As an eCommerce store owner or marketer, there aren’t too many things that are more important to keep track of as your key performance indicators (KPIs).
And with the rising trend of work from home arrangements and increasing number of digital natives with earning power, more and more customers are finding the ease of buying online an irreplaceable experience.
These are fantastic news for the likes of us marketers.
So, how do you make sure that your website stays on top of your customer’s mind?
You check your key performance indicators.
What is a Key Performance Indicator (KPI)?
Key Performance Indicators or KPI are metrics that companies use to evaluate how well their performance ads up against their project or overall business objectives.
KPIs are like stopover points that align different business units towards a common goal. They prevent issues from misunderstandings through expectation management between teams.
There are a million goals that you can have, but not all of them will move the needle. Having a clear understanding of what your KPI is will help you make all the right decisions to make a real, lasting impact.
Why do eCommerce Websites Need KPI?
While it’s easy to know when things are going well for eCommerce websites, there are millions of ways that things can go wrong.
The best gift that KPIs give businesses is clarity. With benchmarks in place, companies will have a better understanding of what works, and what doesn’t.
Without KPIs, it can be very expensive or nearly impossible to spot both opportunities and weaknesses. You won’t know where to focus your time, energy, and resources.
So what KPIs do eCommerce sites need to watch out for?
The Top 9 KPIs for eCommerce Stores
Average Order Value
The Average Order Value (AOV) lets eCommerce sites know how much customers spend, on average, with every order. AOV lets companies know if the money spent by customers exceeds how much it took to acquire them. When the acquisition cost is higher than the AOV, you may not be making a profit even with a sale.
AOV = Total Revenue / Number of Orders
There are millions of prospective customers on the internet. However, not all customers are equal. Knowing customers with high average order value will let companies know their ideal customer profile. To increase AOV, companies can then build campaigns around finding similar high-value targets.
Customer Lifetime Value
The Customer Lifetime Value (CLV) helps eCommerce sites understand the value of each customer throughout their whole relationship. By knowing the high-value ones, companies will know which customer relationships to prioritize in terms of marketing efforts and loyalty offers.
Knowing the CLV also helps direct and reward eCommerce sales teams that seek to acquire high-value customers.
CLV = (Customer’s Annual Profit Contribution x Customer Ave. # of Years) – Customer Acquisition Cost
Improving CLV requires a solid CRM strategy that remembers their previous purchases, experiences on your eCommerce store, and personal preferences.
You can also maximize CLV by rewarding loyal customers with special rates, promos, and offers.
Customer Retention Rate
Customer Retention Rate reflects the average percentage of users who recurrently buy from a brand, in a given period of time.
This KPI is often used alongside AOV, for a simple reason.
Even though some brands have customer acquisiton costs higher than the average order value, they can sometimes offset those costs through repeat purchases, in a given period of time.
This means that even though the first purchase might not make a profit for the brand, that customer will eventually return for a later purchase.
CRR = ((Total Number of Customers at the End of Period – Total Number of New Customers) / Number of Customers at the Start of Period)) x 100
You can encourage customer retention by making them advocates of your brand through affiliate programs, referral codes, and discounts for sharing your content.
The Conversion Rate (CR) shows the percentage of website visitors that have translated into sales.
ECommerce Conversion Rates differ depending on how well designed your storefront is, the industry, or geographic location.
CR = (Total Number of Conversions / Total Number of Visitors on the Website) x 100
Some of the common ways to improve the conversion rate is through optimizing your offers, improving ad targetting, or even tweaking your ad copy!
Return on Ad Spend
Return on Ad Spend (ROAS) is an important KPI for companies that rely on online advertising to grow their eCommerce business.
ROAS checks whether or not the investment made on the campaign is worth it or not. It can help you determine whether your existing materials and strategy are working or need further refinement.
ROAS = Revenue / Total Advertising Cost
For maximum efficiency, evaluation of ROAS should be per campaign and channel.
When ROAS is measured correctly, it can help reveal the best to reach your customers. Knowing this helps direct marketers to the best channel to funnel marketing efforts and get the most out of your ad budget.
Unique Add to Cart Rate
Add to Cart Rate is the percentage of website visitors to add at least one item to their cart at any given session.
ATC Rate = Total Number of Sessions Someone Added to Cart / Total Number of Sessions
On average, the Add-to-cart rate is 4%. Depending on the platform used by the customer and the industry of the eCommerce website, there may be differences in rate.
If you’re running Facebook Ads, we recommend you create a custom metric with the unique add to cart rate, as it is a more accurate KPI.
Some ways to increase the Add to Cart Rate include improving the CTA buttons and adding more them throughout the site. eCommerce sites can also encourage the user through better sales converting copy, and making it easier to add items from product page
Cart Abandonment Rate
Cart Abandonment Rate (CAR) shows how many of the eCommerce site visitors Added to Cart but decided not to purchase.
Improving the Cart Abandonment Rate requires improving the pain points of the checkout process.
Some possible issues that cause people to abandon their carts include lack of payment options, slow loading times and, most commonly, surprise shipping fees.
CAR = (Total Number of Transactions Completed / Total Number of Shopping Carts Filled) x 100
Many customers are also concerned with their privacy and are hesitant to create accounts to make a purchase. Having the option to check out as a guest may help with customers who are not yet ready to commit their full details.
Through remarketing campaigns, you can also target users who have abandoned their carts and encourage them to finish the transaction.
Cost per Conversion
Cost per Conversion is the total cost that companies incur to turn shop visitors into paying customers.
CPC = Total Cost for Generating the Traffic / Total Number of Conversions
Improving the average Cost Per Conversion has two parts: driving traffic to the site more efficiently, and increasing conversion rates while they are on the site.
A combination of a good website and regular content releases is sure to drive more customers to your store for less. You can also employ strategies within the eCommerce store experience to improve the conversion rate when they get there through good user experience and product offers.
Revenue Per Visitor (RPV)
Revenue Per Visitor (RPV) measures how much eCommerce sites earn every time a customer visits your website.
RPV = Total Revenue / Total Number of Visitors
There are many ways to improve RPV for eCommerce sites. You can create a sense of urgency by giving time-bound, minimum order discounts, or free shipping days.
Increase social proof through customer testimonials, media articles, and product recommendations to encourage a higher conversion rates and thus, higher RPV.
KPIs are the eCommerce stores’ north stars. As long as you keep your eyes on the prize, and adjust your sails as often as you need to, you’re bound to reach your targets in no time.
It’s important to understand that no single KPI can tell you the exact state of your eCommerce store. Each company will have their version of success. Companies need to have a clear understanding of what areas matter to their growth before they can measure it.
A great eCommerce is a dozen combinations of moving parts. They need to work together at every stage of the sales funnel. From making the right ads, having a great store experience, and creating a strong CRM strategy, there are many opportunities for every eCommerce store to grow.
KPIs provide much-needed objectivity that illustrates what you can do right and what you can do better. They give companies a more holistic view of their businesses that can help them make better decisions.
With the use of KPI, companies can derive actionable insights, improve ways of working, make customers happy, and increase sales.