Top 8 Metrics and KPIs Important for Ecommerce Store Owners

This is a guest post by Natalie Pavlovskaya of MageWorx, a Magento Ecommerce development company.

Data! Data! Data! I can’t make bricks without clay!” – Sir Arthur Conan Doyle

Like Sherlock Holmes who couldn’t build any theory or draw any conclusion without the sufficient amount of data, an ecommerce store owner also needs to have a solid foundation of data to better understand and successfully manage her business.

However, while data is important, the right data is essential. With so much information available from a wide array of sources: your ecommerce platform, Google Analytics and other analytical services – it’s so easy to get buried under an avalanche of reports, stats and numbers and lose track of what is really important.

In this post I’ll define 8 most important metrics and KPIs every ecommerce store owner should keep an eye on to have better results in sales, marketing and customer service.

Average Order Value (AOV)

AOV is considered a key metric by many online retailers, because the higher you can encourage AOV to be, the more income your store will get.

The basic calculation is: (Sum of Revenue Generated)/(# of Orders) = Average Order Value

So, let’s say you have 285 orders combined total $11.575; divide 11.575 by 285 and get your average order value – $40.61

The tricky point here is that Google Analytics doesn’t track all the transactions of your store, so to have the full picture of your sales you need to use the tools that will help you get 100% data (like RJMetrics).

What you can do to increase order size value.Offer free delivery on all orders over $x, bundle deals, implement suggested selling and many more.

Conversion Rate

The conversion rate tells how effective is your store at closing deals.

The basic calculation is: (Number of Sales) / (Number of Visits) = Conversion Rate

For example, your store is visited 5000 times and 200 of those visits end in a sale, you have a 4% conversion rate. But once again, be accurate with the number of missing transactions you receive by the Google Analytics.

According to the Nielsen Norman Group, the average conversion rate for eCommerce stores in 2014 is 3%. Depending on what you’re counting, a good conversion rate is usually in the 1–10% range. If you have less than 1% you might have problems.

Pulling site usability and design, pricing, product copy or developing a strong advertising campaign can help you increase conversion rates.

Bounce Rate

Bounce Rate is a percentage of visitors who leave your site immediately, probably because they didn’t find what they were looking or the website was too complicated/annoying to use.

The basic calculation is: (Number of visitors who leave immediately) / (Total number of visitors) = Bounce Rate

High bounce rate is a conversion killer. If the bounce rate for your landing pages is high (80%+) you need to fix it: attract the right visitors with the right keywords, improve usability, use good layout, provide valuable & unique content.

Shopping Cart Abandonment Rate

According to a Baymard Institute, the average shopping cart abandonment rate is 68%.

The basic calculation is: (#of people who don’t complete checkout) / (# of people who start checkout) = Shopping Cart Abandonment Rate

As an example, if 500 people add items to carts, but only 100 actually purchase them, then we have the following picture:

Purchases not completed: 500 -100 = 400

Shopping Cart Abandonment Rate: 400/500 = 80%

If your site visitors put an item in their carts but stop along the way there could be several reasons for that: something took their mind off (maybe the dog needed to go out) or they found a form too long/confusing/complicated. The first one you can’t control, the second you can.

In Google Analytics, go to the Goals->Funnel Visualization to understand where exactly visitors leave the checkout process and why it’s happening. Here’re some ideas for checkout abandonment rate improvement:

  1. Remove fields from the too long registration form
  2. Add security badges and trust seals
  3. Be transparent about shipping costs
  4. Reduce checkout steps
  5. Start abandoned cart recovery campaign

Cost per Acquisition

Cost per Acquisition is a critical marketing metric. It can tell you which campaigns can drive your sales and which will become a costly pile.

The basic calculation is: (Total Cost of Marketing Activities) / (# of Conversions) = Cost per Acquisition

In other words, CPA tells you how much you need to spend to get a paying customer. Why is it so important? Because it helps you determine the true return on investment. In the end,if a campaign brings you only clicks but no orders, it’s not successful.

