June 20, 2022

A guide to ecommerce KPIs

A guide to ecommerce KPIs

Starting an online business is not enough. Understanding the ecommerce kpis to track is vital to ensure the continued success.

But how do you know what to track and what to ignore? Is it your gut feeling they should rely upon, or some unreliable hypothesis they should cling to? Whichever you choose, in the absence of data-driven decisions, the business cannot taste success.

So what are these data points? These data points are ecommerce KPIs that help a merchant to track the performance of the business.

And with Universal Analytics not receiving data from the 1st July 2023, there's never been a better time to understand what is working and what isn't - and track it.

Read below to know how key performance indicators can help the business grow.

What is a KPI in Ecommerce?

Ecommerce KPIs tell the business owner, a company or team leader how their online business is performing against the set parameters.

They help you have a clear understanding of your business so that you can take informed decisions regarding some of the following:

  • Marketing
  • Customer satisfaction
  • Conversions and revenue
  • Operations

Using the important KPI metrics

Let us look at how to use some important ecommerce performance metrics.

Conversions and Revenue - According to market experts, conversion rate is one of the most important ecommerce sales KPIs. In other words, conversion rate is the number of visitors to a website divided by the number taking at least one or more of the below actions

  • Signing up
  • Raising an inquiry
  • Creating an account
  • Purchasing
Enhanced Ecommerce

The market experts believe conversion rate is an important yardstick for determining how effective the business strategies are in attracting leads to the website, engaging them, and eventually converting them into customers.

To use conversion rate as an ecommerce performance indicator the business owners must do the following, emphasising the experts.

  • Compare monthly and yearly conversion rates
  • Improve conversion rates through product bundles, optimization split testing, FOMO and threshold free shipping pricing.

Marketing - This KPI will tell the business owner how well the business is doing with respect to their marketing and advertising objectives. Marketing KPI can be used to determine the following:

  • Which products are selling the most
  • Who are the buyers of those items
  • How are the items being purchased
  • Why are they being bought

These insights can help a company in designing better marketing strategies in the future.

Customer satisfaction - Tracking customer satisfaction is mandatory in understanding the growth of a business. According to experts, if the company is able to provide a praiseworthy experience to the customer, it will result in the following:

  • Improved conversion rate
  • Increased return on money spent on advertising
  • Improved average order value
  • Declining rate of shopping cart abandonment
  • Increased lifetime value

Operations - An operational KPI helps to determine the performance of a business in a shorter time-frame. They help to track organisational processes, increase efficiency and help a company gain deep insights into the outcome of its strategies.

Why are key performance indicators (KPIs) important?

KPIs are an integral part of the ecommerce business without which the business can go into the doldrums.

  • A business can run on the owner's good luck, beliefs, or perceptions for a while. But if no quantifiable information regarding its progress is being garnered, or tracked on a regular basis, the business will very soon cease to be relevant.
  • Unless a company tracks its performance metrics, it will never be able to understand the reasons behind the colossal failure of its strategies. And this impediment, therefore, will also prevent them from devising positive, futuristic, and growth-oriented business plans.
  • Apart from objectivity, KPIs also provide a deep understanding of the business.
  • The real success of KPIs lie in how a business interprets the data, derives insights from them and converts them into actionable goals.
  • But tracking important KPIs for ecommerce can be challenging given the intricacies of the process and the time taken. Hence, businesses today are increasingly utilising tools like this one to track a lot of KPIs.

How is eCommerce performance measured?

Ecommerce performance can be measured through some of the following ecommerce KPI metrics & ecommerce sales KPIs:

Conversion rate

It is simple mathematics. If there are say 2,000 visitors to a website, out of which 500 of them buy the products, the sales conversion rate will be 25 percent.

However, the conversion rate does not tell you if there is any point in the customer's journey where they are abandoning the website.

Therefore, it is advisable to take a funnel-based approach to the conversion rate to understand at which point the customers are quitting. This will enable one to understand where to concentrate their conversion rate optimization efforts on.

