Every business has some measures or metrics by which they determine the success or progress of their businesses. It is crucial to scrutinize every step you take in your company. Having a crystal clear idea about every move and how it can affect your company are how it can benefit your business.
Like any other sector, e-commerce also comes with specific KPIs or measures which help you monitor the growth that can support your customer’s needs. This article will discuss e-commerce KPIs, why they are important, and the essential KPIs for your e-commerce business.
What are E-commerce KPIs?
The Key Performance Index or KPI is seen as a significant milestone for your company. These milestones are set to ensure your business progress. Stakeholders of the company develop milestones by keeping customers’ demands in mind. Whether the milestones are fulfilled or not, it is a vital aspect of tracking your progress.
Before jumping into more details about KPIs, let’s first understand the difference between metrics and KPIs.
What is the Difference between Metrics and KPIs?
Metrics and KPIs are two of the most important things an entrepreneur must consider while running a business. These two elements provide you with your company’s facts and figures. Both the terms are used interchangeably, but there’s a significant difference between a KPI and a metric.
You can see metrics as a part of KPI. Metrics help grow and support your e-commerce KPI in every possible way. Both terms are quantifiable. However, the significant difference is:
- Metric– Metric helps you track the activities that come under your business. You can easily measure your company’s progress by going through your company’s metrics. They show you the actual results and activities aligned with your objective. A typical example of metrics would be the number of items purchased calculated using some metrics.
- Key Performance Index– This is related to your specific strategic business goal. KPIs are the values against which your metrics are measured. For instance, a percentage change in your market share for a particular period is an example of a KPI.
Why are KPIs So Important in E-commerce?
The e-commerce industry is bound to be updated each time a new trend comes up. The e-commerce business has to consider various activities to keep up with the pace. Therefore, it becomes more important to measure e-commerce KPIs.
Entrepreneurs in online businesses frequently change their business objective, which is entirely dependent on customer reviews. Based on that, KPIs and metrics provide information about your business correlating with customers.
However, KPIs are not the only thing to determine the progress of your business. Accurate, in-depth information comes by analyzing and aligning your business’s data, facts, and figures in your reports. By determining the KPIs and data, you can execute your trade. Besides that, you can also identify the problems or loopholes in your business and rectify them for the time being.
The KPIs and metrics are distributed among larger team groups. You not only get assistance but also help your partners grow and learn about e-commerce business.
What Makes an Effective KPI?
You may have noticed how important a company’s KPI is by now. It helps you in every business step and can build a solid foundation. However, it might be detrimental if you cannot set an effective KPI for your e-commerce business. Now, look at effective and practical ways to determine the most effective KPIs suited to your business.
Your KPIs shouldn’t be overcrowded or complex that are difficult to understand even by your own partners. KPIs should be simple. You should start with the basics and then make very relevant, to-the-point KPIs from that. Remember that everyone should be able to understand those milestones so that they can work closely.
In order for your e-commerce KPI to be meaningful, it must be relevant to your business. It must be logical and practical, not just for entrepreneurs but also for employees. Also, KPIs should be different for different segments of your business.
As mentioned above, you should align the KPIs with your overall strategic goals and activities. Moreover, the result of your KPI should also coincide with your objective. For instance, the inner vision of the organization to increase its customer base should reflect in your KPIs or milestones. Always make sure that your KPI supports your overall strategy.
Higher authorities must set achievable goals for your company. Setting up unachievable goals creates stress which could lead to falling short of your goals. Not only this, it can severely impact business. The more realistic goals, the higher the chances you and your team achieve them. Actionable plans also build a friendly environment and motivate the team.
Essential KPIs to Track for Your E-commerce Store
These are some of the essential e-commerce KPIs to track your store. The top e-commerce KPIs are-
Average Order Value (AOV)
It is also called the Average Market Basket, which measures the spending limit of your customers. It shows the amount of money your customers spend on a single order. This KPI metric gives you an idea of the amount of revenue each customer visits your online store generates. It can be calculated as –
AOV = Total revenue / Number of orders
Conversion Rate (CR)
CR is the rate at which customers purchase products, where a high percentage is ideal. You should optimize your website or online store if you have a low conversion KPI rate.
