6 E-Commerce KPI Metrics You Need to Monitor
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Getting products in front of anyone with access to the internet is an exciting prospect. Whether you’re keeping up with the times, launching your first business, or combining both, e-commerce opens the door to many opportunities and possibilities.
Besides controlling how your business is presented to customers and how they interact with it, website-hosting platforms and online tools offer data-driven insights that enable you to make decisions quickly. For example, data collected through your online store allows you to analyze buying trends, identify issues, develop profitable business strategies, and troubleshoot underperforming ones.
But knowing what KPI data points to focus on, how often they should be checked, and what each one tells you can get confusing. So we’ll explain why you should allocate time and resources to analyzing the data collected from people who visit your online store, as well as some important data points that you should monitor regularly.
What are e-commerce KPIs?
E-commerce KPIs, or key performance indicators, are measurable and quantifiable outcomes that determine whether a business meets key objectives or goals. These outcomes, expressed as numerical values, are known as metrics.
These figures are derived from organized data sets that document specific actions over a certain period. This information can then be leveraged to assess a company’s short-term performance and guide long-term business strategies.
Online retailers, for instance, tend to closely monitor abandonment rates, which track how often customers place items in their virtual shopping carts but don’t complete the checkout process.
On the whole, e-commerce KPIs focus on customer satisfaction, business growth, pricing sensitivities, and the overall success of your digital marketing efforts as a key driver of online traffic.
Why are e-commerce KPIs important?
On a broader scale, certain KPIs can indicate how well a company’s finances are faring and shaping up. While KPIs aren’t always definitive signs of success or trouble, they can link outcomes to a specific source and let you know where to focus your attention.
For instance, a high cart abandonment rate doesn’t necessarily point to a serious problem with your business, especially since the Baymard Institute found that the average across all industries is around 69.8 percent. However, high cart abandonment rates can hint at issues with your website or checkout process. Still, it would help if you analyzed more specific metrics, such as the actions customers took after visiting a web page, to identify the source of a problem. To that end, KPIs can offer granular-level insights into how well specific initiatives and individual teams perform.
For example, conversion and bounce rates for specific web pages, along with the amount of time customers spend on them, can indicate whether your content in each one is appealing, relevant, informative, and attractive. These website engagement KPIs can also ensure you have a frictionless browsing and checkout experience for customers.
Since multiple teams within your organization are tasked with keeping your online store up and running, everyone needs to be on top of KPIs that directly impact their work.
Digital marketers need to monitor customer engagement, website conversion, email marketing, and certain finance KPIs to determine whether their efforts are paying dividends. Meanwhile, your sales team should monitor customer engagement, customer satisfaction, and finance KPIs to assess their performance.
Investors may even ask you about specific KPIs, such as your customer acquisition costs, net profit margin, and average order value, to gauge the success of your business. KPIs also have the power — and potential — to influence key decisions within your organization, especially if specific metrics are troubling or promising.
For example, a significant drop in your net profit margin and average order value from one period of time to the next will likely warrant further investigation and timely discussions about how to turn the tide. On the other hand, suppose you wait weeks or months to take action. In that case, there’s a decent chance that your organization relies on outdated data to make game-changing decisions.
With that being said, your organization as a whole should be checking KPIs consistently and making data-driven decisions quickly. It would help to create a schedule for tracking and analyzing KPIs. Hence, comparisons from one period to the next are consistent.
How often you check specific KPIs generally depends on the data set used to calculate a metric, how all that data is collected, and whether there’s enough information available to make informed decisions.
For example, metrics that track online traffic to your website can be checked daily, weekly, or monthly to troubleshoot issues, monitor the performance of specific initiatives, and develop a better idea of how trends change during certain parts of the year.
More specifically, website visits, page views, and leads can be viewed daily since website analytics tools update those numbers regularly. Other website metrics, such as those for specific marketing campaigns and search engine rankings, can be checked once a week and once a month since they all require some time to create an accurate picture.
Which key KPIs should be monitored?
The KPIs you should track will depend on your overall business goals and the achievements that should be accomplished at specific points in time.
