eCommerce businesses are a dime a dozen nowadays.
Not all of them are profitable enough to rope in revenue or drive sales.
The difference lies solely in how they approach data.
Smart business owners are always guided by data. But legendary business owners go a step ahead. They make decisions based on the data.
The common place to start—eCommerce metrics.
Metrics for eCommerce businesses are like guiding lights. They can show you what's working well, where things are going wrong, and what's worth your time and money.
In simple terms, your eCommerce business metrics are measurement factors for website performance. Anything from conversion rate to average order value to cart abandonment rate are good examples of metrics.
Metrics or KPIs: What to measure?
Let’s settle this debate once and for all.
All KPIs are metrics, but not all metrics are KPIs.
There—it can’t get any simpler. Let us explain.
Metrics are general data points, but KPIs are metrics that matter. These are your eCommerce business’s key metrics—the performance indicators that indicate growth.
For example, page views are metrics, but sales/orders are KPIs.
So metrics become KPIs only when seen in the context of your business’s performance. If they impact growth, revenue, or sales in any way, they should be measured.
This also means it’s time to stop worrying about vanity metrics—that add nothing to your business’s bottom line. Taking the example above, page views may give a boost of confidence but it should also convert into sales for it to matter.
But let that not make you think that metrics aren’t important.
To end it, KPIs maybe your end goal, but metrics are what leads you there.
So keeping an eye on your performance metrics is an important aspect of running a successful eCommerce business. You should action any drastic changes in these metrics immediately because they can impact your business growth otherwise.
If you’re not sure which eCommerce metrics to track, let these 3 questions guide you:
- Will a change in the metrics affect my business’s bottom line?
- Does improving the metric directly help you meet your business goals?
- Will improving this metric improve other metrics as well?
In this post, we’ve compiled a list of all the key metrics for your eCommerce business. These are tried and tested data points that all successful eCommerce founders swear by.
What Metrics Are Affecting Your Revenue?
1. Average Order Value (AOV)
Average Order Value (AOV) indicates the average amount customers spend on each order. It’s calculated by dividing your total revenue by the number of orders placed.
Average Order Value (AOV) = Total Revenue/Number of Orders
The biggest insight that your AOV can provide you with is the spending behavior of your customers. Knowing how much your customers are willing to spend on average for an order on your website serves as a great basis for developing pricing and marketing strategies.
Let’s take a look at how you calculate your revenue:
Revenue = Traffic x Conversion Rate x Average Order Value
It’s clear to see that improving your AOV will directly result in the growth of your revenue. Now, it’s only a matter of figuring how to push that order value up.
How to increase your Average Order Value
- Upselling and cross-selling - With upselling, you can make your customers buy something that’s higher priced than the one they chose. With cross-selling, you can suggest your customers products related to the one they purchased. You can use various tactics such as product recommendations or bundle sales to increase your AOV.
- Offer free shipping as part of a higher-priced order - You can also try to convince your customers to add more products in return for free shipping.
- Offer discounts on reaching a minimum purchase target - Another way is to offer a discount once your shoppers reach a particular pricing amount.
- Incentivize higher-priced purchases - Offer them a freebie when they reach a minimum purchase target or buy a higher-priced product.
Looking for more smart and non-pushy ways to increase your average order value? Check out this post.
2. Sales Conversion Rate
Like the average order value, your conversion rate is another eCommerce metric that has a direct effect on your business revenue. It’s also one of the key eCommerce metrics to track out there.
Your sales conversion rate is calculated by dividing the number of checkouts by the number of unique visitors. This is the percentage that shows how efficiently your website is converting visitors into customers.
Sales Conversion Rate = (Total Number of Checkouts/Number of Unique Visitors) x 100
So, if revenue is on the decline or just not growing in the way you expected—optimizing your sales conversion rate is definitely something to look into. In doing so, you can not convert more visitors to buyers as well as generate higher revenues without having to spend more.
A low conversion rate doesn’t mean that your site isn’t getting enough visitors. It just means that they aren’t converting as much. So you may still have to put in money on gaining traffic.
To increase conversions, you’ll need to introduce things such as free shipping, better website layout, smoother checkout process, and limited-time offers. All of these factors will encourage existing website visitors to buy more—and your conversion rate.
Let’s say you have 200 visitors on your site and a sales conversion rate of 10%. This means that you're getting a total of 20 sales. Optimizing your sales conversion rate to 15% will mean out of those same 200 visitors, you now will have 30 people earning you revenue.
