your customers, you can push prices up.
Going down the supply chain, you can negotiate a lower cost of goods with your suppliers and earn more without your customers feeling the difference (this move is tied to certain order volumes, though, and can be hard to achieve for smaller businesses).
In both cases, it’s important to know whether your customers are price-sensitive or quality-oriented before taking action.
Your product mix should be optimized so that you have traffic-generators (products that get people in, but make lower margins) and high-performance (that kill it even though you sell fewer of them). You might want to play with bundles – usually the products in them balance out each other’ margins.
Higher prices sometimes work well for higher-end positioning without compromising the quality of the products and sifting out the disloyal price-sensitive customers. Lower cost of goods, though, may lead to worse quality of the products and possible dissatisfaction.
You’ll have to revisit margin targets set often and reevaluate until you reach sustainable profitability.
On average, 68% of people abandon their shopping cart online. That’s gruesome statistic.
Top on the list with reasons are unexpected shipping costs, followed closely by the fact people start checkout to see the full cost for price comparison. Since these two are basically similar, it’s a strong indicator your first step in reducing abandonment rate is eliminating hidden costs.
Next in order of destructive effect on your conversions are:
All of them sound pretty expected, don’t they? Then why are we putting the brakes on ourselves?
We’ve covered cart abandonment before, and here’s a list of 7 things you can do to optimize it. Less abandoned carts equal more sales for you, so keep an eye on it.
We treat you to a collection of cart abandonment emails you can steal.
It’s calculated as the percentage of product returns accepted compared to total sales.
Sometimes problems happen and products need to be returned. Not surprisingly, the return rate is highest in the clothing eCommerce.
While accepting returns is a must, a high return rate indicates problems with product quality, customer satisfaction or lead quality. Returns are costly because they take up twice the time for processing (before shipping and then again, on return).
Every returned item not only cuts down a piece of your revenue but also means an unhappy customer.
Segmenting your return rate by products and categories will help you remove underperforming products from your catalog. You don’t want to sell bad quality products that disappoint buyers.
Even worse, they degrade your brand image and credibility. Disgruntled customers have the freedom to rant about you on social media and you can kiss their friends goodbye if you wanted to win them over.
How can you prevent it?
First, make sure your customers see and understand what they’re buying and what’s the quality. This includes:
Second, ship what you market – there’s barely anything more frustrating than receiving a product of worse quality than you paid for. We’ve all seen and laughed at the comic photos of frustrated customers who bought their wedding dresses from one of the huge retailers worldwide and got such bad quality that it’s not even funny.
Third, follow up on customers who return purchases and work with their reasons.
Finally, be careful with serial returners who use loopholes in return policies and rip you off. As bad as it sounds, there are people who wear clothing items once and return them for a full refund.
Shopify outlines how to set strict return policies to eliminate them. Fewer returns mean the sales you made are final and bring real revenue (what’s the point if you make 50 sales and refund 40 of them?), more happy customers and a strong brand image.
Who doesn’t want that?
This measures how many of your visitors and customers need support before purchase. If this KPI is too high, you need to put more effort in the information you provide about your product, return policies, shipping and so on.
More importantly, these people are the active ones who dare reach out to you, but there are many more who just leave without asking questions.
To address this problem, first, make your support contacts – live chat, mail, phone – visible and user-friendly. Don’t put additional obstacles on the way, it’s only hurting your conversions.
It’s better to talk to someone frustrated, resolve the problem and see them go with a purchase instead of losing them forever.
Another sub-metric (if we may call it that way) is how many people purchase after contacting support. If this rate is higher than your average conversion rate, you’re doing a great job helping your customers make a purchase decision.
Return rate, supported purchases, conversion rate and a number of other eCommerce metrics vary across products and categories.
Some products sell more per view, but you don’t advertise them on your homepage so they don’t get enough exposure and sales as a result. That’s how you lose potential revenue.
Try to look at all of the above-mentioned metrics at least by category, if not by product. Keep your eyes open for the following possibilities:
so you can optimize stock, product pages and all inherent expenses.
There’s a number of tools you can use to keep an eye on your business metrics. It’s best to use software that allows you to break down each metric by location, device used, campaign, product and so on.
Also, it’s important to understand the people behind your orders – behavior-driven analytics will give you a new perspective of why and how things happen on your eCommerce site.
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