In this guide, you’ll learn how to choose essential eCommerce KPIs (key performance indicators) to ensure your eCommerce business is on track.
Mapping out a strategy for eCommerce success accounts for a lot of moving parts…
You start with your product and supply chain logistics like any other retail operation.
Then you add layers on top of that — shipping, fulfillment, storage, payment processing, web maintenance, cybersecurity, and digital marketing.
The only way to know whether you’re on a path for success is by carefully monitoring your performance through eCommerce KPIs.
- Why eCommerce Businesses Need KPIs
- Transactional eCommerce KPIs
- eCommerce Website & Marketing KPIs
- Set KPIs and Keep Track of Them
Why Do eCommerce Businesses Need KPIs?
All businesses need KPIs.
Without measurable results, there’s no way to know if your company has any degree of success or if your overall efforts and strategy are paying off.
eCommerce businesses, in particular, need to measure a range of KPIs to understand cash flow, product performance, and customer behavior.
Because you’re not typically dealing with tremendous transactional values but rather a large volume of smaller transactions, you need to have a pulse on what’s working and what isn’t.
The best indicators of eCommerce performance are related to your customers and their shopping behavior.
These KPIs will give you a glimpse into how your business is faring when it comes to cash, products, and customers.
This is the most baseline measure of success for any business.
Your net profit is calculated by taking your total business revenue for a period of time and subtracting your total expenses for the same period.
Understanding where your business stands from this big picture position helps you make decisions about your strategy going forward.
For an eCommerce business, you’ll have additional expenses on top of traditional product and operations costs.
Don’t forget to include any web hosting, software plans, site maintenance costs, transaction fees, and other digital marketing expenses.
If the number is positive — congratulations, your business is at least profitable! If the number is negative, that means you’re operating at a deficit.
Don’t be alarmed if you’re operating at a deficit when you first start your business or after you make any significant operational changes. Building your brand and satisfying customers is the key to long-term prosperity.
Average Order Value
Your average order value gives you a sense of how many products your customers are purchasing and how much each customer is willing to spend when shopping from your brand.
To calculate average order value, divide your total order revenue for a period of time by the number of orders in that period.
With a sense of average order value, you’ll understand how many orders you need to make your eCommerce business profitable and improve your overall strategy.
You’ll also be able to identify potential areas for upselling and additional product add-ons based on how much your customers are typically willing to spend.
Average order value can also give you a sense of where your strategic efforts should be focused — if you have a high volume of orders.
Still, with a low average order value, you’ll know that customer acquisition should be a lower priority than improving the quality of those customers.
Customer Lifetime Value
Customer lifetime value is another important indicator of the quality of customer your eCommerce business has acquired. This metric refers to the amount that an individual customer has spent with your company in total, starting with their first order.
Recurring customers are good for business — especially customers who are willing to repeatedly spend a larger amount of money and purchase multiple products.
To estimate your average customer lifetime value, you’ll want to multiply your average order value by the number of purchases you expect customers to make in a year (time period) by the number of years (time periods) you typically see customers stick with your business.
Say, for example, your business sells a subscription of a 60-day supply of vitamins for $40.
You observe that your average customer keeps their subscription active for two years. Your average lifetime value for a customer would be $40 x 6 orders per year x 2 years, equalling $480.
Customer lifetime value is a good indicator of whether your eCommerce business meets customer needs and if there’s anything you can do to retain customers better.
Think about it:
It’s easier and more cost-effective to keep existing customers than to acquire new ones. In fact, just a 5% increase in customer retention can boost profits by 25% to 95%.
To increase customer lifetime value, you might consider introducing loyalty rewards for long-time customers, such as referral bonuses or discounts after a certain number of purchases.
While we’ve come a long way since the days of the loyalty punch card, the idea remains sound — if you show your customers you appreciate them, they’ll continue to patronize your business.
Top Performing Products
Knowing your best-sellers is essential for any customer-facing business.
When it comes to measuring product performance as an eCommerce KPI, you’ll have a clear picture of the products that have the most considerable impact on your average order value and your customer lifetime value.
To determine your top-performing products, you don’t have to do any math — just look at the number of units sold over a certain period.
However, don’t look at these performance measures in isolation. You shouldn’t just know what your top-performing product is on a given day or in a given month. You want to compare your best-sellers month-over-month and year over year.
Knowing which products are continuously performing well gives you a sense of where your eCommerce business’s strengths lie.
You might, for instance, see a product perform exceptionally well in the first month or two after launch.
But if that product doesn’t continue to sell out over time, you might have just had a momentary success rather than a long-term hit that keeps your customers coming back for more.
Funnel Conversion Rates
Your eCommerce funnel tracks users as they move through different stages of the purchase process.
Like the traditional sales funnel, the eCommerce funnel has stages that start from initially becoming aware of your brand to completing a purchase.
