KPIs for eCommerce are specific metrics that your company has established as indicators or predictors of overall growth. KPIs are more strategic in nature, whereas metrics are more tactical.
KPIs are the metrics that have been determined to be the most important when assessing overall performance. Staying on pace and maintaining constant growth requires consistently measuring, assessing, and responding to your KPIs.
Brief Overview of KPI
A key performance indicator, or “KPI,” is a metric that communicates how well an organization or individual performs in relation to its primary goals.
Consider them to be signposts.
They show you where you are on the map and assist you in determining the best course of action to reach your business objectives.
What Is the Difference Between Metrics and KPIs for eCommerce?
Simply put, KPIs are the metrics that matter.
“There are tons of metrics out there. Clicks. Percentage of new sales. Subscription revenue. But not all of them are KPIs,” says Klipfolio’s Jonathan Taylor: “KPIs are the most important metrics you have – the ones that really underscore what your key business goals are.”
Metrics are simply a technique of measuring something.
KPIs are a way of keeping track of the most critical components of your organization and determining what actions to take.
All of this begs the question: what ecommerce metrics should be used as KPIs?
Customer Acquisition Cost (CAC)
CAC is simply the average cost of acquiring one new customer. Divide your entire sales and marketing expenses for one month by the number of new customers obtained that month to get the CAC formula. That figure represents the cost of acquiring a new customer.
CAC = Sales & Marketing Costs / # Customers Acquired
Why is this metric important? Because each of your clients has a life-time worth. If your CAC equals or exceeds your Customer Lifetime Value, you’ll be out of business in no time. It’s vital to understand how much it costs to acquire a single customer.
Your ultimate goal is to reduce the entire quantity of sales and marketing required to acquire a customer, hence lowering your acquisition cost.
Average Order Value (AOV)
This KPI, as you might expect, shows the average order value on your site. The greater this number is, the more money you’ll make. This is Amazon’s area of expertise. When you add one item to your cart, they begin suggesting other goods that you might require. They understand that their revenue is dependent on AOV, thus they do everything they can to boost it. Why is this such a crucial metric to track?
You may have a better knowledge of how your customers behave, which items make up the majority of purchases, and how you can improve your customer experience to increase conversions by regularly tracking AOV.
While the AOV varies per product, the top 25% of online retailers have an AOV of over $100.
Increased AOV helps you to make more money from the traffic you already have, which is why it’s such an important KPI. Rather than buying more visitors, which increases your Customer Acquisition Cost, you extract more income from the clients you already have.
Return On Ad Spend (ROAS)
ROAS is the amount of money returned in revenue for every dollar spent on advertising to generate new revenue. This is quite important. If you don’t know how much you’re spending to generate new revenue, you may easily end up spending more than you’re producing, which is a recipe for disaster. What is the formula for calculating ROAS?
ROAS = Revenue From Advertising / Cost of Advertising
As an example, suppose you spend $3,000 on a PPC campaign. You calculate that the campaign brings in $12,000 in income.
$12,000/$3,000 = 4
You generate $4.00 in revenue for every $1 spent on advertising. It’s easy to get caught up in Cost Per Click (CPC), conversion rate, lead generation, and other metrics when running ad campaigns. And, while these measures are significant, the bottom line is what matters. If you solely consider CPC or conversion rate, you may overestimate how much revenue your advertising generates and which campaigns are successful.
You can evaluate the efficacy of your advertising and forecast how much revenue future advertising will earn by tracking your ROAS on a regular basis.
BENCHMARK: At the very least, your ROAS should be 3:1. This ensures that you meet your operating costs while also creating a considerable profit.
Improving your ROAS allows you to put some of that extra money into more advertising, which leads to more customers and revenue. It’s a win-win situation.
Email Signup Conversion Rate
This KPI represents the percentage of visitors to your website who sign up for your sales funnel via email. Improving your registration conversion rate may pay substantial dividends, especially because email is a proven technique to create significant ecommerce revenue. Envelopes.com, for example, used email marketing to retrieve 40 percent of their abandoned shopping carts.
The average opt-in rate is 1.95 percent, but some marketers can achieve as high as 4.77%. This means that at least two people should sign up for your email list for every 100 people that visit your website.
With social media platforms gradually obliterating any organic reach for businesses, it’s more crucial than ever to grow your email list. This is an important KPI that should not be overlooked.
Customer Lifetime Value (LTV)
This metric depicts the average amount of money a client is likely to spend with you over the course of their relationship with you. Obviously, the higher the LTV, the larger the total revenue. It’s crucial to understand your LTV so you can compare it to your Customer Acquisition Cost. The lower your revenue is, the closer your CAC is to your LTV. How do you figure out the LTV?
LTV = (Avg. Order Value x Purchase Frequency) x Customer Lifetime Length
Purchase frequency shows how frequently a customer buys from you, and customer lifetime duration represents how long a client stays with your organization on average.
Benchmark: The ratio of Customer Lifetime Value to Customer Acquisition Cost should be at least 3:1. For example, if acquiring a customer costs $100, their lifetime value should be at least $300.
The higher your LTV, the less money you’ll need to spend on gaining new customers to compensate for those you’ve lost. Rather, that money can be invested in areas where there is scope for growth.
Shopping Cart Abandonment Rate
This is the percentage of people that get close to making a purchase before abandoning it. They add anything to their cart and may even proceed to the checkout, but for some reason, they never complete their transaction. If you can reduce this amount, you will boost your conversion rate as well as your overall revenue. You don’t need to buy any additional traffic to raise revenue because you’re dealing with clients who are already on your site. You’re simply improving on what you already have.
Benchmark: The average percentage of shopping cart abandonment is roughly 70%. The higher your desertion rate, the more likely it is that anything is causing shoppers to abandon the checkout process.
If you had a physical business and people were abandoning carts all over the place, you’d work hard to ensure that this didn’t happen again. Every abandoned cart, after all, is money walking out the door. In the same way, approach your ecommerce abandoned cart rate.
Ecommerce Conversion Rate
This is the percentage of visitors who become customers after visiting your website. The greater your conversion rate, the more money you’ll generate and the less money you’ll have to spend on customer acquisition.
While it varies greatly by niche and business, surveys estimate the average ecommerce conversion rate to be approximately 2%. Amazon, the ecommerce behemoth, has a non-Prime conversion rate of roughly 33%.
The significance of this KPI cannot be emphasized. You don’t have an average order value, customer lifetime value, return on ad investment, or anything else if you don’t have any income.
Ignoring your ecommerce conversion rate is a surefire way to go out of business. Pay attention to it and attempt to improve it. Increased income allows you to invest in improving other KPIs.
The Best Tools for Tracking KPIs for eCommerce
Now that you know which KPIs to track for your ecommerce site, the next step is to figure out which tool(s) to employ to keep track of them.
When we asked various experts which ecommerce analytics solutions they use to measure these seven KPIs, we received a wide range of responses. Google Analytics, Databox, Shopify, HubSpot, Mixpanel, Kissmetrics, and Crazy Egg were the most popular tools.