How do you measure success? If you’re planning an ecommerce site, it’s based purely on numbers. Your most important numbers are site revenue and profit margin. But, what makes up those two key ecommerce metrics?
Think of your site revenue as a number that sits atop a pyramid. Supporting this pyramid are hundreds of other metrics. I won’t go into every possible metric or stat for your site – you’d never have time to execute.
Instead, let’s take a dive into the key ecommerce metrics that help your online store sell product, delight customers and create brand loyalty.
1. Cost Per Acquisition (CPA) – Ad Spend / Orders
The simplest way to think of Cost Per Acquisition (CPA) – How much are you spending on advertising, and how many orders does your marketing budget generate?
One of the easiest ways to measure your site’s overall CPA, within context of a customer’s lifetime value, is with a customer loyalty program – something 71% of consumers earning more than six-figures a year are enrolled in.
As you dive into your site’s CPA, you’ll quickly realize that it’s a little more complicated to find actionable numbers. You probably have a number of advertising campaigns running at the same time.
How do you keep your metrics actionable? Is it possible to see what’s helping generate the most sales per dollar spent?
Thanks to tools like AdWords and Google Analytics, it’s possible to see how much it cost for your customer to reach your site. And, more importantly, you’ll see what they engage with once they arrive – guiding your future decisions on how you funnel traffic to your best performing pages.
2. Revenue Per Click (RPC)
In the digital world, one of the easiest ecommerce metrics to measure is your site’s RPC, or Revenue Per Click. You can quickly figure out which online ads are generating the best return on investment (ROI).
Compare the amount spent on a “click”, to the revenue generated by the customers that entered your site through a particular ad.
This is one of my favorite metrics, because it tells you right away if you are spending your online advertising dollars effectively. Here’s how you calculate your site’s RPC:
RPC = Revenue Generated by Ad / Total Number of Clicks on Ad
If you want to get even more actionable information, factor in all of your costs for acquiring and servicing that customer. You might find that even though you’re generating a solid revenue-stream, the customers you’re bringing in are more expensive to service, resulting in slimmer profit margins.
This could mean that it’s time to increase the margins on these products, or find an advertising strategy that focuses on more valuable customers.
3. Average Order Volume
When a customer reaches your site, are they finding everything they need to solve their needs? A satisfied customer will add multiple items to their basket in order to enjoy a more complete solution. It’s your job to make sure your site is communicating the opportunities to enhance their existing selection of items.
AOV = Total Revenue Generated by Site / Number of Orders Placed on Site
Of course, you want your shopping cart to recommend additional items. But, you also want to empower site visitors to search for a wide-array of products that are relevant to them. This could mean that a single shopper solves multiple problems by purchasing a diverse set of products – allowing your shopping cart to upsell them on additional items for a number of use-cases.
Doing this successfully is a really powerful way to juice your margins.
4. Customer Lifetime Value
You might be tempted, based on the RPC from a specific type of customer, to stop an advertising campaign that is generating slim, to no margins. STOP!
You need to factor in your customer’s lifetime value. In other words, how much revenue are they worth over the average customer lifespan?
Think about the strategies that retailers use to gain new customers – they heavily discount certain products, to the point of losing money, in order to secure foot traffic. These are called “loss-leaders”, because the traffic that they generate results in ancillary sales.
You might find that a customer who purchases a product that produces little profit margin will come back, or add items to their cart that are significantly more profitable. For example, an online store that sells skateboards at little, might make back their losses by selling wheels, board customizations and other skating accessories to the same customer.
Always remember to zoom out and look at the bigger picture before making a key decision based on one or two ecommerce metrics.
5. Add To Cart Ratio
This ecommerce metric helps me to better understand how well my products, and the pages that advertise them, are performing. By setting up an “event” in Google Analytics, and attaching that “event” to a customer clicking on a button, like the “Add to Basket” button on a product page, I”m able to see how a page is performing.
If 6-12% of your product page visits result in a button being clicked, you’re doing something right! But, if customers have a hard time finding the product information they need within 8 seconds of landing on your site, you will lose them.