While the traditional sales funnel is reasonably straightforward in terms of the number of stages, the eCommerce funnel has many steps along the way.
The funnel starts the same as a normal “sales funnel” does — with brand awareness.
From there, you’ll begin to track specific behaviors throughout your funnel’s stages. These include landing on your website, visiting a product page, adding a product to the cart, and completing a purchase.
You can make your eCommerce funnel as broad or as granular as you’d like it to be. More steps mean more insight into specific buyer behavior.
For instance, depending on your eCommerce platform, you might track users placing items in their cart before abandonment and when users abandon after inputting their billing or shipping information.
This level of insight lets you streamline the customer experience as much as possible.
Think of it like this:
In a brick-and-mortar store, you want your customers to feel that their needs are being met and their path to purchase is as organic as possible.
And with eCommerce shoppers, any friction or difficulty in navigating your site or inputting their payment information might lead them just to click away.
You can’t calculate these conversion rates, including cart abandonment rate, without having a website traffic tool installed that can track your eCommerce funnel.
Google Analytics, when installed correctly, can track eCommerce behavior and let you know the conversion rate at each step you specify.
Cart Abandonment Rate
Of all the steps along your eCommerce funnel, the most important one is how many people complete the check-out process.
That last step, going from having items in a virtual cart to entering your payment information, is where a lot of potential revenue is lost.
Suppose each conversion rate along the path to purchase is where you expect it to be except for purchase completion. In that case, that indicates a large number of customers don’t feel that your products are compelling enough to complete a purchase.
Cart abandonment occurs for many reasons. eCommerce shoppers are more likely to “window shop” than brick-and-mortar shoppers simply because there’s no apparent commitment to making a purchase.
eCommerce shoppers simply don’t feel pressured to hand over their credit card information when they can easily just close a window and continue browsing elsewhere.
But the most common reason for cart abandonment?
eCommerce customers, in particular, tend to be bargain hunters, looking for great deals and promo codes that give them the feeling that they’ve gotten a good deal.
Another common reason shoppers abandon their carts is because of distraction. When shopping online, it’s easy to fill up a cart and navigate to another window.
Depending on the platform you use for eCommerce transaction processing, you may be able to automatically send an email to customers who abandon their cart. This way, you can send them a reminder that they browsed your site and were interested in certain items.
Website and Marketing eCommerce KPIs
It’s not enough to just look at your hard dollars and cents when it comes to your eCommerce performance.
With an eCommerce business, you need to know how your website performs, if your digital marketing efforts are paying off, and how you’re faring against your online competition.
Customer Acquisition Cost
As an eCommerce KPI, customer acquisition cost lets you know if you’re spending more on marketing than your customers are worth.
To calculate customer acquisition cost, you’ll divide the amount of money spent on marketing by the number of customers who complete orders.
This measurement should be directly compared against your customer lifetime value and your average order value to determine if you’re spending too much on marketing.
As a good rule of thumb, you want your customer acquisition cost to be about 33% of your customer lifetime value or less.
In other words, you want your customers — over time — to spend about three times what you spent to convert them into a customer.
If your customer acquisition cost is particularly high, it’s time to find ways to:
- Improve the value of a customer
- The way you’re spending your marketing budget.
You might consider taking a serious look at optimizing any paid advertising campaigns and enhancing your marketing strategy with specific attention to organic tactics.
Return on Ad Spend (ROAS)
Return on ad spend gives you insight into which of your paid advertising efforts are paying off.
While your customer acquisition cost looks holistically at all of your marketing dollars spent on both paid and organic tactics, ROAS looks strictly at the dollars spent on placing ads and running campaigns.
Return on ad spend can be calculated at multiple levels.
Look not only at your whole budget but at the return offered by specific ad mediums and campaign messaging. ROAS is one of the best metrics you can use when testing new creative or trying out a new tactic, such as influencer marketing or video advertising.
ROAS gives you the insight to speak intelligently about what campaigns are paying off, which can probably be trimmed. If your customer acquisition cost is unusually high, you might be tempted to slash spending on the campaigns taking up the largest share of the budget.
However, ROAS might reveal you’d be better served by maintaining these more extensive campaigns as-is and cutting smaller campaigns that are spending dollars without offering a significant return.
If your return on ad spend is meager, you’ll want to do what you can to optimize your ad strategy & budget.
You may also want to look seriously at improving your organic marketing efforts, such as email marketing, content marketing, and SEO KPIs.
Conversion Rate by Traffic Channel
With an eCommerce business, you’ll likely spread your marketing and advertising dollars across several channels.
You need to know whether your customers are converting and where those qualified leads are coming from.
Google Analytics and other traffic tools are sophisticated enough to give you baseline insight into which traffic channels are performing well. However, you’ll want to get as specific as possible.