Since e-commerce platforms, such as Shopify and BigCommerce, and website analytics platforms, such as Google Analytics, Adobe Analytics, or HubSpot, can offer a wealth of data to track a wide variety of KPIs, it’s essential to focus on those that are most closely aligned with your business goals and will make the most impact.
Let’s say one of your long-term goals is to boost organic traffic to your website by 20 percent over the next year. With this in mind, you’ll probably want to monitor KPIs that track customer engagement, your website’s rankings on search engines, and where people found you, including rankings for specific keywords, bounce rates, and referring domains.
While the KPIs you track are tied to a number of factors, such as your goals, business model, industry, and growth stage, here are a few key metrics that every e-commerce business should be monitoring:
Net sales represent the amount of money that you have left from selling products or goods after returns, discounts, and allowances are taken out of your gross revenue.
Your net sales calculations can also be used to report the revenue your company brought in during a specific time on an income statement, also known as a profit and loss statement. It can be temptingly convenient to view gross sales as a reflection of your company’s financial health and performance. Still, this metric doesn’t account for any deductions or losses you may incur. Net sales, conversely, is a more accurate gauge of how much is generated from selling products or goods online.
Sales Dilution Rate
Sales dilution is the difference between your gross and net sales. For instance, if your business brought in $975,000 from sales and had a net amount of $829,000 once returns, discounts, and allowances were taken out, the sales dilution rate would be $146,000. So, when expressed as a percentage of your gross sales, the sales dilution rate would be 17.6 percent.
This metric is important to monitor since it can help you identify issues or inefficiencies and address them quickly before they become increasingly costly problems later on down the line. For example, an unusually high amount of customer returns can suggest something wrong with specific products, goods, or merchandise. It can also indicate that certain items didn’t resonate with customers or meet their expectations. Though returns can happen for various reasons, calculating your net sales can at least help you understand where potential revenue was lost and flag the issue for further investigation.
Though it’s not reflected in financial statements, your contribution margin enables you to determine whether marketing and, in some cases, selling costs are eating up too much of your gross profit. Calculating your contribution margin is particularly helpful if you set aside a decent amount of money to market your products, goods, or services online. Once your contribution margin has been calculated, all other operational costs and your COGS, or cost of goods sold, can be removed to determine your net profit.
Though it’s essential to zero in on brand awareness and ensures visitors to your online store have a relatively frictionless, efficient, and pleasant experience, these efforts can work against you if the costs rise faster than your gross profits. Monitoring your contribution margin can ensure that these discretionary expenses are kept in check.
As its name suggests, basket size represents the average number of items that customers buy every time they place an online order during a specific period. So, along with knowing the average number of items in each online order, minding your basket size can help you determine why the average amount customers spent on each order went up or down during a specific period.
By tracking your average order value and basket size, you can seamlessly analyze the relationship between the amount of money generated from sales and the size of online orders placed during the same period.
Customer Lifetime Value (CLTV or CLV)
Customer lifetime value, commonly known as CLTV or CLV, is the estimated amount that someone will likely spend during their entire time as a customer of your business. This particular KPI can also help you determine how many customers must be acquired before your business becomes profitable. Since CLTV is a measure of profit rather than revenue, your calculations should incorporate customer margins into the equation. However, you use CLTV to create revenue projections. In that case, your calculations won’t consider the costs to retain and support customers over time. To get a better idea of how much profit you’ll make, you must also take your customer acquisition cost or cost of goods sold into account.
Customer Retention Cost
Customer retention cost, or CRC, is the total amount your business spends to ensure customers will keep buying your products or using your services. Since it’s often less expensive to retain new customers than attract new ones, your customer retention cost will allow you to determine how much is spent to connect with existing buyers and foster brand loyalty. While the cost to acquire a customer is as recorded as a one-time expense for each person, your customer retention costs will be recurring for as long as someone wants to keep buying your products, goods, or services. So, you can leverage your CRC to determine whether the costs to retain customers exceed the amount they spend on your products, goods, or services over time.
Want to dive deeper into e-commerce KPIs and learn more about other important metrics that can help you make informed decisions? Check out our comprehensive e-book on e-commerce KPIs and why they matter for your business. If you need someone to crunch the numbers or offer insights unique to your business, our CFO services team is here to help.
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