Ecommerce Conversion Rate

Average order value

Average order value or AOV is the average number of transactions that occurs on a website. The aim of any online business must be to improve the AOV. This leads to the following:

  • Increased customer loyalty
  • Improved customer lifetime value

AOV is a dependable ecommerce metrics that can be influenced without spending a lot on marketing. Some ways of increasing AOV include:

  • Customer loyalty programs
  • Online sales
  • Cross-selling or upselling

AOV can be calculated by dividing the total revenue over a certain period by the number of orders received within the same period. If the total revenue is $50000 and the number of orders is 500, the AOV is $100.

Bounce rate

This is the rate used to determine the number of visitors who leave the site without a single interaction. Bounce rate is expressed as a percentage of the total visitors.

However, in case it drops below 25 percent, it may mean everything is not right with the website. Similarly, if it goes beyond 80 percent, it may also mean the same and could be due to the following factors.

  • Slow website speed
  • Low-quality content
  • Poor user experience

However, there could be a plus side to a higher bounce rate as well. It may mean visitors are spending more time on an average on the website. And this can be better understood by looking at Google Analytics reporting and looking at the Average Session Duration.

Therefore, if the bounce rate is higher, it may also mean visitors are spending more than two minutes on an average on the website. This is an indicator of the fact that a greater percentage of people are expressing interest in the products.

Considering the above scenarios, the bounce rate websites normally aim for is 45.68 percent because visitors normally browse multiple pages. So a bounce rate in the average of 25-80 percent is considered bad, depending on what the website does.

Bounce Rate

Return rate

Since returns are a huge problem in ecommerce, merchants normally tend to ignore this metrics. However, instead of curbing the issue, ignorance can further compound the problem, resulting in losses that leave no room for correction in the future.

The average return rate in ecommerce is limited between 20 and 40 percent. But for some products like apparels for example, the return rate can go beyond the average. It is, therefore, essential to understand the reason behind this and if it can be controlled.

Some factors like changes in the return policy should be a good enough reason for keeping a track of the return rate. A higher return rate could be due to the following reasons:

  • Poor product information
  • Poor product images

In such cases the business owner should take a deep dive into the causes behind this trend, apart from calculating the return rate.

But it must be remembered that a higher return rate may not be all that bad. This is because a generous return and refund policy is more likely to attract customers.

Shopping cart abandonment rate

Whenever customers like certain products on a website, the first reaction is to add them to the shopping cart. But to persuade the customers to stick to those products till the end and complete the purchasing involves a lot of challenges.

First, once they like something else at a cheaper price they will most likely delete the previous one from the shopping cart and add the next one.

To add to the woes of the company, the customers may after browsing for a while eventually change their mind and decide not to purchase anything at all from here.

Shopping cart abandonment is a problem very similar to that of returns. It leads to a significant loss of revenue as shopping cart conversions can add to a considerable amount of the same. Some reasons for shopping cart abandonment worth investigating are:

  • High delivery charges and additional costs
  • Absence of a variety of payment options
  • Security threats to paymentNo checkout for guests

It is important to investigate what is causing shopping cart abandonment amongst probable customers to maximise the chances of conversions and sales.

One of the most important points for consideration here is at what stage of the journey are the customers abandoning their shopping carts. It has been seen that shopping cart abandonment mostly happens during the checkout process.

Therefore, as a business owner, one must look at the number of customers leaving their shopping carts after initiating the checkout process. This will allow them to focus on the below:

  • Removing impediments during the checkout process
  • Eliminating obstacles from opt-ins like emails and terms and conditions
Shopping Cart Abandonment Rate

Lifetime value

The value of a business largely depends on the relationship it enjoys with its customers. And by relationship we do not mean a one-time affair. It is wrong to consider customer value based on a single purchase.

Customer lifetime value or CLV is a metrics that tells the business owner how much value are their customers generating for them in the long run. The value generated by a customer who purchases a high-end item only once will be less.And why is this so? This is because those making smaller but consistent purchases all around the year produce a bigger revenue.

CLV is used to track the revenue generated by customers throughout their relationship lifecycle with the business.

This metrics is calculated by multiplying the average order value with the average number of purchases every year with the average period a customer is engaged with the business.

