You start with your product and supply chain logistics like any other retail operation.\u00a0<\/span><\/p>\n Then you add layers on top of that \u2014 shipping, fulfillment, storage, payment processing, web maintenance, cybersecurity, and digital marketing.<\/span><\/p>\n The only way to know whether you\u2019re on a path for success is by carefully monitoring your performance through eCommerce KPIs.\u00a0<\/span><\/p>\n All businesses need KPIs.\u00a0<\/span><\/p>\n Without measurable results, there\u2019s no way to know if your company has any degree of success or if your overall efforts and strategy are paying off.<\/span><\/p>\n eCommerce businesses, in particular, need to measure a range of KPIs to understand cash flow, product performance, and customer behavior.\u00a0<\/span><\/p>\n Because you\u2019re not typically dealing with tremendous transactional values but rather a large volume of smaller transactions, you need to have a pulse on what\u2019s working and what isn\u2019t.\u00a0<\/span><\/p>\n The best indicators of eCommerce performance are related to your customers and their shopping behavior.\u00a0<\/span><\/p>\n These KPIs will give you a glimpse into how your business is faring when it comes to cash, products, and customers.\u00a0<\/span><\/p>\n This is the most baseline measure of success for any business.\u00a0<\/span><\/p>\n 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.<\/span><\/p>\n Understanding where your business stands from this big picture position helps you make decisions about your strategy going forward.\u00a0<\/span><\/p>\n For an eCommerce business, you\u2019ll have additional expenses on top of traditional product and operations costs.\u00a0<\/span><\/p>\n Don\u2019t forget to include any web hosting, software plans, site maintenance costs, transaction fees, and other digital marketing expenses.\u00a0<\/span><\/p>\n If the number is positive \u2014 congratulations, your business is at least profitable! If the number is negative, that means you\u2019re operating at a deficit.\u00a0<\/span><\/p>\n Don\u2019t be alarmed if you\u2019re operating at a deficit when you first start your business or after you make any significant operational changes. <\/span>Building your brand and satisfying customers is the key to long-term prosperity.\u00a0<\/span><\/i><\/p>\n 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.\u00a0<\/span><\/p>\n To calculate average order value, divide your total order revenue for a period of time by the number of orders in that period.\u00a0<\/span><\/p>\n With a sense of average order value, you\u2019ll understand how many orders you need to make your eCommerce business profitable and improve your overall strategy.\u00a0<\/span><\/p>\n You\u2019ll 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.\u00a0<\/span><\/p>\n Average order value can also give you a sense of where your strategic efforts should be focused \u2014 if you have a high volume of orders.\u00a0<\/span><\/p>\n Still, with a low average order value, you\u2019ll know that customer acquisition should be a lower priority than improving the quality of those customers.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n Recurring customers are good for business \u2014 especially customers who are willing to repeatedly spend a larger amount of money and purchase multiple products.\u00a0<\/span><\/p>\n To estimate your average customer lifetime value, you\u2019ll 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.\u00a0<\/span><\/p>\n Say, for example, your business sells a subscription of a 60-day supply of vitamins for $40.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n Customer lifetime value is a good indicator of whether your eCommerce business meets customer needs and if there\u2019s anything you can do to retain customers better.\u00a0<\/span><\/p>\n Think about it:<\/span><\/p>\n It\u2019s easier and more cost-effective to keep existing customers than to acquire new ones. In fact, just a 5% increase in customer retention can <\/span>boost profits by 25% to 95%<\/span><\/a>.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n While we\u2019ve come a long way since the days of the loyalty punch card, the idea remains sound \u2014 if you show your customers you appreciate them, they\u2019ll continue to patronize your business.\u00a0<\/span><\/p>\n Knowing your best-sellers is essential for any customer-facing business.\u00a0<\/span><\/p>\n When it comes to measuring product performance as an eCommerce KPI, you\u2019ll have a clear picture of the products that have the most considerable impact on your average order value and your customer lifetime value.\u00a0<\/span><\/p>\n To determine your top-performing products, you don\u2019t have to do any math \u2014 just look at the number of units sold over a certain period.\u00a0<\/span><\/p>\n However, don\u2019t look at these performance measures in isolation. You shouldn\u2019t 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.\u00a0<\/span><\/p>\n Knowing which products are continuously performing well gives you a sense of where your eCommerce business\u2019s strengths lie.\u00a0<\/span><\/p>\n You might, for instance, see a product perform exceptionally well in the first month or two after launch.<\/span><\/p>\n But if that product doesn\u2019t 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.\u00a0<\/span><\/p>\n Your eCommerce funnel tracks users as they move through different stages of the purchase process.\u00a0<\/span><\/p>\n Like the traditional sales funnel, the eCommerce funnel has stages that start from initially becoming aware of your brand to completing a purchase.\u00a0<\/span><\/p>\n While the traditional sales funnel is reasonably straightforward in terms of the number of stages, the eCommerce funnel has many steps along the way.\u00a0<\/span><\/p>\n The funnel starts the same as a normal \u201csales funnel\u201d does \u2014 with brand awareness.