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Knowledge is power, and actionable insights are crucial, which is why, especially for an online store, KPIs are king. There are so many different variables you can track, however, but there are certainly some KPIs for e-commerce you will want to focus on the most.
KPIs, or key performance indicators, are essentially data points that you track and measure success against. Think of them as checkpoints and goals, mainly, that make up various components of e-commerce success, regardless of the e-commerce platform you use to run your business.
These will be quantifiable metrics for multiple areas of performance that you can track.
When it comes to KPIs, there are honestly hundreds of data points you can drill into, so taking a few specific considerations into account is essential. It’s important, too, to keep the idea of KPIs separate from e-commerce metrics, as metrics are just a way of measuring things.
At the same time, KPIs are a method for monitoring vital business factors, often the result of multiple metrics. For example, web traffic and the number of sales together form the KPI of conversion rate.
A KPI needs to have the ability to be measured accurately. There shouldn’t be overly complicated formulas; KPIs should be easily calculated.
When it comes to e-commerce metrics, the real value is in real-time data. You don’t want outdated results influencing your current and future plans.
Old data can be useful when it is used as a comparison for new data to see patterns and trends, but you want your KPIs to be as up to date as possible.
We’re not just hoarding data for data’s sake. KPIs exist to help you make improvements, so they should be providing insight into areas you can improve upon.
These are action-oriented measurements that should allow you to check and adjust your e-commerce strategies, from digital marketing to product positioning and beyond.
So what should you be tracking? There are some KPIs that matter more to specifically e-commerce goals than others and can be more easily applied to sales strategies and marketing channel decisions.
Conversion is often the first example for an e-commerce KPI for a good reason: It shows you the highest-level picture of your business's reach. Specifically, it is the percentage of visitors to your site that takes action, be it newsletter sign-up, an account creation, a sale, etc.
To calculate conversion rate, you divide the number of conversions by the number of visitors to your site and multiply by 100.
The average e-commerce conversion rate is around 2.5%, according to Monetate, so it’s important to follow best practices to see how your site compares.
Arguably the most essential part of a product life cycle, when an item is added to the cart, it completes an important function of the value chain. However, this does not tell you the number of completed purchases or the number of abandoned carts.
Still, it is important to know how many people are hooked long enough to consider a purchase. The add to cart rate also lays the groundwork for determining other KPIs down the road.
When investigating add to cart rates, remember a few things.
To offset your operating expenses, you need to pull in a good net profit, aka have a useful contribution margin (the amount of revenue that is greater than the total cost of expenses in producing a product).
Your net profit is calculated by subtracting your fixed expenses from your contribution margin; the amount leftover is what counts as profit.
Start your journey into profit tracking with purpose.
Simply put, bounce rate is the percentage of site visitors who leave without visiting more than one page. Higher bounce rates mean lower conversions, as the visitors have not been convinced to stay through to completing a call-to-action.
The bounce rate may seem all-encompassing, but there are some backend details to accuracy.
Often abbreviated as CLV, customer lifetime value refers to the average net profit predicted to be generated by each customer. In other words, what they are worth financially to your business. This can take a little more math to determine, but it is crucial.
To figure out what an individual is worth in terms of financial contributions across the length of their relationship with your business, you need to follow this formula:
Annual profit contribution per customer
Multiply by the number of years that they remain a customer
Subtract the initial cost of customer acquisition
The result is the CLV.
Math aside, you should consider these factors when determining your CLV.
This KPI can be a bit of a downer at first glance, as an abandoned cart means a lost sale. This occurs when e-commerce visitors place items in their cart but never complete the purchase.
But it really provides some valuable insight into the purchase journey, which can be applied to customer segmentation tweaks for marketing, promotion adjustments, sales page layout changes, etc.
To determine your abandon cart rate, you divide your total number of completed transactions by the number of shopping carts created and multiply by 100.
There are some finer points to keep in mind when tracking this KPI to ensure you are working from correct data and have a big-picture outlook.
The most successful online stores rank high in organic searches. Rather than using paid ads to do most of the work, a good marketing campaign to raise brand awareness will aid in organic search ranking.
Ranking well in search is a key marketing objective, so you should really dial in on tracking this KPI with purpose.
Just how much money are you making per order? It is important to track this, as a simple bump in average order value (which is calculated as revenue divided by the number of orders) means an instant increase in revenue across the board.
Tracking this KPI can be made more efficient by keeping a few things in mind.
This KPI looks at how often you can sell through your in-stock inventory in a year. It’s important to know, as it links to the supply chain and correlates to your store’s ability to produce sales and higher revenue.
To determine inventory turnover, you subtract the cost of your sales from your total sales and divide that by your remaining inventory.
When tracking turnover in inventory, you should remember a few things.
Happy customers mean more sales. Satisfied customers are both more likely to make repeat purchases as well as recommend others to purchase from you. You can measure this in your net promoter score (NPS) to determine your amount of detractors, neutral parties, and promoters.
You will need to gather info via a satisfaction survey, with correlated numerical scores, mostly a 1–10 rating, with 0–6 being a detractor, 7–8 being a neutral party, and 9–10 being a promoter score.
Break down the number of detractors, neutrals, and promoters and divide each by the total number of responses: That is your NPS. A higher NPS is better.
When you dive into satisfaction, check a few details.
KPIs are valuable indicators of how your business is performing and can help you make decisions about almost everything you are doing, from e-commerce marketing to technical choices for your site.
Do you need to increase your email marketing? Are people skimming and then leaving your site? By knowing where, in all the data, your strengths and weaknesses are coming from, you can adjust your business and increase your bottom line.
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