For example, if the average order value is $200, the average number of purchases 50 and the time of customer retention is 4 years, the CLV will be as follows:

$200 x 50 x 4 = $40,000

How to choose the best eCommerce KPIs for business?

Having said that KPIs are crucial to the success of a business, it is equally important to have the knowledge to choose the right ones from amongst a plethora of them. This is because not every KPI is meant to play a key role in the growth of all businesses.

To get the maximum benefits out of the important KPIs for ecommerce, one should shift their focus to the following factors:

Go for KPIs that reflect the true character and objectives of the business

KPIs are like sign posts that tell the business owner still how far they need to go in terms of their goals and objectives.

In simple words, KPIs are barometers of how far or close the businesses are from their set objectives. Hence, exercising judiciousness while choosing the KPIs is crucial to the overall success of the business.Keeping this factor in mind, one should choose KPIs that affect their business at the grassroots level like net profit or net income. In addition to this, the KPIs also need to be in sync with the business strategy, goals, aspirations, and overall performance of the business.

It is easier to zero in on the KPIs if the following factors are paid attention to:

  • What are the company's objectives?
  • If there are any major areas that need enhancement or optimization?
  • What are the management team's foremost priorities?

Once the answers to the above questions are sought satisfactorily, it will bring the business owner one step closer to the KPIs.

Focus on a few key metrics

Every ecommerce business differs from that of the others. So it is slightly difficult to say exactly how many KPIs are suitable for a business. But one thing is for sure.Trying to track too many KPIs can overwhelm the business owner. It is, therefore, recommended that one should set not more than two to four KPIs per objective.

Choose KPIs that are easily measurable

For the KPIs to be usable, they have to be measurable and quantifiable. In other words, one should choose KPIs which provide necessary information into the growth trajectory of the business and the outcome obtained.

Consider the growth phase of the business

Ecommerce performance is largely determined by the growth stage of the business. So one needs to consider the KPIs based on which of the following stages the business is in:

  • Start-up phase
  • Growth phase
  • Maturity phase
  • Renewal phase
  • Declining phase

In each of the above stages of business growth, the data needs differ from one another. For example, while start-ups usually focus on data related to the validation of the business model, the more established ones concentrate on the below metrics like:

  • Cost per acquisition
  • Customer lifetime value

Choose realistic KPIs

You need to go with KPIs that reflect the necessities of their business and not the ones currently trending. This is because the needs of every ecommerce business are different from that of the others.

It is, therefore, imperative to select those KPIs that are relevant to one's business instead of inclining towards those that are not.

Determine both lagging and leading indicators

The main difference between lagging and leading performance indicators is the knowledge of how the business did in the past versus how is it faring now.

This is not to say that one is better than the other. It is all about knowing the difference between the two.

Lagging indicators are used for measuring the output of something that already took place in the past. For example, total sales in the previous months or the number of fresh customers in the last six months or hours of professional services delivered in the last few weeks.

These are called lagging indicators because they indicate something that happened in the past. Lagging indicators are good as measuring indicators since they purely take into consideration the output.

On the contrary, leading indicators are those which predict the probability of achieving future goals. Some of which are:

  • Conversion rates
  • Sales rep activity
  • Sales opportunity age

Companies mostly choose the lagging indicators because they can be measured easily as these events have already taken place in the place.It is comparatively easier to procure a google analytics report of the customers acquired in the past six months than figuring out what the customer acquisition rate in the next quarter may be.

However, one must focus on the leading indicators, too, as they are crucial in determining if the business is on the right path. So by identifying the leading indicators, one can chart the course of future growth for their business.

Lagging and Leading Indicators

In conclusion

Ecommerce KPIs are the most essential weapons in an ecommerce merchant's arsenal as they give them valuable insights into how well their business is performing. Aside from this they also provide insights into the trends in customer behavior that help in future growth opportunities.

However, it is essential to focus on the right metrics to leverage them effectively for business growth.

Looking to take the next step with your ecommerce tracking? Reporting Ninja's reporting tool will quickly enable you to build reports and make marketing decisions that will skyrocket your ecommerce revenue.

Luis Pereira