In Moneyball, the Oakland Athletics revolutionized their professional basketball game by studying generally undervalued statistics. They cared about metrics like home runs and focused on factors like an on-base percentage. This gave the team a competitive advantage over their opponents and helped them win.
Moneyball is an excellent example of why it’s essential to analyze KPIs in a business. If you want answers to questions such as “Am I investing in my budget wisely?” “How to spend less and acquire new customers?” it’s time to analyze KPIs. Tracking KPIs is crucial for e-commerce businesses, and it allows business owners the data they need to evaluate their company’s profit margin.
Most e-commerce businesses these days are data-rich but information poor. But, with the convenience of access to digital analytics, this is a golden opportunity that is being wasted. While sales, traffic, and profits are obvious KPIs for e-commerce, they are just a handful of the metrics that need tracking.
KPIs are important in business analytics because they provide objectivity. Without KPIs, one may make business decisions based on instinct or personal preferences, which could be potentially dangerous for a business. On the other hand, KPIs provide a clear and accurate understanding of businesses and lead to strategic decisions.
So, what are the KPIs that need to be measured? This article will cover the importance of e-commerce KPIs and improve a business using them impactful. Let’s get started!
What is a KPI?
First things first, what is a KPI? The three letters stand for Key Performance Indicator. It is a metric of analysis that indicates how well an organization performs against its main objectives.
In other words, KPIs are like signposts, and they communicate where you are in the journey and which path you should take to achieve your business goals.
What About ECommerce KPIs?
Ecommerce KPIs determine how well a company is performing in its organizational goals.
This means that tracking eCommerce KPIs will allow the business to make improved decisions about revenue, conversions (see more about conversion optimization tools here), investing, branding and marketing, customer satisfaction, etc.
What are the attributes of KPIs?
Not everything that can be counted, counts. Therefore, to choose the right eCommerce key performance indicators for your business, you have to take note of the different attributes of KPIs.
If you’re wondering how to ensure that you have selected the best KPIs for your business, here’s how you can do so. If your KPI fulfills the following four attributes, it will be a valuable asset to your company:
The chosen KPIs should create an impact.
The chosen KPIs should have room for accurate measurement.
The chosen KPIs should deliver data in real-time and be objective.
The chosen KPIs must have an actionable value, which will allow you to make informed decisions to improve your business.
There are infinite KPIs available at a business’ disposal. Businesses must make sure that their KPIs are not only quantitative or qualitative, but they should also be able to understand past events and forecast the company’s future.
To know more about choosing the best eCommerce metrics and key performance indicators for your business, refer to the next section.
Types of KPIs
Key performance indicators or KPIs come in many types and forms. They can be quantitative, qualitative, revealing trends in the past, or predicting the company’s future. In some cases, specific KPIs can also touch on the company’s business operations.
In the eCommerce industry, KPIs usually fall into the following five categories:
Sales KPIs are one of the most important ones to track, and they are the metrics that evaluate your team’s performance against the organizational goals and sales made by the company. Sales key performance indicators can help a business optimize its sales and sales process while ensuring that the team is prioritizing the right strategy for growth.
Sales KPIs can be analyzed according to a specific time frame, channel, team, employee, etc.
A few examples of sales key performance indicators include net sales, average order size, gross profit, number of transactions, conversion rate, average margin, COGS or cost of goods sold, shopping cart abandonment rate, product affinity, number of transactions, churn rate, competitive pricing, CAC or customer acquisition cost, and so on.
2. Project Management
Each project or division within a business has unique and specific tasks. Project management KPIs are key performance indicators in specific measurement tools that indicate how well the teams prioritize and achieve their goals. They also provide insight into how well the teams complete specific tasks and how their processes help them achieve them.
A few examples of project management key performance indicators include budget, hours worked, cost variance, return on investment or ROI, CPI or cost performance index, etc.
