The Most Important KPIs for E-Commerce Businesses

If you’re running an e-commerce business, you are part of one of the most exciting and expansive aspects of the global economy. No matter what you’re selling – whether product or service — the challenges are constant and the competition is fierce. That’s why it’s important for you to leverage every tool at your disposal. If you’re not making good use of the data provided by your website-hosting platform, it’s time to start. If you know what you’re looking at and what you should be looking for, the information can be invaluable to your decision-making process and your success.

The most important data tools provided by your platform are known as Key Performance Indicators (KPIs). If used and interpreted properly, they can help you see what is most (and least) appealing to your customers and to quickly identify problems with your site, directing you to the quickest and most effective solutions to boost revenue.

Unfortunately, in the interest of answering every question, these online tools offer so much information that it is easy to get overwhelmed and decide to discard the whole batch, relying instead on instinct. This is a mistake. The secret to getting the most out of the data is to know which of the dozens of KPIs provided are most important, and how to use them. Any easily measurable data that reflects how close you are to attaining your bottom-line business goals and the growth stage of your business is what will be most useful, especially if it can be interpreted at a glance.

Though each business’ unique objectives and goals will be determinative, there are some KPIs that are universally valuable. They are the ones that give you a quantifiable measure of overall performance and show you where improvement is most accessible. Surveys of e-commerce professionals have indicated that the top KPIs to track are:

• Conversion rate
• Customer lifetime value
• Customer retention rate
• Average order value
• Net profit
• Cart abandonment rate
• Number of orders

Let’s take a look at each so you understand what they are and how looking at them regularly can make a difference to your overall success.

Conversion rate

Conversion rate is considered the top indicator of success because it is an indicator of how many of the people who come to your site end up buying or in some other way engaging. From a mathematical perspective, it takes your number of visitors who purchase and divides it by the number of visitors overall.

Engagement can vary. It may be a sale or it may be a request for more information. It may be the creation of an account or signing up for a newsletter. One way or another, it is an indication that your website is accomplishing what it is supposed to and that your strategy is working.

Comparing the strategies and decisions you’ve made about your website – new products, new content, adjustments to the customer experience –  to shifts in your conversion rate will provide confirmation of what has worked best.

Customer Lifetime Value

This metric is a reflection of several others combined. It measures the average order value, how many customers you’ve engaged with, and how many customers return to your site. The higher your customer lifetime value, the greater your connection with the people you are trying to reach. It means that they return to you over and over again when they have a need. It means that you have given them a positive experience. By examining shifts in this indicator you can continue to improve your site’s performance based on shifts you’ve made that make the number grow.

Customer Retention Rate

Though it is good practice to constantly look for new clients, there is tremendous value in establishing long-lasting relations with your existing client base. A recent study revealed that boosting retention by just 5% can increase profits by a minimum of 25%, and by as much as 95%. The Customer Retention Rate lets you know that the clients you’ve invested in attracting are coming back for more.

Average Order Value

There’s no mystery to what the average order value metric gauges: it’s the average amount that each customer spends on your site, each time that they visit. The usefulness of this number cannot be underestimated. As you implement new strategies to increase your revenues, the average order value will immediately inform you as to whether they are working or not, and vice versa is true as well – taking measures specifically geared towards bumping up the amount spent on each order (i.e., free shipping for orders over a certain amount, gift cards of increasing value as more is spent) will also raise revenue and profits.

Net Profit

Of all the indicators that need to be tracked, your net profit is the one that is likely to be most important to you. Revenue and conversions are great, but they are meaningless if you’re not actually making a profit. And if you know that you’re earning, you can make strategic decisions to expand and build on what your metrics have shown you work!

Cart Abandonment Rate

Anybody who has ever shopped online has put something into their cart and then left it there. Maybe you got distracted, maybe you went to compare prices and found it more cheaply somewhere else, maybe the checkout experience was simply too frustrating. Whatever it is, as an e-commerce entrepreneur yourself you need to know whether that is happening on your site, and if so – why. Cart abandonment represents opportunities and revenues lost. Once you learn that it is happening you can explore the reasons behind it. Maybe it’s your shipping costs. Maybe your payment options are confusing, or there is some kind of lag or bug that you’re not aware of.  Most of the reasons behind cart abandonment are easily repaired, and once you take care of them, you’ll see your revenues increase.

Number of Orders

This metric reflects the average number of orders that each of your active customers makes on your site within a specified period of time. The higher the number the more engaged your clients are, and the more your business and revenues can grow.

Having a well-stocked tool chest is great as long as you know what everything is for and what to do with each tool. That’s just as true for hammers and drills as it is for the KPIs provided by your e-commerce business platform.  If you need assistance in making good use of the data you’ve been provided, we can help. Contact us today to set up a time to chat.