CR = (Total number of visitors on the website / Total number of conversions) X 100
Shopping Cart Abandonment Rate (CAR)
As the name suggests, CAR determines the number of visitors keeping items in their shopping cart but not making a final purchase. If your CAR is high, you can work on your checkout process to see if there’s any friction. To calculate CAR, you can –
CAR = 1- (Total count of completed transactions / Total count of shopping carts) X 100
Customer Lifetime Value (CLV)
It measures the worth of every customer in your business. You can strengthen your relationship with loyal customers, increasing your engagement and retention rate. CLV is calculated by –
CLV = (Customer’s Annual Profit Contribution X Average number of years as a customer) – the initial cost of customer acquisition
Customer Acquisition Cost (CAC)
CAC is how much your business spends on acquiring new customers. It can be high or low depending on the method of your business. Lower CAC is an indication of good company performance.
CAC = Costs spent on acquiring customers / Total numbeR of customers acquired
For e-commerce, the churn rate determines the pace at which your customers end their subscriptions.
– To calculate the churn rate of your online platform, you can start by subtracting the number of customers that remained at the end of the month from the total customer count at the beginning.
– Then divide it by the number of customers at the month’s beginning.
– Multiply that number by 100 to get the percentage, and then multiply it by 12 for the annual churn rate of your website.
Churn Rate = (Customers lost/Total customers at the start of the period) X 100
Repeat Purchase Rate (RPR)
In a way, a Repeat Purchase Rate can also be seen as a retention rate. RRR states the number of customers who return to the website to make another purchase. It helps you determine customer loyalty and your sales strategies. Higher RRR is always better for businesses. RRR can be measured as –
RRR = Purchase firm repeat customers / Total purchases
Purchase frequency is the average number of orders your customers make during a specific period. It helps you highlight the products or categories most visited by your customers. It is measured as –
Purchase Frequency = Total count of orders / Total count of unique customers
Time Between Purchases
As the name suggests, this KPI tells you about the time your customers take to return to your platform. It is one of the most valuable KPIs as it helps you determine their behavior. It is measured as –
Time between purchases = Purchase frequency / 365
It determines the number of times your inventory is sold throughout the course. The results can help you compare your inventory with the overall sales levels. It is calculated as –
Inventory turnover = Net sales / Average inventory at a selling price
Revenue Per Visitor
This KPI is an important metric to determine the average revenue generated per visitor. It is similar to the CLV and is calculated as –
Revenue per visitor = Total income / Number of visitors over a specific period
One of the simplest KPIs out of the lot, it tells you about the total number of people who visited your platform.
Referral sources are one of the most important KPIs for marketing that helps you identify the sources from which most customers or visitors are coming to your website. It could be word-of-mouth, organic customers, PPC ads, social media searches, and others.
Average Session on the Website
This KPI tells you the customers’ time spent on your website or platform during their single visit.
Average session = Total sessions duration / Total number of sessions
Pageviews Per Session
Pageviews per session refer to the number of websites your customers visit during each click. You must improve your website if it takes a lot of clicks for your customers to get to the right product. Its higher percentage is an indicator of faulty website performance. It is measured as –
Pageviews per session = Total count of pageviews / Total count of visitors
Cost Per Conversion (CPC)
This KPI determines the amount of money you spend to convert a visitor into a customer. It could be your advertisement cost or maybe your placement expenditure. In short, it is the total cost of your successful conversion of visitors to customers. It is calculated as –
CPC = Total cost for generating the traffic / Total number of conversions
Pay-per-check or cost-per-click refers to the money spent on your website. This metric helps to track the activity of customers. The formula to calculate PPC is –
PPC = Total advertising cost / Total number of ads clicked
This KPI is used to calculate the placement of keywords in your content. In other words, it is the average positioning of your website in the search results. For instance, if your website shows up at 2, 3, and 7 positions, then the position reported would be 2.