3. Customer service
Customer service KPIs are metrics the customer service management team uses to visualize, monitor, and optimize customer relations. With the data collected, companies can create more efficient and customer-friendly services. This is also important to determine if your business is meeting customer expectations, and ultimately, it helps provide a positive customer service experience.
A few examples of customer service KPIs are CSAT or customer satisfaction score, hit rate, net promoter score, customer service email count, active issues, backlogs, service escalation rate, concern classification, etc.
Manufacturing KPIs are well-defined key performance indicators and metrics that are used by the manufacturing team to analyze its production process over time. These KPIs are typically used to analyze and optimize operations and compare their efficacy to the competitors in the business.
Manufacturing KPIs are usually related to supply chain and production processes, and it helps companies monitor their productivity and budget.
A few examples of manufacturing KPIs are yield, OLE or overall labor effectiveness, OEE or overall equipment effectiveness, cycle time, number of non-compliance incidents, and so on.
Marketing KPIs effectively analyze the business’s marketing campaign performance and advertising goals. These metrics are present in the form of quantifiable measures, and it helps determine the right social media strategy, which will eventually increase sales, traffic, and consumer leads.
Marketing consultants and experts use KPIs to monitor which products/services are selling better, which demographic is buying it, how they are buying it and why they are buying it. This information helps them carefully plan their future marketing strategies.
A few examples of marketing KPIs include new visitors vs. returning visitors, time on site, site traffic, page views per customer, mobile site traffic, bounce rate, daypart monitoring, newsletter subscriptions, open email rate, social media followers, pay-per-click traffic volume, affiliate performance rates, and so on.
Why are Key Performance Indicators important for eCommerce?
Now that we have looked at some of the most critical markers of eCommerce KPIs, let us understand why they are so important.
In an eCommerce business, goal setting and strategy are crucial. But, it is impossible to do so without measuring progress over time, where key performance indicators come in.
If eCommerce brands make decisions based on their intuition, gut instinct, personal beliefs, or hypothesis, it can be detrimental. Therefore, a brand’s decisions should be informed and based on accurate data. Key performance indicators provide this data. KPIs provide valuable insight into how your business is performing, whether your business is strong enough to compete with industry competitors, why customers prefer your products/services, etc. KPIs are everything a company needs to succeed in the future.
However, it must be realized that although KPIs are important and helpful on their own, they are nothing without action. The real value of KPI lies in the informed decisions and actionable insights the company takes after critically analyzing the data. If KPIs are used correctly, businesses can plan strategies to drive more online sales.
Eventually, key performance indicators can also help a business understand where it is going wrong. If your business operations are in a slump or if you have entered the decline phase, you need to start identifying the problem areas in your business. And this can only be done by analyzing KPIs.
The data collected by KPIs should be shared with the larger team, and employees should be educated on how KPIs work. This will ensure efficiency and maximize the business’s profitability.
How to choose the best metrics for your business?
There is no dearth of eCommerce KPIs available to businesses who want to monitor their progress. However, not every KPI is important or pivotal for determining the success of your business. When it comes to choosing KPIs, business owners should focus on these factors:
1. Reflect the company’s business goals
The best strategy to finding a KPI that works for your business is by choosing markers that directly affect the company’s bottom line. Thus, the KPIs should reflect net income or net profit, support your company’s business strategy and overall performance.
KPIs can be subjective, and they usually vary from business to business. Choose KPIs that are not only relevant to your business, but those that reflect your business’ reality. It is wise to avoid KPIs trending in the industry or being used by other businesses. Stick to what works for your company.
3. Easily measurable
Businesses should choose KPIs that are easily quantifiable and provide them with unique and personalized insights about the company’s progress.
4. Metrics that mirror the growth stage of the business
Businesses should always choose KPIs based on their growth stage. Enterprises go through different stages: start-up or early-stage, growth, maturity, renewal, decline, etc. Some KPIs can be more important than others, depending on the current growth phase of the business.
