E-commerce is a fast-paced industry with more opportunities than ever. To achieve success in e-commerce, you need to know how to measure your success and keep a close eye on trends that can help or hinder it.
In 2020, global e-commerce sales (retail) were close to USD$4.28 billion. These numbers are projected to grow to USD$5.4 trillion in 2022. This is why it is important for e-commerce entrepreneurs not only to act today but also to be aware of what they are aiming for in the future. That’s where Key Performance Indicators (KPIs) come into play.
Essentially, KPIs map out the road to your e-commerce business success. So, monitoring them will be crucial in terms of identifying your progress in sales, marketing, and customer service goals.
While there are different types of e-commerce KPIs you can track to grow your business, it is important to ensure that these KPIs line up with your company goals. In this post, we will explore 7 Key KPI measurements to help grow your e-commerce business.
1. Conversion Rate
This metric measures the percentage of visitors to your e-commerce site that actually buys your product. You can calculate conversion rates by dividing the total number of conversions by the number of website visits and multiplying this figure by 100:
Conversion Rate = (Total no. of conversions ÷ No. of visits) x 100
The performance of each individual product can also be measured using this calculation. Thus, you can determine the effectiveness of each product in your store. A high percentage also means that visitors are interested in your products on your e-commerce site.
On average, conversion rates for online shoppers worldwide range from 2.89% to 3.31%.
2. Bounce Rate
Another key e-commerce KPIs when measuring success is bounce rate. This metric measures how many visitors leave your website before viewing other pages. You can calculate bounce rates by dividing the total number of one-page visits by the total number of visitors to the site.
Bounce Rate = (Total no. of one-page visits ÷ Total no. of visits) x 100
A high bounce rate might also mean that your visitors are not finding what they want and need. Alternatively, it could be a sign that there is something about your site design that is not working for them. It is possible that your customers do not know how to navigate around your website. The average e-commerce store has bounce rates of 45.68%. Conduct split testing or A/B testing to optimise your website design to lower bounce rates and improve conversion rates.
3. Shopping Cart Abandonment Rate
Many e-commerce business owners tend to overlook Shopping Cart Abandonment Rate (SCAR). This is actually a key indicator of e-commerce success.
The metric refers to customers who add any items to their online shopping cart but then do not complete their purchase. You can also calculate SCAR by dividing the number of completed transactions by the total number of carts created.
Shopping Cart Abandonment Rate Percentage= (No. of completed transactions ÷ No. of shopping carts created) x 100
For example, if 50 items were added to a shopping cart, but only 25 e-commerce goods were purchased, the SCAR would be 50%.
4. Customer Acquisition Cost
This is also known as Cost Per Acquisition (CPA). It tells how much you need to spend on advertising to attract each new customer. You can calculate the CPA by dividing the total amount of marketing expenses by the number of new customers.
Cost per acquisition = Total amount spent to acquire customers ÷ No. of customers acquired
A low CPA is a good sign because it shows that you need a low investment in advertising, which then translates to bigger profits that can fuel growth. However, if your costs are too high it will be difficult for you to grow business revenue.
Achieving this balance is critical. E-commerce businesses that spend too much on marketing but fail to attract new customers will soon run out of money.
Advertising can be expensive. Thus, it is critical to know which ads work and when they are most effective. This KPI will help you measure your e-commerce marketing strategy and identify the best chances to grow your revenue.
5. Average Order Value (AOV)
The next important e-commerce KPI measurement is average order value (AOV). It is the average cost of an e-commerce order and calculated by dividing the total e-commerce revenue for a specified period by the number of orders that occurred during this same time.
Average Order Value = Total Revenue ÷ Total No. of Orders
AOV is one of the e-commerce KPIs that will help you understand how profitable your business is. To grow your e-commerce AOV, you should find ways to increase average revenue per sale (ARPS) and upsells/cross-sell offers. It will also be a good idea to create marketing campaigns with higher conversion rates.
6. Customer Lifetime Value (CLV)
Customer Lifetime Value is another major e-commerce KPI that calculates the lifetime value of your online customer. Customer lifetime value is calculated by multiplying the average order value by the number of purchases per year and then multiplying that result by the retention time.
Customer Lifetime Value = Average order value x Average number of times a customer buys per year x Average customer retention time
CLV is a vital e-commerce KPI to track because you can use it as the basis for many important decisions about your e-commerce marketing strategy. It also helps you segment customers to identify which types of customers are the most valuable and you should invest in.
7. Customer satisfaction score (CSAT)
The CSAT score is on a combination of customer sentiment and system response. It is an indicator of how your e-commerce store is doing in general satisfying its visitors.
CSAT Score = (% of satisfied customers ÷ % of total customers) x 100
The CSAT score can help determine how many new prospects a company will get in the future because it measures whether visitors generally have a positive experience on the e-commerce store. The higher your e-commerce e-customer experience, the more customers will be likely to review you online.
You can measure your CSAT score with a simple survey to request feedback from your customers. You may also want to look at third-party reviews and ratings for the e-commerce store, which can have a big impact on the CSAT score.
Conclusion
Understanding these important e-commerce KPI measures is very helpful in analyzing the success of your business. It is super important to have a deep understanding of what’s going on in your e-commerce business and how to grow it beyond the current level.