To track specific traffic sources, you’ll want to use UTM codes for each marketing effort and campaign so you can understand as precisely as possible what ads and efforts are paying off.
Say, for instance, you introduce a paid search campaign and a video preroll campaign to your marketing strategy around the same time. Seeing that there’s a boost in sales isn’t enough — you need to know which of those channels contributes to sales.
Web-based tools like Google Analytics can map traffic sources to eCommerce user behavior if you’ve set it up to do so.
It may require some advanced knowledge of the tools and platforms you’re using to get this level of insight. Still, once you have it, this data becomes indispensable to setting up your eCommerce marketing strategy for success.
Time on Site
In a general sense, website traffic is a very broad measure of success for any business engaging in digital marketing or advertising.
For an eCommerce business, you’ll need to get a little more specific to optimize your customer experience and improve your profitability.
The amount of time that users spend on your website is a good indicator of how qualified your leads are. This eCommerce KPI shows how useful the traffic coming to your site will be in serving your overall business goals and it gives you a sense of which eCommerce funnel stages need your attention.
Take this as an example:
Suppose your overall traffic is high, but the time spent on your site is low.
In that case, it might demonstrate that users aren’t particularly interested in your products or that your marketing efforts aren’t reaching the correct audience.
If users are spending a long time on the site, but your cart abandonment rate is high, that demonstrates you’re acquiring qualified leads, but…
Your pricing is too high, or you may need to optimize the later stages of your eCommerce funnel.
Bounce rate refers to the number of visitors to your site that visits a single page before navigating away.
This measurement indicates two critical factors for an eCommerce business:
- Whether or not your website is offering a good user experience
- Whether or not you’re acquiring qualified web traffic that’s likely to engage with your business
If your bounce rate is high, you’ll want first to examine whether your site is loading correctly and if you have a good user experience.
If your site has long load times, a lot of pop-ups and banners, or an otherwise unattractive experience, users are likely to simply close the window and bounce to one of your competitors.
Suppose you know your site is loading correctly and have conducted user testing to determine that your site offers the experience you want to provide.
In that case, there’s a distinct possibility that you’re not reaching the right audience.
One of the best ways to ensure that your website reaches users with buying intentions is by understanding how you perform in organic search.
Organic Search Rankings
Organic search rankings are an essential measure of success for any business with an online presence.
For eCommerce businesses, in particular, your organic rankings show whether or not your site is appearing in searches that are specifically relevant to your products and industry.
When selecting keywords to target, you’ll want to have the right mix of keyword types that correspond to areas of your business:
- Short tail keywords are search phrases that typically consist of no more than three words. These generally are the broadest phrases and more challenging to rank on than other types of keywords. They are essential for guiding your overall SEO strategy and determining additional keywords to target.
- Long-tail keywords are phrases that users search that are longer than three words. They’re typically easier to rank for, and improving your long-tail rankings can help boost performance on specific types of search, such as voice search, and contribute to your ranking on related short-tail keywords.
- Branded keywords are keywords that include your brand name and specific product names. This doesn’t include general product names but rather names that are unique to your brand (think “Airpods” rather than “wireless earbuds”). You might also target some branded keywords that aren’t your own but that belong to competitors — this tactic is known as conquesting.
To monitor your organic search rankings, you’ll want a dedicated rank tracking tool.
A tool like PRT gives you the ability to monitor keywords, understand what your site is ranking for, and track the ranking performance of your top pages.
ProRankTracker offers in-depth rank tracking capabilities with daily updates to data using the most accurate search algorithm on the market.
Because it monitors all leading search engines and can create reports on demand, ProRankTracker is ideal for monitoring eCommerce keyword rankings and ensuring that your KPIs are where you need them to be.
If you want to try it for yourself, ProRankTracker offers a free trial that lets you monitor 20 keywords and two pages with all premium features enabled.
PRT helps you understand how useful rankings can be for making your eCommerce business as profitable as possible.
Set KPIs, Keep Track of Them, and Start Seeing Business Improvements
eCommerce businesses are fast-paced, highly competitive, and customer-driven, making it essential always to know whether you’re meeting customer expectations.
Because they’re digitally-focused, your eCommerce business also has unique insight into data that can help you understand where you see success and where you might be falling short.
By tracking and monitoring eCommerce KPIs, you can make sure that your eCommerce business goals are realistic and that you’re optimizing your marketing and sales strategies to reach those goals.
With more qualified site traffic, improved user experience, and improved lead quality, you’ll start seeing improved profitability very quickly.
When tracking eCommerce marketing KPIs, it’s easiest to start with organic tactics and then work toward paid ones.
ProRankTracker is the perfect tool to monitor organic SEO performance for eCommerce businesses.
Sign up for a free trial to start improving your eCommerce performance today.