One thing to remember: to increase your overall revenue, you need to increase both your AOV and sales conversion rate. Increasing your AOV will amount to nothing unless your sales conversion rate is increasing and vice-versa. So it’s best to keep track of these two performance metrics simultaneously for revenue insights.
How to increase your Sales Conversion Rate
- Use a strong value proposition - The most convincing way to make your customers stick to your site—tell them what’s in it for them. Persuade them that they’re looking at the right solution to their problem and you can help them—and you’ve earned yourself a customer.
- Add trust badges - If your customers don’t trust you, they won’t buy from you. Trust seals provide that level of confidence to your visitors—and tell them that yes, your site is legitimate.
- Add customer reviews - Nothing creates a more positive affirmation in the minds of shoppers than seeing other shoppers have used and reviewed a product they want to purchase.
- Use attractive images - High-quality images for both product and other pages act as a great conversion booster.
Don’t waste your time with stale strategies to increase your sales conversion rate. Try the scientifically proven techniques in this post.
3. Shopping Cart Abandonment Rate
Shopping cart abandonment is one of the leading causes of lost revenue to eCommerce businesses. It’s the rate at which visitors exit your website without going through with their purchase after adding items to their cart.
If revenues are decreasing or you’re looking for ways to increase revenue, improving your shopping cart abandonment rate is something worth looking into.
Your shopping cart abandonment rate can be calculated using the number of completed transactions and the number of carts created.
Cart Abandonment Rate (CAR) = (1 - Completed Transactions (CT) / Carts Created (CC)) x 100
The cart abandonment is also used to pinpoint the exact amount of revenue loss that is incurred as a result. This is done by multiplying the CAR and the AOV:
Revenue Loss = CAR x AOV
So how do we go about reducing the cart abandonment rate on a website? The best place to start is by identifying why people aren’t following through with the transaction.
Some of the common reasons are:
- Hidden cost—shipping, tax, etc.
- A checkout process that isn’t user-friendly
- Lack of reliable payment or shipping methods
- Customers not wanting to create an account
- A slow-loading website
Now let’s look at some solutions.
How to lower your Shopping Cart Abandonment Rate
- Create a smooth checkout process - Remove all distractions from the page and keep the focus only on a smooth checkout process
- Show the number of steps required for checkout - Reduce midway drop-offs by highlighting the number of steps required to complete the transaction.
- Make them return to the transaction - Remarket to those with incomplete transactions and encourage them to finish the purchase.
- Seal the deal with cart abandonment emails - When your customers leave a transaction incomplete, you can send them these emails and encourage them to complete their purchase.
Don’t leave your checkout process to chance. Use the effective tricks in this post to reduce your shopping cart abandonment and drive more sales.
4. Revenue Per Visitor (RPV)
Your per visitor revenue shows how much money you earn for every visitor that comes on to your website.
It can be calculated by either dividing total revenue by the total number of unique visitors OR by multiplying the conversion rate with the average order value.
Revenue Per Visitor = Total Revenue/Total number of Unique Visitors
Conversion Rate x Average Order Value
The revenue per visitor gives a more comprehensive view of your revenue. It can increase or decrease either through changes in your conversion rate or by fluctuations in the amount people are spending per order.
This eCommerce metric can also be used to evaluate the effectiveness of your sales efforts, and new visitor acquisitions efforts.
It’s important to keep in mind that only unique visitors should be used to calculate RPV. Most of the time consumers don’t make a purchase the first time they visit a website and there are times where there are floods of unqualified traffic.
If you take these figures into account, your RPV value will be driven down, despite there not being anything wrong with the website or sales methods.
How to improve your Revenue Per Visitor
- Reduce purchase pain points - Shoppers hate painstaking purchase processes. You can make their life simpler by bundling products together and avoiding multiple purchases.
- Create a personalized shopping experience - Make the customer shopping journey smooth with personalized product recommendations, geo-personalization, etc.
- Offer loyalty programs - Once you have the customer’s attention, try retaining it through a long-term relationship with loyalty programs.
- Boost website optimization - Use heat maps and A/B testing to optimize your website as per customer behavior and needs.
Are you using personalization enough for your eCommerce business? Find out how to boost your revenue with smart personalization in this post.
5. Email Opt-in Conversion Rate (and Clickthrough Rate)
The email opt-in rate is the percentage of visitors that are interested enough to subscribe to your email list. Promotional emails help to keep customers engaged with the latest offers, product launches, and sales.
Keeping customers informed and giving them reasons to come back to your website is a great way of increasing revenue. That’s why a high email opt-in rate means more subscribers which can ultimately lead to more sales.
