Sales and net profit reflect how well your ecommerce store is doing, but smart entrepreneurs know that these metrics are just the tip of the iceberg. There are a number of things that can tell you if your business is in good health, or not. That’s where ecommerce key performance indicators, or KPIs, come in.
KPI.org defines KPIs as indicators of progress toward an intended result. They’re quantifiable measurements used to track performance in relation to a certain goal. For example, your goal might be to increase your total sales revenue by 50% this year. Relevant ecommerce KPIs would be the number of new customers acquired, your conversion rate, and the average order value.
Today, online store owners have access to a great deal of data, which means that it can be hard to decide which data points are the right ecommerce KPIs. The last thing you’d want is to be tracking KPIs that are not actual performance indicators, but are instead vanity metrics, so you’ll want to proceed carefully here.
In this article, I’ll talk about ecommerce KPIs and metrics that matter. These are the KPIs that help you make better business decisions and accurately show whether or not you’re progressing toward your business goals.
Let’s dive in.
Benefits of Tracking KPIs
Management guru Peter Drucker famously said what gets measured gets managed. The best way to measure your progress in a precise and objective way is by setting and monitoring KPIs.
Here are the ways that KPI tracking can benefit your ecommerce business:
- You and your team can seamlessly work toward the same goal and everyone can be on the same page.
- You see in measurable terms how close you are to your goals.
- You can make quick decisions that are based on data and not just on gut feel, personal beliefs, or preferences.
- You get a bird’s eye view of your online store’s overall performance.
- You can detect problem areas such as low-ROI marketing campaigns or products that sit on your shelves for months.
- You save on time and marketing budget by focusing on your strategies that work.
- You can gauge the efficiency and quality of your resource spending, project management, and staff performance.
(Example of an ecommerce KPI dashboard. Source: Geckoboard)
14 Crucial KPIs to Track for Ecommerce Business Growth
There are hundreds of metrics and data points available on your ecommerce site or social media analytics dashboards. Trying to track all of these can be daunting, not to mention time-consuming. Don’t make the all-too-common mistake of tracking too many KPIs.
Here are some of the most important KPIs you should be paying attention to if you want to grow your sales and revenue:
1. Return on Ad Spend (ROAS)
Return on ad spend (ROAS) is the total revenue you get back for every dollar you spend on advertising. Knowing how much money you spend to drive new revenue is crucial. It helps you evaluate the effectiveness of your advertising campaigns and is helpful in predicting future revenue.
ROAS = Revenue From Advertising / Cost of Advertising
2. Average Order Value (AOV)
The average order value (AOV) reflects the average total value of each order made on your site. Monitoring your AOV helps you understand your customers’ shopping habits, what items are popular, how much they spend per order, your pricing, and your discount strategy. Your total revenue is closely tied to AOV. The higher your AOV, the more revenue you generate, making this an important ecommerce KPI.
AOV= Revenue / # of Orders
3. Shopping Cart Abandonment Rate
Shopping cart abandonment rate reflects the percentage of visitors who put something in their cart, maybe even start the checkout process, but never finish the purchase. Abandonments happen for many reasons and abandonment rates vary according to industry. A high abandonment rate means that something is putting off visitors from buying.
To keep this metric low, include trust signals such as reviews, payment security badges, and guarantees. Make all your fees and delivery information as clear as possible and offer an easy guest checkout option.
Shopping Cart Abandonment Rate= # of Completed Transactions / # of Initiated Sales x 100
(Source: Sales Cycle)
4. Customer Lifetime Value (CLV)
Customer lifetime value (CLV)represents how much a customer is likely to spend on your company over the duration of your relationship. Increasing your CLV also means a better bottom line and better business stability. Boost customer retention by investing in customer loyalty programs and taking care of your high-value customers.
CLV = (Avg. Order Value x Purchase Frequency) x Customer Lifetime Length
5. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) tells you how much it costs your company to acquire a new customer. This KPI should also be looked at relative to your Customer Lifetime Value (CLV). A CAC that’s equal to or greater than your LTV is bad news. It means you’re spending too much on customer acquisition and not making enough revenue in return.
CAC = Sales & Marketing Costs / # Customers Acquired
6. Email Conversion Rate
Don’t underestimate the power of email to generate significant ecommerce revenue. Email conversion rate shows you the percentage of website visitors who convert from an email sales funnel. The top 10% of marketers see a 6.5% conversion rate from email, while the bottom 25% have a 0.82% conversion rate. That’s a huge difference in terms of potential revenue.
Email Conversion Rate: # of Conversions / # Delivered Emails x 100
7. Ecommerce Conversion Rate
Ecommerce conversion rates show the percentage of site visitors who become customers. Conversion rates vary per industry, but most surveys estimate the average conversion rate is at 2%. If your conversion rate is below your industry standard, dig into your data analytics to figure out at which point prospects leave your site.
Using conversion rate optimization techniques and SEO tactics such as fixing technical issues and improving your site’s user experience design can boost your ecommerce conversion rate.