You may employ different methods to bring in new customers: paid campaigns, SEO, social media ads, high-quality content.

And the question is how can you reduce Cost Per Acquisition? Try to optimize your campaigns’ settings, pause all unprofitable campaigns, fix tracking issues and use other methods of acquisition reduction.

Traffic

Where does your audience come from? Which channels produce the most customers? What social networks, keywords work best for your business? Knowing all this data will help you get the broad picture about your most high-performing and under-utilized channels.

If you’ve recently launched an online store, you should watch these metrics:

  • Traffic-sources/channels
  • Unique visitors
  • Visitors-per-source/channel
  • Bounce rate
  • Branded vs non-branded keywords

Net Profit

Net Profit is the actual amount of profit a business generates after all expenses. It tells you the profitability of your ecommerce business after taking all costs into account.

The basic calculation is: (Total Revenue) – (Total Expenses) = Net Profit

To increase Net Profit, businesses need to increase their revenue and decrease their expenses. You can lower expenses by improving the efficiency of production or making fewer purchases. You can increase revenue by attracting new clients, raising prices or vice versa making sales.

Customer Lifetime Value (LTV)

Customer Lifetime Value measures the total amount of money a customer spends in a store during his relationship with it.

Why does it matter? The main reason why is that you should be earning more from your customers than the actual cost you spend to acquire them. In other words, if it costs you $100 to acquire a customer, you should develop a plan to make this $100 off of that customer within the next year.

There are several different methods of calculating customer lifetime value. I will stick the very basic LTV equation: (Average Order Value) x (# of Repeat Sales) x (Average Retention Time)

As an example, let’s say you have 100 customers. Each of them spends on average $55.50 and 30 of those customers have come back on average 3 times a year. You expect to retain those customers for 2 years. This is what you’ve got: (55.50) x (3) x (2) = $277.50

Here are a few strategies for boosting Customer Lifetime Value:

  1. 94% of businesses believe that personalization is critical to company’s success. So use the customer’s name and recommendations to reflect previous behavior.
  2. Focus on customer service – offer free updates and lifetime assistance, be available when customers need you, provide multichannel support, analyze and improve your emails, make customer service easy.
  3. Reward loyalty – early access to sales, an exclusive first look at new products, exclusively inform about the upcoming sales, let them have their hands on your brand-new products, give away free items for every x order, reward them with bonus points and so on.
  4. Incorporate customer feedback to improve everything from design and product pages to user experience and customer service.
  5. Incorporate up-sells into your offers.
  6. Offer exclusive deals for social shoppers.
  7. Create content that educates and motivates.

Tools for Tracking Your Ecommerce Metrics and KPIs

The key of getting valuable data from all these metrics is to have access to them in the first place. Of course, there a number of tools out there, so to help you sorting out the best ones we offer you our favorite variants.

1. Google Analytics

No need to introduce Google Analytics. With this tool you can easily track most of the metrics of your site, better understand users’ behavior and monitor the effectiveness of your KPIs and campaigns.

The only “but” lies in missing transactions, no information towards Net Profit, inaccurate traffic data and issues with refunds, coupons and taxes tracking.

2. RJMetrics

RJMetrics collects all your data: web traffic analytics, data base, email marketing, customer support, ad platforms and more.

Data from multiple resources gets compiled together, so you can analyze your stats whenever you want. You can fully customize your reports and share it with your coworkers, partners or clients.

The Bottom Line

Choosing the correct KPI’s begins with clearly defining the goals of a business. What KPIs you settle on will depend on your business model.

Also, it’s important to remember what works for one business might not work for another, because usually businesses drive different objectives and different KPIs.

Don’t just track KPIs for no good reason, because you will lose track of the goals that matter. And of course choose a reliable tool to collect your data.

What KPIs do you keep an eye on for your e-commerce store and what tools do you use to track the key metrics of your site? Post your thoughts in the comments. 