Email Opt-in Conversion Rate = (Number of emails opted in) / (Number of users) x 100
But, here’s the thing with the email opt-in rate. It doesn’t mean much if people aren’t opening the emails and clicking on the links or media shared. That is measured through your email clickthrough rate.
The clickthrough rate is essentially an engagement metric. Using this rate you can calculate how many people are being driven to carry out the desired action as a result of the email sent.
Email Clickthrough Rate = (Emails Clicked) / (Emails Sent - Bounces) x 100
If you have a high email opt-in rate but still aren’t seeing any revenue increases, it’s likely because your clickthrough rate isn’t doing as well. By using clickthrough rates you can analyze the performance of different aspects of the emails sent.
This includes the content of the email, the link placement, the type of media sent, and the overall interest in the email. From there you can go back to the drawing board and go over the problem areas to ensure that the emails better serve their purpose of generating more revenue.
How to increase your Email Opt-In Conversion Rate
- Include opt-in offers - Instead of requesting your customers to simply opt-in, give them ample reasons to do so they can’t refuse.
- Make popups more visible - Don’t keep your popups hidden at the footer. Be non-intrusive but assertive in asking for emails.
- Shuffle things up - If one offer doesn’t work quite well, try introducing a different one and measure the opt-in rates.
- Establish brand authority - Use how-to videos and expert posts to establish your brand as a thought leader.
Make sure your eCommerce emails drive actual conversions instead of landing in the spam folder. Find out how in this post.
6. Customer Lifetime Value (CLV)
How much is a certain customer worth to your business? How much money do they bring in? How often do they buy? How profitable are they in comparison to the others?
All these questions can be answered with the help of this key eCommerce metric.
The customer lifetime value is calculated for each customer by multiplying the average value of their purchase by the number of times the customer will buy each year and the average lengths of the customer relationship
Customer Lifetime Value (CLV) = Average Value of a Purchase x Number of Times the Customer Buys Per Year x Average Length of the Customer Relationship
Identifying which customers have the highest CLV is key. They are the ones that bring in the bulk of the revenue for your business. With that knowledge, you know where, or rather, in whom your money should be invested so that it yields the highest returns.
If you have a customer whose lifetime value is $200 and another whose lifetime value is $1000, it makes more sense to find out what kind of products they want.
It’s important to determine what products and customers are the most profitable and how to acquire those customers.
As shown in the image above, customers can fall into 3 types of profitability categories—20% non-profitable, 20% very profitable, or 60% profitable.
Once you have an idea of what customers are and aren’t profitable, you can either acquire new customers or engage in tactics to boost the CLV of existing customers.
By acquiring new customers that have a similar customer profile to the profitable customers, you’ll be able to replace the bottom 20%. However, research has shown—the probability of selling to existing customers is about 60–70% while the odds of selling to a new customer are pretty low at 5–20%.
How to improve Customer Lifetime Value
- Increase average order value - AOV has a direct impact on CLV. If your customers pay more for each order, it’ll automatically increase their lifetime value.
- Build long-term customer relationships - If your customers trust you, they’re going to buy more from you and will stay loyal to your brand. Loyalty always results in higher CLV.
- Establish brand loyalty - This is a long-term goal. Several ways to reach there are creating high-quality products and offering top-notch customer service.
- Create a customer loyalty program - Rewarding your customers to let them know that you appreciate them build loyalty. The best way to do this is through a rewards program or loyalty program.
Customer lifetime value is a metric that can be used to ensure the long-term success of the business. Taking steps to improve CLV will help retain customers that are loyal and who will bring in more revenue in the long run.
Know what strategies the best eCommerce marketers are using to retain their customers? Find out the fresh strategies for 2021 in this post.
7. Cost per Acquisition (CPA)
Cost per acquisition stands out amongst all the mentioned eCommerce metrics as being a financial metric rather than a performance or growth metric. It provides a clear-cut view of how impactful your marketing strategies and campaigns have been from a business revenue point of view.
CPA can be calculated by dividing all the costs spent on acquiring new customers by the number of customers that were acquired in that period.
Cost Per Acquisition = Cost of Acquiring (Marketing Expenses) / Number of Conversions
CPA can be tracked when using
- Content marketing
- Social media marketing
- Affiliate marketing
- eCommerce SEO
A simple example: if you spent $300 in advertising your website in a year—and in that year you gained 100 customers—your cost per acquisition would be $3 per customer.
There isn't any set standard of what is a good CPA—it's up to you to decide what is acceptable for your business.
