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Data helps you understand what’s working well, what isn’t, and how to understand who is buying your products. Using data to learn about your business, make future decisions, and monitor success allows you to reduce risk and maximize your margins.
For your business, the data that does this for you are ecommerce KPIs and metrics. But there can be a little confusion when talking about these two pieces of data.
In this article I’m help you understand the difference between metrics and key performance indicators (KPI) and some of the most important factors to keep an eye on for an ecommerce business.
So why is there confusion between metrics and KPIs? Because it’s all about the way you use them that determines which data point they fall under. Here are the definitions of each:
Data that supports a specific activity–for example, clicks to a Free Trial button. This data can be viewed historically but does not provide insights into future actions.
Specific data points that are chosen to represent the success of a company reaching their goals. KPIs offer insight that drive future action.
KPI’s should be specific to your company’s goals and business model. For example: if your business sells t-shirts, your goal for this year is to increase the amount of money each customers spends at your online store, making one of your KPIs, Average Order Value.
Do you see the main difference?
Both these pieces of data are important to help you know how your business is progressing. So let’s talk about how you can set up these data points and which ones are actually important for our business.
Now that you know the difference between these two types of data, its time to find out how you can set them up to help you define success for your ecommerce business.
Key Performance Indicators should be personalized for your company’s goals, limited in quantity, and focused. To help you define your KPIs, here are a few questions to get you started.
For example, if I run an online store that sells t-shirts, my main objective could be to increase the amount of shirts a customer buys. I can do this so many different ways like offering quantity discounts, creating product bundles, increasing merchandising efforts, building a loyalty program, creating marketing efforts pushing t-shirts for the whole family, to name a few….
My main KPIs that would indicate that I am achieving this goal could include Average Order Value and Average Basket Size. Both of these KPIs are repeatable, fixed, and focused to the main business objective.
Using the example from above, let’s define some metrics.
Let’s say we decide we are going to push forward testing the strategy of increasing merchandising efforts throughout the customers shopping experience with the goal of increasing the quantity of product the customer buys. We will place upsell products (higher priced products) on the product pages as well as cross sell (complementary products) on the cart page.
A few metrics that would be applicable for this effort would include:
The main difference between metrics and KPI’s in this example is that the metrics are focused on a specific effort and reflects an action that has happened in the past by your customer. The KPIs are the guiding light to determine if the specific effort has successfully pushed your towards or away from your business objective.
Now that we understand the difference between metrics and KPIs, let's go over some of the most popular ecommerce data points.
Ecommerce conversion rate– This is the number of order/sessions (visits to the site) to your website. Some define ecommerce conversion rate by the number of orders/users (people). Ecommerce conversion rate is one of the most common data points in ecommerce and is looked at as the rate you are able to successfully position your product in front of the correct people and secure a purchase.
Average order size– This is the average amount of money a person spends on your site (total revenue/number of orders). Average order value can be used to gauge how well you merchandise your product on your site, create product bundles, or upsell your products.
Average basket size– This is the average number of products per order (total number of products sold/total orders). Using average basket size in conjunction with average order size can tell you a lot about how well you merchandise your products.
For example, if the average cost of a product on your site is $100 but your average order size is $250 and average basket size is 3, you know that customers are either buying less expensive items OR your product set encourages customers to buy products in a mix of price points. This can be a great jumping off point to research your sites product mix.
Cart abandonment rate– This is the rate at which customers add a product to their cart without completing a purchase (((1 – (Total purchases/total carts created)) * 100).
High cart abandonment rates can indicate issues in your cart or checkout process like poor UX, unexpected fees, or lack of financial trust with your company to name a few.
Checkout abandonment rate– Similar to cart abandonment, this represents the rate at which a customer places an order after they enter the checkout ((Orders/Checkout Starts) *100)).
Checkout is defined as the step right after the cart page– normally the Shipping Information step. A high checkout abandonment rate can also indicate issues in cart or checkout like poor UX, unexpected fees, or lack of financial trust with your company to name a few.
Orders per users– This is the average number of orders an individual customer places (Total orders/Unique purchasers).
Though this can vary drastically based on business model and product set, a high amount of repeat purchases can indicate users are happy with their relationship with your company or product and is a factor to understanding customer loyalty.
Repeat purchase rate– This is the total number of customers that have made two or more purchases/total customers.
Similarly to orders per user, a high repeat purchase rate can be an indicator that customers are happy with their relationship with your company or product.
It is important to note the product return rate in conjunction with repeat purchase rate to ensure that a high repeat purchase rate is not due to an unsatisfactory first order.
Purchase frequency– This is the average time interval between purchases made by an individual customer. Understanding purchase frequency can help drive email and promotional strategy by placing emails in front of customers at the most opportune times.
Customer lifetime value– This is the total revenue generated over the course of a customer’s life.
Cost per acquisition– This is the total amount of money spent in order to generate revenue (Total revenue spend per channel / number of customers generated per channel).
It is important to always have a positive relationship with this data point to ensure you are not spending more than you are bringing in per channel.
By using these top 10 metrics for ecommerce companies, you’re on your way to better understanding your business and to start gathering some insights into how business changes affect each data point.
To some time today to start clearly defining your business goals and the KPIs that you will use to monitor the success of your efforts.
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