"You don't know where you're going until you know where you have been."
This adage also applies to eCommerce success. When things get busy, it's easy to lose sight of the details that matter. How much does your eCommerce site make? Are people coming back to your online store? How long does it take for a customer to make a purchase?
Every result should be measured within a specified timeframe to determine whether your business is moving forward or not. The following performance metrics will help you answer these questions and improve the trajectory of your business.
1. Customer Acquisition Cost
So you have implemented your marketing and sales campaigns to turn interested leads into actual customers. How do you make sure you’re not wasting your limited resources?
Determine your customer acquisition cost (CAC).
CAC is the cost of making a customer buy your product or service. Think of it this way: It is what you have to shell out first in order to gain profit. To calculate CAC, divide all the costs spent on acquiring more customers (marketing expenses, manpower, etcetera) by the number of customers gained within a specified timeframe.
CAC = Marketing Expenses / Customers Acquired
For example, an eCommerce company selling beauty products spent $50,000 on a marketing campaign over one month. Its marketing team reported 5,000 new customers. This means the company’s CAC is $10.
Determining your CAC per marketing channel will also show you which one gives you more bang for your buck. High CAC channels may not necessarily be bad provided that they generate a high return of investment or ROI.
Tip: Invest more in channels with the lowest CAC and optimise channels with high CAC. Ideally, use high CAC channels for a big campaign or launch.
2. Percentage of New Visitors
If you’re using Google Analytics, chances are, you already know how helpful it is in tracking your website’s traffic and engagement (Find out if it's set up correctly here).
Google Analytics comes with an Audience Dashboard, which shows you metrics that measure traffic, pageviews, and audience interest. It also shows you the percentage of new visitors or the ratio of new visitors to returning visitors.
The percentage of new visitors is important in determining the direction to take if you want them to become returning visitors. This metric also helps you understand the preferences and behaviour of new visitors compared with your existing pool of customers. Do they have a different persona? Do they prefer a specific type of content?
Ideally, you would want a high stream of new visitors. However, if you see a higher number of new visitors than returning ones, consider revisiting your strategies. What matters is building loyalty and enticing customers to revisit your website for new products and services.
3. Average Order Value
Average order value is an eCommerce metric that shows how much a customer spends each time he orders. It measures sales per order, not per customer, because a single customer can place multiple orders per transaction. Your AOV is more dependent on returning visitors rather than new ones, because they have the tendency to spend more in one visit.
To calculate AOV, divide your revenue by the total number of orders within a specified time period.
Average Order Value = Sum of Revenue Generated / Number of Orders
For example, if your store generates a total revenue of $2500 with 200 orders, your AOV is $12.50. AOV is a crucial metric for many store owners, because higher AOV translates to higher income.
Encourage your customers to spend more every time they go to your site by creating a loyalty program, rewarding them with perks for every purchase, or mixing and matching items for a discounted price.
4. Customer Conversion Rate
Customer conversion rate tells you the percentage of visitors who actually took your desired action. Did you want them to purchase a product or a service? Sign up for your newsletter? Or simply participate in an online survey?
You can get your conversion rate using Google Analytics or other analytics platforms. To calculate it on your own, use the formula:
Customer Conversion Rate = (Number of Sales/Checkouts) / Number of Visits
For example, 2000 users visited your online store and 80 of them ended up buying your products. Your conversion rate is four percent.
Some reports say the average conversion rate of eCommerce stores is two to three percent. You don’t necessarily have to aim for this. Your goal should be to improve your current customer conversion rate. If your conversion rate is decreasing, you must improve your customers’ shopping experience.
It’s also important to look at which page converts better. One page may show a better customer conversion rate, because of its content, design, or ease of access.
Conversation rate also relies on the devices used by your customers. Some use mobile phones to browse products, and then turn to a desktop computer for the actual transaction. Mobile phones may give you tons of website traffic, but desktops, laptops, or tablets may churn out better conversion rates.