The common way to do so is by looking at the customer’s lifetime value. You can get an idea if the CPA is justified if the amount you're spending on bringing in a customer is less than what they’re giving you in revenue. Consequently, depending on your margins, prices, and operating expenses, you can decide on an optimal rate.
Finding ways to reduce your cost per acquisition will always be a surefire way to increase revenue.
How to improve your Cost Per Acquisition
- Boost your sales conversion rates - Higher conversion rates mean that you’re successfully turning your shoppers into customers. This means more sales without spending more on trying to acquire new shoppers.
- Use word of mouth marketing - Getting referrals from your own customers is the best thing for your business. This is because you’re earning customers at no extra cost.
- Leverage influencer marketing - Ads can be expensive. In comparison, influencer marketing can bring down your CPA considerably.
- Invest in your customers - Keep your customers happy and they’ll keep your business happy. Solve their pain points, offer them excellent customer service.
Referral marketing is an important part of every eCommerce founder’s marketing strategy. Find out more on the eCommerce marketing strategies that drive revenue in 2021 in this post.
8. Net Promoter Score (NPS)
All consumers are more likely to buy something if it has been recommended by a friend or family member. This is even more so the case when it comes to buying products or services online—as it poses a higher level of risk.
It’s difficult to predict the quality, unlike in a brick-and-mortar store. Most of the customers pay in advance as well. So, naturally, people tend to be wary. A seal of approval from someone close to them is all they need to move past their hesitancy.
This is where net promoter score can have a significant effect on your revenue.
The net promoter score is calculated by collecting data from customers, through surveys about their experience and how likely they are to recommend your website.
Customers are asked to rate on a scale of 0 to 10 as to how likely they are to recommend the business to a friend, family member, or colleague.
Based on their rating customers are divided into 3 different categories
- Detractors - These are the people who have rated between 0 and 6. They aren't likely to recommend the business.
- Passives - They are the ones who give a rating of 7 or 8. These customers aren’t likely to be actively promoting your business, but at the same time, they won't be going around bad-mouthing it either.
- Promoters - They are the ones who are very likely to recommend your business and give a score of either 9 or 10.
Your NPS will be the difference in the percentage of promoter customers and the percentage of detractor customers. The score ranges between -100 and 100—an ideal score being anything that’s above 0.
The survey shouldn’t end with just a rating though. Asking follow-up questions can help to throw light on what areas you’re lacking in and what’s working well for the business.
Make sure to action whatever’s not working well. It’s not just one customer you’ll be losing in that case but all other potential ones associated with them.
NPS is also a great tool to track—over a period of time—trends and fluctuations in how consumers react to changes.
How to improve Net Promoter Score
- Try to convert detractors and passives post survey - If your customers have taken the pains to provide you with negative reviews, it’s a great opportunity to know where your business is falling short. It opens up a window for conversation and turning their impressions around.
- Reward your promoters - Those who’ve shown a positive impression towards your business, appreciate them with rewards.
- Identify key customer touchpoints - Trace individual touchpoints as well as the entire customer journey, segment them based on KPIs such as CLV, retention, and churn rate.
- Build a strong customer service program - Set up a CX plan to promote the use of NPS across all touchpoints, departments, and segments.
The best way to turn customers into loyal supporters of your brand is to understand their needs. Check out this post to understand shopper psychology better.
9. eCommerce Churn Rate
Your churn rate is the rate at which customers are ceasing to buy from your website.
Churn rate = (Users at the Beginning of the Period - Users at the End of the Period) / Users at the Beginning of the Period
Calculating the churn rate is extremely important for subscription-based eCommerce businesses, but it’s difficult to apply to other businesses as their customers can start and stop buying whenever they feel like it.
The churn rate is indicative of how well the company can retain customers and instill customer loyalty. Ensuring a low churn rate should be your main focus for achieving revenue growth in the long run. It won't matter how high your customer acquisition rate is if the consumers aren't being retained. This is exactly what KPMG’s latest research reveals: retention is one of the biggest revenue drivers.
Churns can be identified in customers based on their behavior. Track customer frequency, recency, and percentage of repurchases. Any red flags in their behavior regarding these aspects can mean you’re losing them as a customer.
How to improve Customer Churn Rate
- Try relationship marketing - Engaging your customers with your product is a great way to reduce churn. Give them ample reasons to choose your product for their needs.
- Offer incentives - Try keeping your customers hooked to your site with offers and discounts. However, do keep your profit margin in mind before going all out.