Conversion rate = # of conversions/ # of visitors x 100%
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8. Refund and Return Rate
A high refund and product return rate could mean that your product page is efficient and engaging, but your product doesn’t match the description or customer expectations. Asking for post-purchase feedback regularly, especially from those who ask for refunds and returns, can help you pinpoint the reason for their dissatisfaction.
Refund and Return Rate = [(Current Value – Original Value) / Original Value] x 100
9. Churn Rate
Churn rate represents the percentage of existing customers who don’t make another purchase at your site. These are a business’ lost customers and you want to keep this figure low. Lower churn rates also mean higher LTV and more revenue. Reduce your churn rate by making sure your products, services, and pricing match your target audience. Loyalty programs and excellent customer service are also great ways to foster longer relationships with customers.
Churn Rate= Lost Customers / Total Customers at the Start of Time Periodnps forum x 100
10. Email Subscription Rate
A high email subscription rate is a positive signal that your customers want to hear from you and stay connected. You’ll also want to keep your email unsubscribe rate low. Keep your hard-earned email subscribers by ensuring a good email communication experience. Following some golden rules such as no spamming with unnecessary messages, a no-fuss sign-up experience, and strong calls-to-action can help keep your email subscriber list in top shape.
11. Bounce Rate
Your website’s bounce rate tells you how many users leave your site after viewing only one page. If your bounce rate is high, this could be signs of problems such as technical issues, a slow loading page, visitors not finding what they’re looking for, or unengaging content.
Bounce rate data can be viewed on your Google Analytics page. Improve your bounce rate by doing a technical audit of your ecommerce website, analyzing your traffic sources, improving user experience, and prioritizing for mobile use.
12. Page Views Per Visit
This is the average number of pages a user views on your site during each visit. More pages viewed generally means more engagement. However, it could also mean it takes users too many clicks to find what they’re looking for. For precise information on what users are clicking and looking at on your site, heat mapping tools from Crazyegg and Hotjar help you do the job.
13. Social Media Engagement and Followers
Social media is an important tool for businesses looking to raise brand awareness and improve customer relationships. Staying present on your followers’ feeds also means higher chances of staying on top of their minds when they want to buy something. Social media metrics are also great KPIs you can use for determining the impact of your messaging and marketing campaigns.
14. Customer Service Metrics
Loyal, satisfied customers are the foundation of a successful business. Keep them happy by ensuring an excellent customer experience. Keep track of customer service KPIs such as:
- Number of customer messages you receive including customer service email count, customer phone call count, and chat conversations.
- First response time or the average amount of time it takes before a customer receives a response from your teal. Try to keep this one low.
- Average resolution time or the amount of time it takes for a customer issue to be resolved, starting from the point the customer raised a problem up to the time when it’s completely fixed.
- Net promoter score (NPS) provides insights into customer satisfaction and shows how likely customers would refer your company or products to others. Customers could fall into three categories: detractors, passives, or promoters.
FAQs on Ecommerce KPIs
Here are some of the most commonly asked questions on key performance indicators (KPIs):
What are some typical KPIs that an online retailer might use?
Ecommerce performance metrics that online retailers need to keep track of are: conversion rate, shopping cart abandonment rate, average order value, customer acquisition cost, return on ad spend, and customer lifetime value.
How many KPIs should a company have?
There’s no hard rule on how many KPIs a company should have. However, it’s best practice to keep your KPI tracking simple and manageable. Most management experts advise having only three KPIs per goal set to keep you focused, and focusing on three primary goals at a time.
The Next Steps: Create Your KPIs
Ready to start tracking your ecommerce KPIs? Start with these steps:
Step One: Determine Your Key Goals
KPIs should always be attached and aligned to your business goals. FranklinCovey, Steven Covey’s business consulting company advises organizations to “Focus on the wildly important. Exceptional execution starts with narrowing the focus—clearly identifying what must be done. Otherwise, nothing else you achieve really matters much.”
Be ruthless and focus on the three goals that really matter. After you achieve these, you can then move on to medium-priority goals.
Step Two: Write the KPIs for Each Goal
Some goals may only need one KPI, some could have several KPIs. Many management experts advise having no more than three KPIs for each goal. That way, you’re not spread too thin trying to achieve too many performance measures.
Step Three: Measure, Track, and Revisit Your KPIs
How often you should measure and track a KPI depends on its characteristics. This includes how often data is available to you or the data size needed. KPIs you can measure weekly are website traffic and social media traffic. AOV, shopping cart abandonment, and CAC need a larger sample size to be measured effectively, so bi-weekly or monthly would work for these.
Quarterly KPIs can include those long-term activities that demonstrate business growth. This includes KPIs like email metrics, CLV, and subscription rates.
Ecommerce Key Performance Indicators help you track your company’s progress in a measurable, concrete way. Use your KPIs to make data-driven business decisions and don’t forget to regularly monitor your KPIs and update them as needed.
Not sure which KPIs your business should be tracking? Reach out now for your free 20-minute consultation call to get actionable insights and tools to scale your business quickly and efficiently.
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