AMZN Crushing Mobile

As BI reports, Amazon is dominating the mobile commerce space. Oppenheimer highlighted by just how much saying …“At the end of 2014, Amazon had roughly the same number of mobile unique visitors as Walmart and eBay, in the US. As of December 2016, Amazon has more unique visitors than the apps of those two companies’ combined,”.

And outside of Walmart and Ebay, the rest of the entire retail industry is way behind to the point you could be forgiven for writing them off entirely in the future of mobile commerce:

amzn-mob

So we have an Amazon dominated mobile commerce landscape in the near future. But long-term, perhaps as has always happened, the Internet will throw something new at us.

Nasty Gal Bankruptcy Ecommerce Takeaways

A shocking story to outsiders but perhaps less shocking to people in the know, Nasty Gal, the poster child of Fashion Ecommerce to many has filed for bankruptcy protection. The full story is here and it’s worth reading to consider what this – and the many other ecommerce failures – teach us today.

1) Firstly, it’s a rocketship. Nasty Gal like most Ecommerce success stories had grown like crazy from a small Ebay store to ‘International’ retailer. This growth is not typically experienced with other businesses. It means they hired aggresively, built structures and systems as well as financed the venture all at extreme speed. Ultimately, this contributed to their downfall.

2) Fast growing revenues don’t equal fast growing profits. In fact, the opposite is usually true and losses are deep for a long-time..even perpetually. The model of ecommerce as pioneered by B2C giants like Amazon, JD.com etc is all based on two things; scale, and secondly, ways to make money other than shipping merchandise i.e marketplaces, payments, digital goods and so-on.

3) You need all the channels. Ecommerce, at least stand-alone, is not viable. We’ve seen time and time again pure play ecommerce companies go out of business. Who is winning in ecommerce? It’s multi-channel. That means you have to integrate stores and other channels to maximise your customer retention (stickyness) and sales. That’s hard.

4) Really consider your goals. Nasty Gal was a founder led business that was quote ‘successful’ ie they had real revenue, real customers and a real brand. But that still wasn’t enough to save it. Perhaps if the company didn’t take venture funding or had grown at a more realistic speed then it would still be on track. When you’re starting, you should consider your goals. Not everyone can be lucky but you can be good.

Have you learned any Ecommerce lessons you’d like to share? Let us know in the comments.

Ecommerce Platform Update

Engadget of all things has a nice update on the current status of Ecommerce Platform marketshare:

1

I think it’s surprisingly vibrant in an era when so much of technology is in the hands of so few. This is especially true with infrastructure and middleware (looking at you AWS) controlled by just a handful of companies such as IBM, Google, Amazon, Oracle, Microsoft etc.

Application developers are embracing both open source and creating closed source ecommerce solutions and this is good news for merchants going forward. The perennial question for merchants is however, which one do I choose? There’s no easy answer but at least there’s lots of options.

Read more

Amazon and Walmart Face-off

It looks like the big two in retail, Amazon and Walmart, are going to collide both online and offline. Following the Jet.com acquisition, Walmart are talking up future ecommerce initiatives and their impact on the stores business.

Likewise now Amazon plans to more aggressively get into physical retail as noted by WSJ.

With curbside pickup, Amazon will have to contend with Wal-Mart, which plans to bring the service to nearly a quarter of its roughly 4,600 U.S. stores by the end of next year, executives said on a conference call last week .

So will Walmart’s physical competency beat Amazon’s digital expertise? Time will tell but if you were to bet on anyone you’d be hard to bet against Amazon. The digital pie is growing and the market already says Amazon’s future earnings will continue to rise. The same can’t be said about Walmart, especially when you consider the customer base that was built on the middle to lower class is stagnating.

Should be fun to watch.

Jet.com and Ecommerce Exits

Quartz has put together a nice piece on the Jet.com exit to Walmart. Most interesting is the chart of Ecommerce Exits since 2009:

I’d take a guess that none of these companies were profitable at exit and all of them would have been extremely fast growing. In exiting to the likes of Walmart, Liberty, Alibaba, Unilever, Richemont etc it’s once again underlined how difficult it is to take an ecom company public.

Read more