5. Short and effective
One of the essential things about KPIs in business is that less is more. There is no need to overwhelm oneself by tracking tons of unnecessary and irrelevant KPIs. Therefore, keep the list short and figure out what works for you. The best KPIs for your business are the ones that provide you with actionable and pragmatic insights.
What makes a good Key Indicator?
It can get intimidating and challenging to decide with multiple KPIs to choose from. Ecommerce brands and their marketers need to remember that KPIs that they select to measure the progress of their brand should be simple, relevant, actionable, and measurable.
A good KPI provides the following insights:
Provide objective feedback on progress toward the desired outcome.
Make a comparison to see how much performance has changed over time.
Efficiency, effectiveness, quality, timeliness, governance, compliance, behavior, economics, project performance, people performance, or resource usage can all be tracked.
The result should give businesses a clear idea of leading and lagging indicators.
20 Essential Ecommerce Metrics to track
Now that we have provided a comprehensive understanding of what KPIs are and why businesses should use them, let’s look at some key markers of eCommerce KPI.
1. Return On Ad Spend (ROAS)
Return On Ad Spend or ROAS is the amount of money the business earns back in revenue for every dollar they spend on advertising. ROAS generates a cash flow and is one of the most significant markers of eCommerce KPI.
Businesses that don’t track how much they spend on advertising or to drive new revenue can spend more than they make, which can be detrimental to their profit margins in the long run. To avoid this mistake, here is an easy way to calculate ROAS: divide revenue from advertising by cost of advertising.
Suppose you spend $4000 on a PPC campaign and generate $16000 in revenue. The ROAS is 4, and for every dollar, you spend on ads, you will generate $4 in revenue.
By tracking ROAS, a company can determine how effective their advertising campaign is and predict how much revenue they can generate.
2. Shopping Cart Abandonment Rate
In the eCommerce industry, shopping cart abandonment refers to every time visitors place items from the store to their cart but leave without purchasing. This is a very common occurrence for most eCommerce businesses, and the average shopping cart abandonment rate for businesses is almost 70 percent.
There are many reasons why customers abandon their shopping carts. By tracking the shopping cart abandonment rate, businesses can understand where they are wrong. They can also recover most of their lost revenue in the long run.
To calculate your page’s shopping cart abandonment rate, divide the number of completed purchases by the number of shopping carts.
3. Customer Lifetime Value (CLTV)
The loyalty of customers is one of the most unique and determining key performance indicators to gauge the progress of a business. No other metric can quite capture the overall functioning of an e-commerce business like customer lifetime value (CLTV) does. CLTV in itself implies several important KPIs such as average order value, conversion rate, return customer rate, and so on.
When brands focus on customer lifetime value, it is reflected in increasing the value of each customer. Therefore, knowing how much revenue a customer generates in their lifetime can help the business invest in the right tools and channels. This guarantees the overall profitability of the brand.
4. Conversion Rate
Conversion Rate is one of the most important eCommerce KPIs. Study your conversion rate to evaluate how effective your landing pages and calls-to-action are. Conversion rate includes any actions visitors on your page make, and this could be making a purchase, adding things to the cart, or even signing up for the newsletter.
The conversion rate tells you how effective your website encourages visitors to take action. Once you have your conversion rate data, you can increase landing page conversions.
To calculate your conversion rate, you need to divide the total number of conversions by the number of visitors your store attracts and multiply it by 100.
5. Customer Retention Rate
The success of a business is determined not by calculating new customers but by the customer retention rate. If your customers frequently come back to you, it means that your business has something special to offer, which attributes to its long-term success.
Companies need to measure their customer retention rates and see if their customers are returning. This also affects attracting new customers. A study conducted by the Harvard Business School showed that a 5 percent increase in customer retention rate increased overall profits from 25 percent to 95 percent.
The most compelling power of KPIs lies in the company’s ability to interpret the data accurately and figure out actionable efforts. By taking the optimum actions, companies can maintain their success rates consistently.
