12 Essential Key Metrics That E-commerce Businesses Must Track
Updated: Feb 3, 2021
Online retail or e-commerce has become a new playing arena for many companies. A lot of major e-commerce sites monitor some key indicators and metrics to study their performance against the overall trend in the industry and the market. These key metrics when used collectively, can help you study the behaviour of your customer, market trends and even product and supply chain performance.
If you need a well-performing e-commerce site, you need to track all these metrics and derive actionable insights from the same. This is one reason, analytics is an active business function in most retail and e-commerce websites. You can use analytics to study these metrics, run sophisticated predictive and prescriptive algorithms and design recommendations from these insights.
Let us go through the 12 essential key metrics that e-commerce businesses must track to stay competitive.
1) Conversion Rate
One of the most important metrics in the e-commerce space is the conversion rate. Simply defined, a conversion rate is the percentage of visitors on your website who made a purchase or a complete transaction. Hence, if a thousand people visit your website per month, of which only 5 among them make a purchase, then your sales conversion rate is 0.005 (i.e. 5/1000). There is no pre-defined threshold for a low conversion rate. However, based on your sales target and the scale of your customer and product portfolio, you need to define a threshold towards which you need to work.
It is important to note that there are micro-conversions throughout a customers’ journey on your site. For instance, if a user browses the products offered on your website and adds one of them to his/her cart, this counts as a micro-conversion. However, for retail and e-commerce, the only conversion that matters the most is the macro-conversion rate i.e. the purchase. Thus, mathematically you can define this metric as:
(# Of Sales) / (# of Users) * 100% = Conversion Rate
While the conversion rate will give you an overall picture of the performance of your site, you need to dive deeper to find more actionable insights. These relevant actions can only be designed through segmented conversion rates. You can monitor conversion rate by device, channel, browser (or medium like an application) and even by customer type (if the customer is a new customer or a repeat customer).
Conversion of a new customer is a key metric that overlaps with another metric called Customer Lifetime Value. It is necessary that you track how much sales were contributed by new customers and what fraction was contributed by existing or repeat customers.
Similarly, monitoring the device and the web browser (or the application) your users are using to access your website will help you understand what medium is contributing to your revenue the most. All these insights can help you design marketing campaigns and even study their effectiveness.
Additionally, you can even study the conversion rate by products and product types. This will help you understand what products sell the best, how to design cross-selling and upselling products and even how to design campaigns around them. However, this strategy might fail when the range of products offered by your site is small.
2) Customer Acquisition Costs
One of the key metrics that a lot of companies track and monitor is the Customer Acquisition Cost. Also represented by CAC, customer acquisition costs can be calculated by dividing the total marketing and advertisement spends over a period of time by the number of customers acquired during that period. In layman’s language, it is the amount you invest in acquiring a particular customer. Thus, if you spend $500 on customer acquisition in a month and get 10 new customers due to that, your CAC is $50 (500/10).
Like conversion rate and other metrics, CAC can also be observed at a segment level. For instance, if you would want to analyze how profitable your Facebook ads were when compared to your Google ads, you can use segment level CAC with respect to the medium of advertisement and the devices being used by your users.
3) Customer Lifetime Value
Customer lifetime value (also represented as CLV, CLTV or LTV) is a measure of how loyal and profitable a customer is to your brand. It quantifies the revenue brought in by a customer, after subtracting acquisition costs. CLV is arguably one of the most important metrics to track in e-commerce. It considers the number of visits by a customer and his/her average spends per visit. If you know your customers’ lifetime value, you can also calculate how much you are should spend to acquire a customer. This implies that you can regulate your CLV on the basis of your CAC. It is important to note that CLV can be of two types:
Historical CLV – a customer’s current value based on his/her historical purchases.
Predictive CLV – the forecast of a customer’s future CLTV based on his/her past behaviour.
The basic formula for calculating historical CLV is as follows:
Historical CLV = Average order value * Average number of purchases last year
It can also be estimated by subtracting the acquisition costs and customer retention costs (if any) from the revenue a customer gets. This can be represented in the following manner:
CLV = Total revenue generated by the customer in a year – Customer acquisition cost – average yearly customer retention cost
This is a key metric as it would help you profile and segment your customers for targeted marketing. It will also help you design campaigns to improve your revenue from specific segments of customers. It can also help you determine the acquisition cost you would want to allocate to your potential customers hereafter.
4) Shopping Cart Abandonment Rate
A lot of e-commerce websites consider cart abandonment to be one of the most significant metrics to measure their performance. As the name suggests, this performance indicator describes how many customers added products to their cart but did not convert this action to a successful purchase. Hence, this metric is directly associated with your conversion rate in an inversely proportional manner. In other words, if your shopping cart abandonment rate is high, your conversion rate would be low. To calculate your cart abandonment rate, you can use this equation:
Shopping Cart Abandonment Rate = Number of completed purchases / Number of shopping carts created
Once you have estimated your cart abandonment rate, you need to investigate the possible reasons for the same. This will help you design corrective measures and recommendations. Studies say that one of the key reasons for a high abandonment rate is high shipping costs and hidden costs that were not revealed while the customer was shopping. There are some other reasons that contribute to a higher cart abandonment rate. One of them is high delivery times. Long log-in procedures are complex user interface would follow as well.
5) Segmented Revenue
While all businesses track revenue and profit constantly to monitor a brand’s growth and market share, it becomes absolutely necessary to dive deeper into segmented revenue to understand what channels are driving the most of your revenue. E-commerce sites monitor revenue segmented by traffic source, that is a dollar value indicating the revenue driven through each of the brands’ sales and marketing channels.