This KPI is suitable for measuring the number of browsers leaving your site after visiting only one page. It should be as low as possible. This formula will help calculate the bounce rate –
Bounce rate = Total count of one-page visits / Total count of entries to a website
Return On Advertising Spend (ROAS) is one of the most important KPIs for an online business. It tells you the amount of revenue generated for each dime invested in the advertisement. It is the ratio of money earned from the ad to money spent on it. High ROAS is a sign of a good advertising campaign.
Email List Growth Rate
This KPI requires keen observation skills in which the growth list of your email is calculated.
Email list growth rate = [(Total number of new subscribers – Total number of unsubscribes) / Total subscribers] X 100
Email Bounce Rate
Email bounce rate tells you about the emails not successfully received in the customer’s inbox. You may change to another email hosting service provider if your bounce rate is high.
Email bounce rate = (Number of total unique opens / Number of total emails sent successfully) X 100
Email Open Rate
It refers to the percentage of emails opened by the recipient, aka your customers. Your subject line must be catchy enough to attract their attention and open the emails. The formula to calculate your open rate is –
Email open rate = (Total number of unique open / Number of total emails sent successfully) X 100
Click-Through Rate (CTR)
CTR is calculated by dividing the total number of clicks on your website by the total number of impressions. CTR helps you determine how attractive your meta description or the title is, enticing your customers’ attention to click through.
Email click-through rate is the number of recipients or customers who clicked on the link provided by the company in their email. High CTR means that your email received by the customers is well-structured. If your CTR percentage is low, try modifying the body of the email or the placement of the link. You can calculate CTR using this formula –
CTR = (Total number of individual clicks / Total number of email opens) X 100
Email Conversion Rate
ECR may be confused with email CTR. Email CTR is the ‘halfway’ process of email conversion rate, meaning that if the recipient has successfully opened the link given in the email and made the final purchase, it counts as an email conversion rate. A high ECR indicates a good marketing strategy adopted by your company; however, it may not be the only objective of your business.
Social Media Engagement
As the name suggests, this KPI tells you about your audience or the followers who interact with your social media account. It can be measured by likes, comments, shares, followers, etc.
This KPI refers to the frequency of customers purchasing a product. The KPI against product affinity tells you about the number of sales based on affinity-like purchases.
Net Promoter Score (NPS)
NPS is one of the most important e-commerce KPIs metrics for almost all businesses. It tells you about the likelihood of your customers recommending others to use your product or service. Based on their recommendation, it can be further categorized into –
- Promoters = customers scoring between 9-10
- Passives = customers scoring between 7-8
- Detractors = customers scoring between 0-9
The formula to calculate your NPS is –
NPS = % of promoters – % of detractors
How to Measure E-commerce Success
All KPIs mentioned above help entrepreneurs determine their progress. It summarizes your performance in an index that also helps others visualize growth.
For an e-commerce company, you can choose 4 or 5 KPIs to help you with the necessary calculations. Your KPI values should always be higher than your expectations. Even if it doesn’t exceed your limit, it must coincide with the objective of your business.
One more thing to consider is that each metric or KPI is essential, and none should be neglected. That’s why it is vital to set actionable and relevant KPIs so every member can achieve that goal.
How Often Should I Check My E-commerce Metrics?
Well, it depends on the needs of the company. Your objectives lead you to check on the metrics periodically or thoroughly. It may also depend on how well your company is performing.
Some KPIs are checked regularly. It needs a thorough examination daily to determine the health of your business. For instance, website traffic, social media engagement, etc., are some KPIs that need to be checked regularly or weekly.
Bi-weekly e-commerce KPIs metrics are those where the sample sizes are large and are not greatly influenced by any alterations. This might include AOV, CPA, and CAR.
The KPIs related to monthly activities, such as traffic patterns, marketing, etc., are more likely to be checked monthly. Engagement, reach, add-to-cart abandonment, etc., are some e-commerce KPIs examples.
Activities that take long durations to analyze correctly are checked quarterly. Weekly or bi-weekly KPIs almost tell you everything about a healthy business. So you get enough time to explore long-tail activities such as subscription rates, email clicks, etc.