\u00a0<\/span><\/p>\n From there, you\u2019ll begin to track specific behaviors throughout your funnel\u2019s stages. These include landing on your website, visiting a product page, adding a product to the cart, and completing a purchase.<\/span><\/p>\n You can make your eCommerce funnel as broad or as granular as you\u2019d like it to be. More steps mean more insight into specific buyer behavior.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n This level of insight lets you streamline the customer experience as much as possible.\u00a0<\/span><\/p>\n Think of it like this:<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n And with eCommerce shoppers, any friction or difficulty in navigating your site or inputting their payment information might lead them just to click away.\u00a0<\/span><\/p>\n You can\u2019t calculate these conversion rates, including cart abandonment rate, without having a website traffic tool installed that can track your eCommerce funnel.\u00a0<\/span><\/p>\n Google Analytics<\/span><\/a>, when installed correctly, can track eCommerce behavior and let you know the conversion rate at each step you specify.\u00a0<\/span><\/p>\n Of all the steps along your eCommerce funnel, the most important one is how many people complete the check-out process.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n Think:<\/span><\/p>\n 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\u2019t feel that your products are compelling enough to complete a purchase.\u00a0<\/span><\/p>\n Cart abandonment occurs for many reasons. eCommerce shoppers are more likely to \u201cwindow shop\u201d than brick-and-mortar shoppers simply because there\u2019s no apparent commitment to making a purchase.\u00a0<\/span><\/p>\n eCommerce shoppers simply don\u2019t feel pressured to hand over their credit card information when they can easily just close a window and continue browsing elsewhere.\u00a0<\/span><\/p>\n But the most common reason for cart abandonment?<\/span><\/i><\/p>\n Pricing.\u00a0<\/span><\/p>\n eCommerce customers, in particular, tend to be bargain hunters, looking for great deals and promo codes that give them the feeling that they\u2019ve gotten a good deal.\u00a0<\/span><\/p>\n Another common reason shoppers abandon their carts is because of distraction. When shopping online, it\u2019s easy to fill up a cart and navigate to another window.<\/span><\/p>\n 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.<\/span><\/p>\n It\u2019s not enough to just look at your hard dollars and cents when it comes to your eCommerce performance.\u00a0<\/span><\/p>\n With an eCommerce business, you need to know how your website performs, if your digital marketing efforts are paying off, and how you\u2019re faring against your online competition.\u00a0<\/span><\/p>\n As an eCommerce KPI, customer acquisition cost lets you know if you\u2019re spending more on marketing than your customers are worth.\u00a0<\/span><\/p>\n To calculate customer acquisition cost, you\u2019ll divide the amount of money spent on marketing by the number of customers who complete orders.<\/span><\/p>\n This measurement should be directly compared against your customer lifetime value and your average order value to determine if you\u2019re spending too much on marketing.<\/span><\/p>\n As a good rule of thumb, <\/span>you want your customer acquisition cost to be about 33% of your customer lifetime value or less<\/b>.\u00a0<\/span><\/p>\n In other words, you want your customers \u2014 over time \u2014 to spend about three times what you spent to convert them into a customer.\u00a0<\/span><\/p>\n If your customer acquisition cost is particularly high, it\u2019s time to find ways to:<\/span><\/p>\n Or\u2026<\/span><\/i><\/p>\n You might consider taking a serious look at optimizing any paid advertising campaigns and enhancing your marketing strategy with specific attention to organic tactics.\u00a0<\/span><\/p>\n Return on ad spend gives you insight into which of your paid advertising efforts are paying off.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n Return on ad spend can be calculated at multiple levels.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n However, ROAS might reveal you\u2019d be better served by maintaining these more extensive campaigns as-is and cutting smaller campaigns that are spending dollars without offering a significant return.\u00a0<\/span><\/p>\n If your return on ad spend is meager, you\u2019ll want to do what you can to optimize your ad strategy & budget.\u00a0<\/span><\/p>\n You may also want to look seriously at improving your organic marketing efforts, such as email marketing, content marketing, and <\/span>SEO KPIs<\/span><\/a>.\u00a0<\/span><\/p>\n With an eCommerce business, you\u2019ll likely spread your marketing and advertising dollars across several channels.\u00a0<\/span><\/p>\n You need to know whether your customers are converting and where those qualified leads are coming from.\u00a0<\/span><\/p>\n Google Analytics and other traffic tools are sophisticated enough to give you baseline insight into which traffic channels are performing well. However, you\u2019ll want to get as specific as possible.\u00a0<\/span><\/p>\n To track specific traffic sources, you\u2019ll 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.<\/span><\/p>\n\n
Why Do eCommerce Businesses Need KPIs?<\/b><\/h2>\n
Transactional KPIs<\/b><\/h2>\n
Net Profit<\/b><\/h3>\n
Average Order Value<\/b><\/h3>\n
Customer Lifetime Value<\/b><\/h3>\n
![\"eCommerce](\"https:\/\/proranktracker.com\/blog\/wp-content\/uploads\/2021\/03\/Ecommerce_KPIs_2.png\")
<\/a><\/p>\nTop Performing Products<\/b><\/h3>\n
Funnel Conversion Rates<\/b><\/h3>\n
Cart Abandonment Rate<\/b><\/h3>\n
Website and Marketing eCommerce KPIs<\/b><\/h2>\n
Customer Acquisition Cost<\/b><\/h3>\n
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Return on Ad Spend (ROAS)<\/b><\/h3>\n
Conversion Rate by Traffic Channel<\/b><\/h3>\n