- Educate your customers - Provide how-to posts and product videos to help the customer understand how to use the product. This will make them feel more comfortable and informed.
- Offer expert customer service - The best way to avoid customers from not buying is of course to keep them happy.
Planning to woo your customers with discounts and offers? Check out this post to make the best of Black Friday sales.
10. Customer Retention Rate
The customer retention rate is the exact opposite of your churn rate. It’s basically an indicator that shows how loyal your customers are based on the window of time in which they’ve placed orders.
Retention rate = (Number of Customers who Shopped 12-24 Months Ago that Also
Shopped in the Last 6 Months) / (Number of Customers who Shopped 12-24 Months Ago)
Optimizing your retention rate is vital to the revenue growth of any business. All of your efforts to acquire customers and optimize other metrics really don’t mean anything if you aren't able to retain your customers.
And on top of that, customer retention is much cheaper and more effective than customer acquisition especially if you’re a business that sells low-value products that have a high purchase frequency.
Customer retention rate has its own set of metrics. These metrics help offer a more comprehensive view of why your retention rate is what it is and how well your retention strategy is working.
- Repeat customer rate
- Purchase frequency
- Average order value
The repeat customer rate shows how many customers are making a second purchase—the higher the rate, the more people are showing interest in coming back to your website.
The purchase frequency rate shows you how often your customers are placing orders from the website.
If your retention strategy is working and customers are coming back and ordering more frequently the next step would be to increase the average order value of the purchases to drive revenues.
How to improve your Customer Retention Rate
- Send offer-based emails - When your customers engage in your company, it makes sense to reengage with them through offers. Emails just add the right exclusivity.
- Introduce a referral program - Referral programs not only encourage fresh leads but also reward your customers.
- Focus on customer service - Your customers will stick around as long as they see value. Ensure you never run out of value by providing great customer service.
- Devise a full-proof customer loyalty program - There are several ways to offer value to your customers through discounts and rewards as part of a loyalty program.
There is ample customer retention advice out there. Most of them are outdated with low ROI. Try these unique, tested strategies in this post and drive sureshot $$
eCommerce metrics benchmark - where does your store stand?
eCommerce is an incredibly competitive industry. There are around 24 million eCommerce sites across the world.
With such high levels of competition, it's only natural for businesses to compare and see how their stats measure against others. This is where benchmarking comes into the picture.
Benchmarking your metrics against the big players in the industry can help shed light on identifying which areas of your business needs to be improved and how to do so.
From improvements in efficiency, cost-effectiveness, and output, competitor benchmarking is a great analysis tool for businesses that don't have the resources to invest in innovating and analyzing.
Let’s take a look at the benchmarks for the above eCommerce metrics:
If your rates are close to the industry average or the top companies in the industry, then more likely than not you're on the right track. This is just the starting point for a deeper analysis.
Are your rates higher or lower than the benchmark? What are the implications of it? What are the ways of going about changing that (if needed)? And what can you do to make sure a permanent change is made?
Once you’re aware of the benchmarks, the next step is to understand how to measure your success against them.
How to track your eCommerce metrics to measure success
Measuring eCommerce metrics is not a one-time affair. To be able to draw real value from the data that’s collected, it needs to be continuously tracked. This way you’ll be able to spot trends, establish your benchmarks and be better equipped to make informed decisions.
Your metrics can be grouped according to the frequency at which they are tracked i.e. - daily, weekly, monthly, and yearly.
The daily eCommerce metrics are those that are critical to understanding if your website is performing well or not. This includes metrics such as site visits and conversion rates.
If you're not checking them daily, you could be missing large dips or surges in traffic and sales that are indicative of what is or isn't working for your website. If they aren't caught early it could put the business at risk of not being able to achieve its goals.
Check your weekly eCommerce metrics to ensure that your business is doing healthy. These can include shopping cart abandonment, cost per acquisition, and average order value.
Your monthly eCommerce metrics will be ones such as email clickthrough and opt-in, customer retention rate, churn rate (as subscriptions are usually done every month), cost per acquisition, and shopping cart abandonment rate.
Businesses usually employ marketing campaigns and promotions strategies to influence these metrics—so the effects on the same will show only after some time.
Checking these metrics monthly will give you a better idea of how well your campaigns and call-to-actions performance are doing.
Revenue per visitor, sales conversion rate, and average order value are examples of eCommerce metrics that can be tracked yearly or quarterly. These metrics show a clear picture of how well the business performed in terms of the money generated over the year.
Over to you. Which are the important eCommerce metrics you track for your business?