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Understanding key metrics in ecommerce .
To run a successful Ecommerce business, it is vital that you are able to use and understand various metrics, which will help you to determine just how successful the business (and more so, your online store) is. Data driven decision-making is based around facts rather than gut reactions, and this practice is what has produced high Return on Investment (ROI) for many large online retailers, especially the likes of Amazon et al.
To be able to make data driven decisions you need to know the key metrics to measure. Below you will find our top Ecommerce metrics you need to know to build a successful online store.
Customer Acquisition Cost (CAC)
This metric measures the cost of where you have to start – by driving traffic to the website and then converting those visitors. Ultimately, this costs money. CAC shows how much money you spend throughout the acquisition funnel from promoting a post on social media or another form of advertising, to the visitor coming to the site, all the way through to them finding the product they want to buy and finally going through the checkout process. In other words, CAC is the amount of money you have to spend to get one customer. The lower the CAC the better. As an example, your CAC is £40 if you need to spend £200 to get five visitors to buy on your store.
Conversion Rate (CR)
Once your online store gets traffic, it’s important to be able to measure how many visitors are actually buying from your store. Conversion rate shows you this as a percentage. The higher the conversion rate, the better and so ideally you want it to be always increasing. As a quick example, your conversion rate is 2% if 2 out of 100 visitors buy from your store.
There is so much emphasis on conversion rate because it directly affects your business’s bottom line. Regardless of how much effort you spend on driving traffic to your online store, if most visitors don’t end up buying, it’s all wasted. It’s really important to make sure you know what your conversion rate is at all times and keep tabs on whether it’s improving, and if it isn’t then to search out some further advice for how you can improve the funnel journey and check out process. Our blog ‘Simple Steps to improve your conversion rate optimisation’ explains further.
Shopping Cart/Basket Abandonment Rate
If you find that your conversion rate is low, you need to understand how many visitors had an inclination to buy. To do this, you’ll need to examine your abandonment rate.
This metric indicates the percentage of visitors who added products to their shopping basket but did not complete the checkout process and, once again, the lower the abandonment rate, the better. As an example, your abandonment rate is 50% if 50 out of 100 visitors leave/abandon the basket and do not complete their purchase.
With Abandonment rate you also need to consider just how much it cost to get those customers to your site in the first place, and whereabouts in the purchase journey the baskets are being abandoned. For example, if there are 4 steps in the checkout process, and 8/10 of the abandonments occur in step 1, then you need to analyse the page that step 1 is on, and look at it from the customer’s perspective. What is putting them off on that page? If you’re asking for credit card details, is that too soon? Are you showing online purchase security to make the end user feel safe about giving their credit card details over? Making sure your basket abandonment rate is low is key to improving your conversion rate.
Average Order Value (AOV)
AOV simply tells you how much, on average, a purchase at your online store is – i.e. how much revenue you are generating.
The higher the average order value, the better. For example, your AOV is £35 per order if you made £140 from 4 orders (even if one of the orders was over £35).
Monitoring AOV allows you to figure out how much revenue you can generate from your current traffic and conversion rate. Being able to predict revenue is necessary for any business. If most of your orders are small it means you have to get a lot more people to buy in order to achieve your target. It’s important to have at least a few high value orders so that your overall average is on the higher side.
Customer Lifetime Value (LTV)
A customer will generate this projected revenue during their lifetime. The simplest way to estimate it is:
(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)
If your LTV is low, it could be that many of your customers buy once and never return. This is measured by what is referred to as “churn.” The lower the churn, the better. For example, a churn rate of 80% means 80 out of 100 customers do not come back to buy from your store. Ideally churn rate needs to be low so that once you acquire a customer, they continue to come back and purchase again and again. Lower churn means higher LTV and a healthier business overall.
Mobile/Tablet User Conversion Rates
It’s also important to watch the proportion of mobile users and mobile conversion rates. If your mobile conversion rate is low, and if/or your basket abandonment rate is high this will mean that you need to investigate and improve the mobile checkout process. Maybe your checkout process isn’t mobile optimised or the buttons are too small which makes the end user struggle. A low mobile conversion rate and/or high abandonment rate shows that something isn’t right in the mobile/tablet checkout journey.
You will of course need to make sure that you have ECommerce tracking set up in your Google Analytics accounts. Ecommerce can be found under ‘Conversions’ on the left panel options.
Once you start measuring your Ecommerce store performance and using data to drive your business decisions and strategies, you’ll be on the way to huge success. So remember to monitor your metrics to make the most of your time and money in order to build a successful online brand.
If you would like to talk to us about your digital ecommerce objectives, please call 01233 467800, email firstname.lastname@example.org or event visit our ecommerce calculator and understand how your business can achieve digital ecommerce success!