If you’ve ever wondered what separates a thriving e-commerce business from an unsuccessful one, it’s tracking key performance indicators (KPIs) that make the difference. Successful entrepreneurs understand the power of data and how to use it to their advantage. When you know the best e-commerce KPIs to track, you’ll have a clearer picture of where your business is heading.
Digital analytics has paved the way for online sellers to evaluate the performance of their business and make crucial adjustments when necessary. It’s a golden opportunity that every seller should take advantage of to ensure their business is in the best place to succeed.
In this article, we’ll discuss the importance of e-commerce KPIs and tackle which ones you should keep track of so that you utilize the power of analytics to the fullest.
Why is it important to track e-commerce KPIs?
You’ve probably heard of the adage “knowledge is power”, and that statement still holds today. In a competitive landscape like e-commerce, having more knowledge is a huge advantage. When you track e-commerce KPIs, you’ll be able to make data-driven decisions instead of relying on your gut instincts.
The last thing you want as an entrepreneur is to make ill-educated decisions. You can’t rely on personal preference or intuition when making a business choice as you’ll be prone to costly errors. That’s why KPIs exist; to help you make confident choices that will help your business grow.
Another reason why it’s important to track e-commerce KPIs is you get to know what’s working and what isn’t. Over time, you’ll be able to identify patterns in your business and allow you to make the correct adjustments. KPIs help you build upon your success and even save a failing e-commerce business from complete downfall.
As the great Peter Drucker once said, “What gets measured gets improved”. While tracking KPIs is a time-consuming task, it will pay off in the long run. You’ll have a better understanding of how to run your business strategically and sustainably.
How do you know which e-commerce KPIs to track?
It’s easy to get lost in a sea of numbers when you’re tracking e-commerce KPIs. There are a lot of different metrics you can keep an eye on, but not all of them are useful. So, how do you know which KPIs to keep track of your business? To provide meaningful information, a KPI should have these five key characteristics:
- Impact – Each KPI you track should contribute to your bottom line and help you achieve your goals. When choosing a metric to track, ask yourself the question, “How will this KPI affect my business?” From there, you’ll know whether the metric is worth tracking or not.
- Measurability – The best KPIs to track are the ones that are easily measured. People tend to complicate analytics, but in reality, the simplest ones are often the most beneficial to your business. By measuring data accurately, you’ll have a solid idea of how well your business is performing.
- Relevance – If you want KPIs to work to your advantage, you need to identify the relevant metrics. For example, a marketing team should focus on web analytics while an executive should focus more on ROI above all else. The metrics you track should be relevant to your current business objectives.
- Actionable – Lastly, KPIs should help you determine which steps to take. A good KPI provides objectivity and paints a clear picture of your business. Actionable KPIs are the ones that will contribute the most improvement to your online store.
- Predictive – One of the main reasons to track KPIs is to project correlations. An effective KPI indicates progress. Predictive metrics help you make intelligent decisions and create better outcomes for your business.
Now that you know the qualities of a good KPI, it’s time to get specific with the metrics that you need to track.
Five of the best e-commerce KPIs to track
According to ScienceDirect, you’ll want to stick to as few KPIs as possible. Analyzing too many KPIs can become confusing and make it challenging to track growth. With that in mind, here are five of the best e-commerce KPIs to track.
1. Conversion rate
The first thing you need to look at is your conversion rate. This metric refers to the effectiveness of your landing pages and your call-to-action (CTA) strategies. Your website plays a huge role in the success of your online business, and you want to make sure you’re encouraging people to buy your products.
Conversion rate is all about how many site visitors take action when they’re on your website. Whether it be purchasing a product or signing up for an email newsletter, you want to convert your leads into a sale or potential sale down the line. That’s why you need to identify your conversion rate so that you can make the most out of your site visitors.
The average conversation rate is around 2.90 to 3.30 percent of your monthly site visitors. If your numbers are below average, you may need to tweak your CTA or SEO strategies to increase your conversion rate.
Even the smallest of changes can lead to huge gains when it comes to your conversion rate. For example, if you have 10,000 site visitors and convert 2.5 percent of them to buy a $50 product, you’ll earn $12,500. Increasing your conversion rate by just 0.5 percent will net you $2,500!
2. Customer acquisition cost (CAC)
Customer acquisition cost is another key metric that you should track religiously. Why? Because it lets you know how much you’re spending to “buy” a customer. Say you spend north of $2,000 on your marketing efforts and acquire 50 new customers. Your CAC will then be $40.
Building an effective marketing strategy is not about how much money you can spend. It’s about utilizing your marketing dollars wisely. Analyzing your CAC will help you develop a sustainable customer acquisition strategy now and in the future.
Your goal should be to keep your CAC as low as possible. Don’t spend on unnecessary marketing gimmicks that don’t deliver the results you need. Instead, focus on tried and tested methods to acquire new customers without spending too much money.
3. Average profit margin
For a business to become successful, it must identify its products that generate the most profit margins. Comparing profit margins between products give you a good idea of which products and categories are the most profitable in your business. This is where your average profit margin comes in. By tracking this KPI, you’ll be able to determine the products that put your online store in the best position to succeed.
Average profit margins also help you cut your losses early. Whether it be a failed product or an expensive production cost, identifying low-margin products is crucial to maintaining profitability in your business. As the saying goes, “It doesn’t matter how much you make, it matters how much you keep”.
Average profit margins vary from business to business, but the recommended for e-commerce stores is around 40 percent. So whenever you evaluate your margins, make sure it hits close to the 40 percent mark for maximum profitability.
4. Cart abandonment rate
Cart abandonment is exactly what it sounds like. This metric refers to customers leaving products in their cart and not checking out. Why does this matter? Because it negates all the effort you’ve put into getting customers to the checkout process. A high cart abandonment rate means customers lost interest in the product and are looking for other alternatives.
Other reasons contribute to a high cart abandonment rate. Things like shipping issues and incorrect pricing are the most common reasons. In some cases, shoppers leave items in their cart because they’re just looking or searching your store.
One way to address high cart abandonment rates is to eliminate surprise costs. That way, customers are encouraged to check out the product with the exact price they have in mind. You can also include email retargeting as part of your online strategy to remind customers of the items they’ve left in the cart.
5. Average order value (AOV)
Average order value is a metric that tracks how much a customer spends on average in your store. It’s a crucial KPI that you need to track to maintain the profitability of your business. Knowing your AOV will help you create a sound pricing strategy and reduce your cart abandonment rates. By getting customers to spend more, you can combat high CAC rates while generating revenue.
Tracking your average order value is simple. You just divide the total revenue by the total number of orders. For example, if you generated $20,000 revenue from 150 sales, your AOV is $133.3. There are multiple ways to increase your AOV, with some of the most popular options being cross-selling, coupons, free shipping, and upselling.
Tracking key performance indicators is a must for any e-commerce business. But you shouldn’t just track meaningless numbers. You have to identify the right metrics that will provide meaningful insights to your business. From there, you evaluate the numbers and take action accordingly.
The best e-commerce KPIs to track are the ones that paint a clear picture of how your online store is performing. The more effort you put into analyzing key data, the more optimized your e-commerce store will run.
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