5. Time To Purchase
Do you want to know how long does it take before your customers make a purchase in your store? Find out their time to purchase.
Time to purchase measures the numbers of days and sessions it takes for a customer to complete a transaction.
This is why it's important to make things easy for your visitors. Make sure they find what they need on their first visit.
Ideally, you would want your first-time visitors to purchase right away. However, a longer time to purchase is an indication that your potential buyer may be considering other factors, such as price and competition.
6. Abandoned Cart Rate
It's frustrating when a user is just one click away from purchasing but decides not to at the very last minute. Yes, your cart has just got abandoned.
Abandoned cart rate refers to the number of visitors who initiate an order process but leave before completing the purchase. You can calculate this metric using the following formula:
Cart Abandonment Rate = 1 – (Number of Orders Placed / Number of Shopping Carts Created)
This metric can give further insights into your checkout process. Did the shipping costs discourage the customers from purchasing? Did they see all available delivery options? In some cases, they simply decided to continue browsing, compare prices, or explore different options.
It's critical to keep the checkout process as simple and reliable as possible. Ensure your customers’ personal information is secured. Add security logos and show them their transaction progress by making every stage in the checkout process clear. Also, remember to add multiple payment options to eliminate one of the most common reasons why customers opt out of an online transaction: They don’t see a convenient payment option.
Read other ideas on how you can reduce cart abandonment here.
7. Customer Retention Rate
The rate of customers that you’re able to keep over a period of time is called customer retention rate. We're talking about happy customers who return to your eCommerce store. The goal is to make them happier every time. Customer retention rate is calculated using this formula:
Customer Retention Rate = ((CE – CN) / CS) x 100
Where: CE = Number of customers at end of period
CN = Number of new customers acquired during period
CS = Number of customers at start of period
Investing in your returning customers is more profitable than getting new ones. According to Bain & Company, increasing this metric by five percent gives you an increase of profit from 25 to 95 percent. Hang on to the customers you already have and turn your first-time purchasers to returning visitors.
One way to increase retention rate is cohort analysis. A cohort is a group of people sharing the same characteristics or behaviours over a certain period of time. Group your customers on a monthly basis (e.g. March cohort, April cohort, etcetera) and analyse each month’s data independently.
Cohort analysis also helps you compare data between cohorts and find trends affecting customer behaviour. For instance, your March cohort might be more engaged than your April cohort. Further analysis helps you understand why your product is attractive to a specific set of people.
8. Order Gap Analysis
So now that you’ve tracked your share of repeating customers, what else can you get from understanding their purchasing behaviour? Knowing how long it takes for them to repurchase is also an essential piece of information.
Calculating the average time between consecutive orders made by your customers is called order gap analysis (OGA). OGA answers why it takes a while for some customers to repurchase (or never purchase again).
OGA gives you a chance to revise or intensify your marketing efforts. It also tells you when to push out content. Remember, timing is an important consideration in any marketing strategy. Are you putting out marketing messages at the right time? Are you spamming your customers with your emails?
This eCommerce metric encourages you to play it cool and be more relevant to your customers by analysing the window between their purchases.
9. Customer Profit Margin
Customer profit margin gives you an overview of your business’s financial performance. At the end of the day, your business should be earning. To compute for the profit margin, divide your net income by your net sales.
Profit Margin = Net Income/Net Sales
Net Sales = Gross Sales – Any Refund/Returns
Net Income = Total Revenues – Total Expenses
A low profit margin means the business is not doing well. It signifies a decline in sales or a possible underpricing of goods.
Making informed decisions for your eCommerce business must be based on reliable indicators. Don't take these KPIs for granted—and optimise them whenever necessary.
Whatever metrics you decide to use, use them to form a loyal customer base, create effective marketing campaigns, and most importantly, drive sales.
Looking for more eCommerce articles? Check out our comprehensive eCommerce resource page.
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