If you’re lagging beneath the 6-12% range, it might be time to reconsider how your product is presented to its intended consumer:
- Are you sending the right kind of traffic to this product page?
- Is the “Add to Basket” button positioned in a prominent way, above the fold?
- Are you using complimentary colors to drive the reader’s eyes to the button?
6. Brand Name Search
How many times is your brand name typed into google? Google will tell you this in their keyword planner. You can also see branded keyword volume in MOZ and SEMRush.
The reason that brand searches are important is that it’s a reflection of your marketing, as a whole. Is your brand name sticking in the minds of your target customers? Do they know you exist?
For ecommerce sites with multiple brands and specialty sites, Google Universal Analytics is a powerful tool for providing metrics that take multiple properties and channels into account – and it can be embedded into many ecommerce platforms.
7. Cart Abandonment Rate
This one hurts, a lot. You’ve done all the work and your customer has nearly completed the journey from browser to buyer – and POOF! They’re gone.
Calculate your cart abandonment ratio:
CAR = Completed Purchases / Total Number of Carts Created
You can calculate your cart abandonment rate by dividing the number of transactions that customers fail to complete, with the number of transactions that are initiated on your site.
A high cart abandonment rate is an indication that:
- You’re asking for too much unnecessary information in order to complete the transaction.
- The process of checking out is taking too long.
- 66% of consumers leave a mobile checkout because it’s taking too long, or the transaction doesn’t process smoothly on their touch-screen device. Your checkout needs to be smooth and efficient across multiple platforms.
8. Subscriber Growth Rate
This will provide you with a ratio that tells you how many new subscribers you’re attracting. The formula for calculating your subscriber growth rate is:
SGR = (Current Number of Subscribers – Number of Subscribers 30 Days Ago) / Number of Subscribers 30 Days Ago
Your ecommerce site will have multiple types of subscribers:
- Social Media Followers
- E-Newsletter Subscribers
- Monthly and Annual Product or Service Subscriptions
- Blog RSS Feed Subscribers
It’s important that you nurture these relationships by pushing out content, on a regular basis, that is relevant to the issues impacting their daily life, in relation to your brand’s product line. For example, a fashion site would be smart to push a variety of fashion-trend alerts out to their customers as seasons and styles change.
If you sell a subscription based product, dig deep into the average life of your customer. How well are they engaging with each aspect of your service, and when is the average customer falling off?
This is the first step in finding the things that your customers love, and pulling resources away from the things that aren’t clicking with your customer base.
9. Customer Retention Rate
I already mentioned how powerful a customer loyalty program can be in helping to engage customers with disposable income. The broader goal of a loyalty program, as well as a stellar customer experience, is retaining customers and earning repeat sales.
To calculate your customer retention rate (CRR), you need three pieces of information:
- The number of customers you have today.
- The number of new customers acquired over the past 30 days.
- The number of customers your store had 30 days ago.
You can do this for any period of time, but I’m using 30 days in this example. Here’s the formula:
CRR = (Number of Customers Today / New Customers Generated in the Past 30 days) / Number of Customers 30 Days Ago
To get a percentage, multiply your result by 100.
It’s six to seven times more expensive to acquire a new customer, than it is to re-engage an existing customer. The most valuable thing you earn with each new customer transaction is contact information. Now you have a direct line of communication to re-excite and improve customer loyalty.
So, what percentage of your customers are returning to your site each month, quarter or year? Improving this ecommerce metric will dramatically decrease the costs associated with marketing your site – especially when you spread your marketing costs across a more lucrative customer base.
You can engage previous customers by asking for feedback on their customer experience – and a special discount for their thoughts isn’t a bad idea.
Now it’s your turn!
Marketing your ecommerce site is a bear. It takes attention to detail and constant measuring of performance. But, once you start to see the numbers improve, you’ll see a big bump to your bottom line. And, if you’ve been focusing on moving the right needles, you’ll see an even bigger bump in your bank account balance – which is why we start ecommerce sites in the first place.
Darren has an MBA in Internet Marketing, but hangs his hat on 10+ years of experience in the trenches. Follow him on Twitter, LinkedIn to learn ecommerce.[/two_third_last]