6. Return on Marketing Investment
These days, businesses in the eCommerce industry put much focus on marketing. Therefore, return on marketing investment is one of the most important key performance indicators for eCommerce businesses.
Return on marketing investment refers to the culmination of tools, advertising spending, and labor costs across the business against the revenue. To ensure the greatest success, businesses should maintain a healthy ratio between marketing expenses versus the revenue generated.
To calculate return on marketing investment, add up your advertising/labor/tools cost and divide it with the total revenue.
7. Cost Per Acquisition (CPA)
Cost Per Acquisition, commonly referred to as CPA, is the single most important key performance indicator in the eCommerce industry. CPA calibrates for all other KPIs and informs the company if their performance and progress are sustainable. If an eCommerce business knows its CPA, it can easily calculate ROI, and this will help them scale up.
CPA allows the business to measure the track record of other KPIs and evaluate if the company is on the right track. For instance, if your business store converts at 9 percent, but the CPA doesn’t leave room for the customer’s lifetime value and profit on the sale, then the 9 percent isn’t sustainable.
8. Average Profit Per Customer
Average Profit Per Customer is an important KPI because the more profit the business can derive out of the customer, the more it can afford to spend on acquiring that customer. An easy way to calculate average profit per customer is through this formula:
Hypothetically, if each of your customers on average is worth $500 to your company, you can afford to spend anything less than $500 and still be profitable. On the other hand, if your competing business’s average profit per customer is only $100, they can’t spend anything above that. Therefore, your customer is worth more.
9. Revenue Per Site Visitor
Many sales experts recommend tracking Revenue Per Site Visitor. This is important because it minimizes all obstacles and enables companies to quickly and effectively track performance across time.
The Google Analytics Ecommerce Sales Dashboard allows businesses to easily track their revenue per site visitor. It also shows the gross revenue and number of site visitors.
10. Organic Search Rankings
Ecommerce sites can benefit significantly from tracking and monitoring their organic search rankings. Search rankings are not only crucial for measuring the growth performance of an eCommerce store, but they also indicate if the business’ on-page and off-page efforts are paying off or not.
If your business’ desired landing page ranks on the second page of the search engine, the next step will be to ensure if it is adequately optimized, if the content is relevant to the page, if it has the required keywords, etc.
11. Social Media Engagement
These days, social media engagement is considered one of the most important KPIs governing online businesses. This tells you how actively your followers are interested in and interacting with your brand. Social media engagement is usually measured by the number of links, comments, shares, and followers across all social media sites.
12. Gross Merchandise Volume (GMV)
Gross Merchandise Volume or GMV refers to the total value of the merchandise sold over a given or specified time duration. While various other metrics allow businesses to improve sales and conversions, gross merchandise volume reflects the overall success rate of the eCommerce platform.
If the overall volume of the store is increasing, it implies that the business is growing and the customers have an affinity towards the system.
13. Customer Acquisition Cost (CAC)
Customer Acquisition Cost or CAC is one of the most overlooked eCommerce KPIs, making it all the more important. Customer acquisition cost refers to the amount disbursed to earn customers divided by the number of earned customers. Thus, it tells the company how much money is required to buy or attract a customer.
Businesses that don’t calculate customer acquisition costs have a higher chance of collapsing. Although one can make more sales by spending more on marketing if the CACi increases, making more sales can reduce profits, which means the company is bleeding through its resources and money to acquire more customers.
Calculating CAC allows businesses to strategically plan how many customers they want to acquire in a certain period. This can help in allocating marketing resources effectively to ensure the highest profitability.
14. Repeat Purchase Rate (RPR)
The Repeat Purchase Rate (RPR) informs the business how many customers return to the eCommerce website to make another purchase. This determines customer loyalty and helps the sales team plan its future sales strategies. A higher repeat purchase rate is considered to be better.
