The most important indicator of your e-commerce website’s performance is sales, right? Not exactly. As a business owner, it may seem like sales are king, and to an extent, you aren’t wrong. However, measuring e-commerce performance goes so far beyond your sales numbers, because every aspect of your business affects your overall performance. Tracking and understanding those factors, known as metrics, is just as important to your success as bringing in sales.
What are Metrics?
A metric is defined as, “a method of measuring something, or the results obtained from this.” Simply put, metrics are the quantifiable pieces of data that you can track, measure, and use to evaluate the performance of your website and inform decision making in your business.
Knowing your metrics, understanding what they mean, and recognizing impact they can have is crucial. When working one-on-one with our clients, we always look for data to validate any changes or updates made to a site. Without the insights your key metrics provide, you can only guess as to what will improve your site’s performance. There are many tools available, including Google Analytics and Google Search Console that can be used to collect data and monitor these metrics.
To help you get started learning how to monitor your website’s performance, we’ll look at 10 of the most important e-commerce metrics and how they affect your business.
The Top 10 E-commerce Metrics You Should be Tracking
- Customer Lifetime Value (LTV) – The total worth of a customer to your business over the lifetime of your relationship with that customer. It’s typically much easier and less costly to keep an existing customer than to bring in a new one, so it’s worthwhile to nurture your existing customer relationships. This metric focuses on the value of your customers to future profitability of your business. Businesses with a high customer LTV should focus significant effort on retaining existing customers.
- Returning Customer Rate – The percentage of your customers who have made multiple purchases on your site. The higher this rate is, the more customer loyalty your e-commerce store has. Returning customers tend to have a much higher conversion rate than first-time customers because they know and trust your business. The higher your returning customer rate is, the more customer loyalty you’ve created and the more opportunities you have to generate revenue from your existing customer base.
- Cart Abandonment Rate – The total number of shopping carts created by customers on your site divided by the number of those who fail to complete checkout. Any cart that’s abandoned on your site equals sales dollars you lost out on. E-commerce sites with high cart abandonment rates can begin learning more about their customer’s checkout experience, why they abandon their carts, and employ/improve abandoned cart email campaigns accordingly.
- Gross Profit / Profit Margin – Gross profit is calculated by subtracting cost from revenue. Then, to find your profit margin, divide gross profit by revenue and multiply the result by 100 to get a percentage. Knowing your profit margins and working to improve them is an important factor in increasing the overall profitability of your business. You could sell your heart out, but if your margins are slim, your efforts aren’t worth much in the end.
- Conversion Rate – The percentage of site visitors who complete a purchase (or conversion) out of the total number of site visitors. Your conversion rate is one of the critical metrics that’s used when determining your e-commerce website’s performance. Conversion rates are directly related to many of the other metrics on this list
- Average Order Value (AOV) – The average amount of each order placed through your e-commerce site. This metric is calculated by dividing the total dollar amount of all sales by the total number of orders. Would you prefer to have 10 customers spend $10 on your site or 10 customers spend $100 on your site? The answer is simple. The higher your AOV, the more money customers are spending per purchase on your site. Especially if you don’t have high traffic volumes visiting your site, increasing AOV is one of the best ways to increase your e-commerce performance.
- Revenue Per Visitor (RPV) – The amount of revenue that each visitor (on average) brings to your site. By dividing the total revenue by the total number of visitors to your site, we can add a quantifiable worth to site traffic. This metric is one of the best ways to quickly check the health of your e-commerce website. A low RPV indicates you have lots of traffic coming to your site that is either not converting (low conversion rate) or making small purchases (low AOV). By tracking your site’s RPV, you can quickly detect these problems and begin finding solutions.
- Customer Acquisition Cost – The dollar amount (on average) it costs you to acquire each new customer. If you are investing significant portions of your budget into PPC advertising or other digital marketing efforts, it’s especially important to know how much it costs you to acquire a customer. By comparing this metric with your average order value, you’ll be able to evaluate the ROI on each customer acquisition and ensure your ads are providing good returns.
- Web Traffic Volume – The total number of users who visit your website. Each visit is measured as a “session.” Knowing how many visitors are using your website plays into many of your other metrics and allows you to understand the trends of your website over time. Generally speaking, if your volumes are increasing, your site is healthy and growing and if your volumes are decreasing, your site needs attention and improvement.
- Bounce Rate – The number of users who start a session on your site and leave without performing any action on the page divided by the total number of sessions. Having high traffic volume is great! Unless you have a high bounce rate to go with it. If your bounce rates are high, it’s an easy indicator visitors are either not finding what they need on your site, the content of your site is irrelevant to them, or they are unable to easily navigate to what they need. The more customers bounce from your site, the fewer opportunities you have to get a conversion.
Using Metrics to Improve Your Online Performance
Just knowing your metrics isn’t enough. First, you need to be able to qualify those metrics with context. If you have a 2% conversion rate, it doesn’t mean much. But if you say your current 2% conversion rate has decreased from 50% to 4% the previous month, we know that a significant change has taken place, and we can pinpoint the problem and begin looking for solutions. Context is so critical to understand the impact (or potential impact) of these numbers.
Then, once you understand the impact of your metrics, you can start using them to identify areas of improvement for your business and inform decision-making. Here are just a few examples of how you might react to some of these metrics:
- Is your average order value low? Find ways to upsell customers during their shopping process on your site or add/promote related products your customers can buy in addition to what they came for.
- Is the volume of traffic coming to your site dwindling? Focus time and effort on SEO improvements and consider running PPC advertising campaigns to drive additional traffic to your site.
- Is your profit margin low? Consider raising your prices, finding ways to decrease product costs, or both.
- Do you have a high rate of shopping cart abandonment? Use abandoned cart email campaigns to encourage customers to complete their purchase.
- Is your customer LTV low? Maybe you’re running a business with a few core products and typically only have one-time customers. Consider expanding your product line to give past customers a reason to buy from you again.
Allowing data to drive decisions is the best way to know you’re on the right track to improving the overall performance of your e-commerce business. Rather than taking your best guesses on how to improve, you’ll be tapping directly into the pulse of your online business.
Not sure where to start? Contact us today for a website performance audit and recommendations tailored to your growing business.