“Not everything that can be counted counts, and not everything that counts can be counted.” – Albert Einstein
OK, maybe Einstein never said that (according to quoteinvestigator.com this quote belongs to the sociologist William Bruce Cameron) but, the bottom line is: every e-commerce owner should identify and improve the metrics that really count.
With so many resources and tools out there – Google Analytics, your e-commerce platform, ContactPigeon analytics (of course ☺) – it’s very easy to get lost and become distracted of what really matters, your customer. This article will take you step by step on clarifying how and what you should calculate and track every morning using these 5 key e-commerce metrics.
But, before starting with the calculations let’s break down the basics:
Why you should not just rely on Google Analytics? Measuring these 5 key e-commerce metrics will be a real eye-opener for you✌
Although it’s very useful to check the important GA metrics for your e-shop, like sessions, page views, pages/session etc., these metrics won’t show you your pains.
By setting the right KPIs you’ll have a clear picture of what you are doing right or wrong and will help you identify over time how much progress you have made. More importantly, these 5 KPIs will show you the financial impact of each business or marketing decision you make. In addition, they will help you improve key business indicators such as cash flow and profitability.
Cost of Customer Acquisition – CAC
Customers will not land on your e-shop and magically start buying. You need to devote money and time in order to bring visitors to your site and convert them to customers.
CAC will show you simply how much costs to acquire a new customer i.e. if you spend 500€ to get 20 customers to your site, your CAC is 25€.
How to improve it: Your aim should be always to lower CAC. Usually, you use different techniques to acquire new customers – Google Adwords, Social Media paid campaigns, Inbound Marketing. You should break down your CAC to different mediums, channels and campaigns. Then, see what works and what doesn’t and optimize it.
Average Order Value – AOV
Maybe the most important metric to watch. AOV simply tells you how much you earn per order on average. For example, if you have 10.000€ sales during a period and 200 completed orders, then your AOV is 50€.
The higher average order value, the better for your e-shop! That means that your e-shop generated more revenue from your traffic. Also, higher AOV means better profit margins for your business.
How to improve it: You should always try to give more buying options to your visitors. Show them related products, throw in complementary products, offer free shipping when their order exceeds a certain amount.
Also, go back to the acquisition process and find from where your most valuable customers come from – social, organic, referral. Re-allocate your marketing budget and focus on channels and soon you’ll see your AOV increasing.
Conversion Rate – CR
In general, conversion is the Holy Grail of e-commerce and digital marketing in general. Conversion rate demonstrates how effective your e-shop is in getting visitors buy your products. Quick example: if 50 of your 1.000 visitors complete a purchase, then you have a CR of 5% (not bad if you consider that the average CR for the e-commerce industry is 2.5% according to Smart Insights).
Of course, you can break down your CR in different segments or product categories.
How to improve it: Improving this metric is so crucial that there is a term specifically about this process: Conversion Rate Optimization (or CRO). There are tons of content and tools out there for starting with CRO. For you to be able to identify leaks in your sales funnel you should analyze the whole customer journey, from landing to your e-shop to check out.
Make sure you make this process smooth and experiment with different buttons, colors, copy in order to recognize how your visitor’s behavior changes.
Lifetime Value of a Customer – LTV
For this metric, you should brush up your math skills. LTV helps you calculate the total spending of a customer through the lifespan of the relationship with your e-commerce business. Although there are many ways to calculate LTV, we’ll stick to the basic calculation.
The equation has 3 factors: Average Order Value (we’ve calculated above), the number of repeated sales through the year and the average time that we project this client to buy from our e-shop.
For example, let’s assume that your AOV is 50€ and each customer completes 3 purchases on average per year. Then, if according to your projection, each customer is around for 3 years the LTV is: (50€) x (3) x (3) = 450€.
Tip: You should always check if LTV>CAC. Why? The reason is simple: the investment for acquiring a customer should be lower than the actual revenue that generates through the whole lifecycle in order to stay profitable.
How to improve it: Personalization is the key! Identify the key customers, track their online behavior and come up with personalized content such as emails and special discounts. Use a marketing automation platform to trigger these emails after specific actions on your e-shop.
Also, create a loyalty scheme for rewarding repetitive purchases. Think about giving a discount based on past purchases or set a specific amount that the customer should spend in order to take advantage of your reward.
Cart Abandonment Rate
As we discussed in our previous article, there are many reasons why visitors don’t complete their orders. Unexpected shipping costs, complicated checkout process, visitor’s distractions, are all reasons for visitors to abandon their cart. A simple formula to calculate the rate of cart abandonment is below:
How to improve it: The good news is that you can influence this metric in many ways. The best way to recover sales is to send a series of automated emails where you can remind visitors that they still have products in their basket or give them extra incentive to proceed to checkout.
In addition to these 5 key e-commerce metrics, you should also pay attention to some additional ones, especially when you run paid campaigns in Google Display Network, Facebook or other providers:
- Cost per Click – CPC: How much you pay for each click on your ad that lands to your e-shop.
- Cost per Mile – CPM: How much you pay for a thousand impressions of your ad (in Latin mile means thousand).
- Cost per Acquisition – CPA: This metric is used to calculate the cost of each conversion to your e-shop.
- Traffic: Probably the most basic (but extremely insightful) metric, shows the number of visits to your e-commerce site. Through your Google Analytics account, you can see more detailed information about sessions, users, page views etc.
- Revenue per Click – RPC (Total Revenue/ Clicks to your site): This metric calculates the revenue you receive for each click to your website. You can break down further RPC according to channels (Organic, Paid, Social etc.) in order to identify the sources they produce the more revenue for your e-shop.
Now that you know which metrics to track, you can start making data-driven decisions. Remember that what works for others maybe doesn’t work for your e-shop. Set goals for your business and track these metrics every day and pivot when you need to.