There is an easy formula to calculate the repeat purchase rate (RPR):
Repeat Purchase Rate or RPR = Purchases from repeat customers / Total Purchases.
Repeat customers refer to those consumers who make a purchase and then come back to the site to make another.
15. Holding Inventory Ratio
Holding Inventory Ratio is calculated by holding costs divided by the average inventory value. Holding costs include storage, labor, security, and the equipment used to store the inventory. Most of the time, a business’ holding costs come up to 25 to 30 percent of the total inventory value.
16. Customer Satisfaction
Studies show that companies dedicated to their customer service usually perform better during the decline stage than those that don’t. In fact, businesses that make regular improvements to their overall customer service experience witness a positive impact on their conversion rate.
This further contributes to greater returns on ad spend, shopping cart abandonment rate, average order value, lifetime value, etc. Therefore, it is important to track customer satisfaction as an eCommerce KPI.
17. Orders Per Active Customer
For eCommerce businesses, orders per active customer are considered a vital metric to gauge the company’s progress over time. Orders per active customer refer to the average number of orders that the store’s active customers make during a specified period.
It implies whether or not the company is doing well and attracting frequent customers. This is directly related to the business’ revenue and growth.
18. Net Profit Margin (NPR)
Calculating the net profit margin is imperative if you want to measure your business’s overall profitability. It refers to the margin of profit that the business generates after making deductions, such as operational costs, taxes, and so on. Thus, the net profit margin denotes how much money the company makes after these deductions.
This is how you can calculate the net profit margin:
NPR = (Revenue – Cost)/Revenue
19. Email Click-Through Rate (CTR)
Email Click-Through Rate, commonly known as CTR, refers to the percentage of email subscribers who click on the links that are sent with the business’s emails or newsletters. If a business’s CTR is lower than average, your customers aren’t motivated enough to make purchases. This is a marketing default and can be corrected with strong advertisements.
This is the formula to calculate CTR:
CTR = (Total Number of Individual Clicks/Total Number of Email Opens) X 100
20. Traffic to Lead Ratio
Last but not least, the traffic to lead ratio gives the company insights into how their traffic is doing. This helps brands understand which pages have the highest bounce rate. It also shows how much of the site’s traffic is showing interest in your business’ products or services. Eventually, the brand can make changes based on these insights.
The bottom line is that once you have identified your business goals and aspirations, it’s time to figure out KPIs that align with the objectives. As we said, each business is unique, and each KPI serves a different purpose. Therefore, instead of hopping onto the bandwagon and blindly following trends, try to identify metrics that suit your needs.
The above mentioned KPIs can be effectively used to drive business, improve customer activity cycle and impact your brand’s image building brand loyalty. Remember to be critical, thorough, and organized when tracking KPIs.
KPIs are metrics that matter. Tons of metrics are available to businesses seeking information about their company’s performance, including the number of clicks, subscription revenue, percentage of new sales, and others. However, not all of these are KPIs.
KPIs are different from metrics because they are the most critical metrics. KPIs underscore the company’s business goals, and they help business owners determine what actions to take next.
In some cases, KPIs are made up of two or more metrics. For example, the relationship between website traffic and sales can be combined as a popular KPI known as conversion rate.
An SLA is a written agreement that describes the service that a vendor will provide to a customer in terms of both quality and quantity. Vendors manage expectations throughout their client base by establishing SLA contractual requirements. Both the vendor and the client can use the measured metrics and performance indicators to identify, track, report, and assess the true measures defining real-world business demands and performance.
A KPI serves as an analytical foundation for assessing progress toward stated goals.KPIs give decision-makers a realistic and comprehensive view of corporate performance from a range of perspectives, allowing them to adjust strategy for the best results. Identifying, monitoring, reporting, and evaluating the most significant indicators that show the genuine performance of the linked business component is therefore crucial.
6 KPIs that Ecommerce platforms need to monitor are:
Average Order Value
Cost per order
Return on Ad Spend
Customer Lifetime Value