The key performance indicators of an e-commerce site

Knowledge is power, and that’s a universal truth as old as time. In the 21st century, you have all knowledge available just a few clicks away from you, so excuses are unacceptable. Today, competition is big and powerful, and if you want to succeed you need to be better than them, and that means you need to know all about your job better than anyone.

When you’re about to start an e-commerce website, you should make a good strategy and inform yourself about all key factors for success, because without them it’s more likely that you will fail.

Tracking and measuring e-commerce key performance indicators (KPIs) is a crucial part of any digital marketing campaign. A good and quality analytics will not just help you to invest properly, but to see where and how to invest without spending money on campaigns that don’t give revenue. To evaluate your business growth and get a clear vision, you should follow crucial KPIs metrics, and precisely “read” the most important indicators.

In this article, we’ll help you to get a closer look at KPI-s, how to track them and how to calculate them.

First of all – what are KPIs and why they are so important

A key performance indicator (also known as KPI) is a measurable value that demonstrates how effectively a business is achieving key business objectives. So, you can think of them as a kind of signpost – they will tell you where you are at the moment, and where you should go to get on your business goals. Will you follow them or not – it’s completely on you.

As you know, every online business has one purpose – a set of goals to achieve so you can make a profit. And that’s why KPIs are crucial – based on them, you create a list of e-commerce metrics that will show how your actions contribute to achieving your business goals. A well-organized system of key performance indicators can help you monitor all business efforts more efficiently and to solve a number of tasks. 

Now, when we cleared what KPIs are and how you can use them to improve your online business, let’s talk about crucial KPI’s for e-commerce business. There are some essential KPIs to track for your e-commerce:

  1. Shopping cart abandonment rate
  2. Conversion rate
  3. Average Order Value
  4. Return on Ad spend
  5. Customer lifetime value

Nobody likes a complicated calculation and math, but when it comes to the point where your money is on the table, there is no doubt that you’ll need to put aside what you like or not and be a real, fearless businessman.

1. Shopping cart abandonment rate

Cart abandonment is a term used in e-commerce to refer to the customers that place items in their shopping cart, but then leave the website without completing the purchase. Some studies show that nearly 70 percent of customers abandon a shopping cart, and there are a few reasons for that: website errors, huge shipping costs, complex and not understandable steps for a shopping process, etc. Before you establish an e-commerce website check for a good reliable host and hosting package that can support that kind of website, because sometimes not customers are a problem, but your website loading time. Hostinger has very good recommendations for large scale website projects like e-commerce websites and also a very acceptable price, so you can check it out. Luckily, when it comes to e-commerce, you can track and measure your cart abandonment rate and try to recover a huge percent of lost revenue. How? 

Formula: calculate the shopping cart abandonment rate by dividing the number of completed purchases by the number of created shopping carts. To turn that rate into a percentage, deduct your number from 1 and multiply it by 100.

2. Conversion rate

Conversion rate is a simple and powerful metric for e-commerce owners – can tell you how effective your e-commerce campaigns, landing pages, and even your email marketing.

Conversion rate refers to the percentage of your visitors who take an action on your website. This action can be just signing up for an email newsletter or even making a purchase (which is a goal).

The average conversion rate for e-commerce websites is between 2.90% and 3.40%. That means that in 100 visitors 2 or 3 will make a conversion.

To calculate your conversion rate, divide the number of whatever conversion by the number of visitors to your store, and then multiply it by 100 to get the percentage.

3. Average order value

Average Order Value is maybe one of the most important metrics when it comes to measuring the profitability of your sales channel. It can even tell you which of your products gives you the biggest revenue.

To calculate your average order value in a given time period, take your total revenue and divide it by the total number of orders. Once you catch a pattern, it will be very simple.

4. Return on Ad spend

ROAS tells you how much revenue your campaigns are getting in relation to how much money you spent on them. With simple words, it tells you exactly how much your income is in relation to outcome. ROAS helps a lot when you want to evaluate which methods work and how you can improve future advertising. 

Formula: (Revenue – Cost of campaign) / Cost of campaign. 

5. Customer lifetime value

Customer lifetime value (CLV or CLTV) is an average amount of net profit that each customer will bring you during your whole “relationship”. It’s an essential task because it will help you to understand the return of your investments which is important for future business strategies. Also, this KPI will show you how much your business retains customers. It might be scary to know that, but it’s really important – customer retention can drastically increase your profit, and gaining new customers is more expensive than retention of old ones.

Before you can be able to figure out, you need to have calculated three other averages from your metrics:

– Average order value

– Number of times a customer buys per year on average

– Average customer retention time in a month or a year

After that you can calculate the lifetime value of your customers simply by multiplying your averages: the final result is Customer Lifetime Value. Ta-da!

Final words

Learning about relations between components crucial for your business will help you to establish more effective strategies and be more successful in e-commerce. Your decisions should be based on objective and rational thoughts, and what’s more objective than facts? Remember the first sentence of the article: knowledge is the power, and that power can be in your hands, just be persistent and patient.

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