Discover what key performance indicators (KPIs) are, which KPIs are most important for the success of your online store, and why you should monitor them regularly.
What’s in this article?
- What is ecommerce?
- What are ecommerce KPIs and why are they important?
- What are the most important KPIs in ecommerce?
- Why must KPIs always be measured in relation to each other?
What is ecommerce?
Ecommerce refers to the buying and selling of goods and services over the internet. Ecommerce provides countless benefits for businesses, such as expanding their customer base, providing greater flexibility in product range, and the ability to sell at any time.
In order to be successful in ecommerce, it is important to understand current trends and developments, and to react accordingly. This includes optimizing mobile devices, or integrating social media channels into the sales process, for example.
What are ecommerce KPIs and why are they important?
It is essential for ecommerce businesses to measure and analyze the success of their online stores accurately, in order to stay successful in the long term and to scale their business. To do this, they need to measure the right metrics to provide a complete picture of their business’s performance. These metrics are known as “key performance indicators,” or “KPIs” for short. KPIs are measurements that reveal how successful certain processes or activities are within an ecommerce business. They include the conversion rate, average order value, and the number of orders per month.
When businesses regularly monitor and optimize their KPIs, this not only helps make their business more successful, but also highlights areas that require improvement. Without KPIs, it is hard to know which business areas or processes are functioning, and which are not. KPIs represent a valuable instrument for accurately measuring the success of an ecommerce business and increasing sales. For businesses, it’s important to be familiar with this topic and to select KPIs carefully.
What are the most important KPIs in ecommerce?
Some of the most important KPIs for online businesses include the Conversion Rate, in other words the ratio between visitors and actual purchasers, and the Average Order Value (AOV), which reveals the value of an average purchase in the store. Customer Lifetime Value (CLTV) is also an important KPI, as it informs you how much an individual customer spends in the store over their “life cycle”.
Other relevant KPIs include the abandonment rate, or rate of return. By regularly analyzing and optimizing these indicators, you can improve your store’s performance and ultimately increase your sales.
Familiarize yourself with the following KPIs:
Website traffic
The success of an ecommerce business is highly dependent on the number of visitors a website receives. Website traffic (i.e., the number of visitors or the number of times a page is visited per day) is key for understanding how much traffic your website is receiving. Bounce rate and session duration (see below for definitions) are also relevant as they provide information on how much time users spend browsing a site or whether they move straight on to another page.
Traffic source
Traffic Source is a key indicator for measuring the success of your marketing activities. It provides answers to the question of how visitors arrive on your site. There are many types of Traffic Sources, such as organic hits, paid hits, or social media. Every source has its pros and cons and should be analyzed appropriately.
A further factor in measuring the Traffic Source is identifying trends. By recognizing patterns in data traffic you can act quickly and optimize your strategies.
Conversion rate (CR)
Conversion rate (CR) measures the ratio of targets achieved to the number of visitors to a website. These targets may be a purchase, newsletter sign-up, or contact query. To achieve their targets, businesses should ensure their online store is user-friendly and that it is easy to find products.
Bounce rate (BR)
Bounce rate (BR) tells you how many visitors leave your website without looking around the online store or making a purchase. A high Bounce Rate indicates that something with your website is not quite right and so you may need to make changes to reach more customers and achieve higher Conversion Rates.
Click-through rate (CTR)
CTR represents the ratio between the number of clicks on an advert and the number of times the ad has been shown (known as impressions). Impressions show how often a user has viewed the website or ad. Each time an ad appears on the user’s screen constitutes an impression.
A high CTR means that the target group is responding well to the business’s message and is interested in its offer. It is also important to bear the Conversion Rate in mind as it shows how many users then actually carry out a desired action on your website.
Customer acquisition cost (CAC)
Customer acquisition cost (CAC) indicates how much it costs to gain a new customer. This means calculating all of the marketing and customer care expenditure spent gaining and retaining new customers. By measuring CAC, businesses can optimize their marketing strategy and monitor the effectiveness of their measures.
Customer lifetime value (CLV)
CLV reveals how much a customer is expected to spend on products and services over their relationship with the business. A high CLV means a customer will be profitable for the business over the long-term and therefore it is worth investing in their loyalty.
Different factors need to be considered when calculating CLV, such as the customer’s average order volume and frequency, and their loyalty to the business.
Average order value (AOV)
Average order value (AOV) measures the average costs per order spent by a customer with an online merchant. This KPI helps businesses understand how much is spent and how much profit is made per order. AOV can help recognize trends in customers’ buying behaviors and represents a source of valuable information about a business’s market research and competitiveness.
Cart abandonment rate (CAR)
Cart abandonment rRate (CAR) indicates how often customers terminate the payment process without concluding a purchase. A high CAR may be attributable to a range of factors, such as poor website navigation, limited payment methods, or high shipping costs.
Rate of return (RoR)
Rate of return (RoR) indicates how many products customers return after purchase. Businesses can use this information to develop better, customized strategies to achieve a lower return rate.
Time on site (TOS)
The time on site, or length of a visit per page, provides information about how long a visitor spends on a website (or its subpages), as well as which pages they visit. A long time on site can mean that the customer is interested and is more likely to purchase. However, a short time on site could indicate that the website is not relevant, hard to navigate, or visually unappealing.
Session duration
The session duration describes the period of time during which active interactions regularly take place on a website. The session will be declared over if no further action is taken within 30 minutes. Unlike time on site, the session duration takes into account the entire length of time that a customer spends on a website. Based on this data, optimizations can be made to the website.
Why should KPIs always be measured in relation to other KPIs?
To measure the success of an e-commerce business as effectively as possible, it is essential that KPIs are never considered individually. Instead, they should always be measured in relation to other KPIs. This enables a comprehensive understanding of the business and of the experience of its customers. Individual KPIs may also not be informative enough when taken in isolation to make informed decisions on a business’s strategy.
More information on how you can calculate individual KPIs can be found in our article on SaaS metrics. Take advantage of the possibilities offered by KPIs to raise your e-commerce business to the next level.