For instance, let us assume you have 1000 customers from affiliate marketing sites of which 100 customers successfully completed a transaction. On the other hand, Google ads have 100 visitors of which 95 show a successful conversion. This clearly indicates that Google ads drive higher sales as a channel. This kind of analysis is necessary to determine which is a better channel for designing campaigns and marketing strategies. It will also help you determine which sales channel needs corrective measures for driving higher revenue.
6) Average Order Value
The Average Order Value is another key metric e-commerce store owners must track. You can calculate this by dividing the total revenue by the total number of successful orders. This basically indicates the average value of each order on your site. The formula to compute the average order value is:
Average Order Value = Total Revenue / Total # of successful orders
We can see that the average order value is directly proportional to the revenue. This means, if you increase the average order value, you can raise the revenue as well. This metric is also known as revenue per purchase.
There are a few strategies that e-commerce sites can adopt to increase the average order value. For instance, you could offer lower shipping costs for carts with the higher order value. You could also offer a freebie or design cross-selling, upselling and product bundling strategies for carts that have a higher value.
7) Average Order Size
We just saw that the average order value represents the price associated with every order. However, one of the key metrics, average order size deals with the number of items customers buy together in a single order. This means that the average order size indicates that people are buying more products from your website.
A higher average order size would indicate that your cross-selling, product bundling and upselling strategies are successful. It would also indicate that your analytical and prescriptive tools like recommendation engines, if any, are working in your favour. In short, people are adding more items to a single order. Higher average order size can help you reduce shipping costs and increases profitability.
8) Email Engagement Metrics
Email engagement continues to be one of the conventional and most commonly used media for engaging with customers. It is key that you monitor the success rate of these emails. Sending regular emails of new and upcoming products or emails for abandoned carts are not new methods in this space. You need to design personalized emails. You need to evaluate what kind of emails have shown the best results in the past. You will have to monitor how these emails perform regularly. An e-commerce website needs to redesign mails and think innovatively always to get better results from marketing emails.
9) Number of Transactions
As the name suggests, this metric defines the number of purchases your customers have made in a given period of time. Since most of the metrics are defined and tracked annually, you could monitor the number of transactions in a year. You can also define this metric as purchases per year. You could also make more granular observations for this metric. The daily, hourly, weekly, monthly and yearly transaction records can unveil trends in the data that are otherwise unclear. You could use this metric to study trends like what time of the day sees the highest traffic. You could also use to observe seasonality of sales across months and quarters. You can then use these insights to derive actionable recommendations like designing marketing strategies accordingly.
10) Google Search Performance
Google is currently the biggest medium for online advertisement and marketing. Most e-commerce sites leverage the Google platform to improve their sales. Organic search is one of the biggest channels on search engines like Google which can direct customers and lead to conversions on retail websites. You can use this to monitor and track your online presence. If you check your performance on Google Search, it will help you understand how optimized your website is. You could also check if you could drive organic hits to your website. This metric uses some key metrics in itself. For instance, the number of impressions stands for the number of times your website URLs or products showed up as a result of something being searched. Clicks refer to the number of actual clicks on these links (that showed up on the search results) that lead to your website. All these constituent metrics are valuable parameters to track your websites’ online performance and search performance.
11) Customer Retention Rates
This is one of the many other significant metrics that help you study existing customers. The customers you manage to keep hooked to your brand are termed as returning or repeat customers. It is measured by calculating how many customers acquired in a certain past period of time, came back after that to purchase more. You need to monitor the number of conversions and purchases made by your repeat customers. It will help you determine what portion of your sales are being driven by new customers and what fraction is contributed by your existing customers. This will help you determine their loyalty towards your brand and your website.
Returning customers can prove to be more profitable than acquiring new ones. Since the acquisition process is not cheap, it is often possible that the earnings from these returning customers pay off their acquisition costs and way beyond. Once you study this metric, you can use it to understand how to increase your repeat customers. People should be happy with your product and service offerings to keep coming back. You can incentivize them by offering special deals and offers to repeat customers.
12) Refund and Return Rate
You can calculate the refund rate as the percentage of product returns accepted compared to total sales. In mathematical terms, it can be represented as:
Refund rate = # of completed returns / # successful conversions
A higher refund rate implies that your customers are not happy with the product offerings on your website. This could indicate a lower quality of products or even degrading brand image and credibility. While it is necessary to accept returns from your customers, a high return rate indicates problems with product quality, customer satisfaction or lead quality. These returns are costly because they take up twice the time for processing and even higher logistics costs (in shipping the product etc.).
You can segment your return rate by products and categories. This will help you remove underperforming products from your catalogue. You can use this metric to evaluate your customers’ sentiment. Disgruntled customers have the freedom and the power to rant about you on social media. This will create a worse brand image, thus bringing sales, profitability and your market share down.
These key metrics can help you improve your online presence
All the above metrics along with others can help you track your business, its growth and even the opportunities for growth in the industry. It can help you monitor your competitors, customers, products and the industry as a whole. This will not only help you gain a competitive edge over the other players in the market but also gain a respectable opinion among your customers. A lot of these metrics can be extracted through web scraping and other sources as well. The e-commerce industry relies on advanced technology to grow and develop. Hence, it is key that the data and these metrics are constantly extracted, monitored and analyzed to derive actionable insights.
Datahut scrapes retail data to help e-commerce store owners access these metrics and derive actionable insights. Are you an e-commerce owner looking to extract large scale retail data from the web?
Contact Datahut, your web scraping experts.