All successful e-commerce campaigns are data-driven.
There are dozens of ways and tools that capture insights about customer’s behavior. Yet, not all brands leverage the full potential of the information they have on their hands to build an efficient growth strategy.
How do you make sure you make the most out of the data customers leave on the website? Metrics help e-commerce developers understand what the turn-offs that stop visitors from checking out are.
In this post, you’ll find out how to measure the success of an e-commerce store with a full guide for becoming a pro in analyzing CLV, CAC, ad views, and other e-commerce success metrics.
Business owners can often confuse metrics and key performance indicators (KPIs), as the two are often mentioned together. The difference is subtle. However, it’s crucial to understand the context both terms are used in.
Metrics vs. KPIs
Metrics are the data points that, despite giving insight into the success of your business processes, are not the crucial indicators of a company’s performance.
The number of page views is a metric; it helps evaluate the efficiency of content marketing but is not directly connected to conversions.
A KPI, on the other hand, is a metric that reflects a business’ financial or reputational performance. These statistics give company managers an understanding of how close the team is hitting performance benchmarks and achieving goals.
The number of free trials is a KPI; it directly contributes to lead generation and increasing the revenue.
Top 7 metrics for evaluating e-commerce business success
Choosing the right metrics helps business managers prioritize marketing activities, increases awareness of lead generation bottlenecks, and understand the pace at which a company is reaching its goals.
There are dozens of benchmarks e-commerce companies can track. Analyzing metrics and building a big picture view of the business’ performance is time-consuming; that’s why we narrowed the list of data points to track to 7 performance indicators.
Here are the metrics that will give you an understanding of how efficiently you’re running a business.
1. Customer lifetime value (CLV)
Customer lifetime value is the number of money users spent since their first purchase.
Why CLV is important
The metric helps business owners understand how well they are connecting to customers, brings insight into the target audience’s average income, and helps estimate how much an average shopper is willing to pay for a product.
How to calculate CLV
CLV = Total Revenue / Number of Customers
How to use the metric
Usually, business managers use up to 30 percent of CLV for customer acquisition. For every $100 of value, you will be able to invest 30 percent to get new clients.
How to increase customer lifetime value
Create segmented email and social media campaigns to encourage one-time customers to visit an e-commerce store again.
Offer cheap goods that complement your main product line to improve customer retention.
Send ‘thank-you’ emails after every purchase.
Follow up on one-time customers, encouraging them to visit the website again.
2. Customer acquisition cost (CAC)
Customer acquisition cost calculates how much you spent for every first-time purchase. To achieve financial feasibility, you have to make sure that the company’s CAC is as low as possible.
Why CAC is important
Business managers use multiple e-commerce distribution channels and marketing mediums – social media, email, PPC ads, TV ads, and so on. Some of them might be cheap and efficient while others could be draining the company’s budget with no return.
Calculating customer acquisition cost per marketing channel helps business managers track the efficiency of all promotional activities.
How to calculate CAC
CAC = Total Acquisition Costs / Total New Customers
How to use CAC
The recommended CAC value is 30 percent of customer lifetime value. Usually, marketers calculate acquisition cost per promotion channel (Facebook, Google Adwords, email marketing, etc.).
How to reduce CAC
Revisit your target audience. If getting new clients is too expensive, chances are, you’re looking in the wrong places.
Prioritize marketing activities. Find out which channels are the most efficient for your business and focus on leveraging their potential. Similarly, stop investing in marketing activities that don’t deliver a consistent stream of affordable leads.
Improve your website. Chances are, your leads don’t turn into customers because the website navigation is too convoluted, the check-out takes too much time, or the product selection is to narrow. A/B testing your website’s interface and increasing its usability is likely to lower CAC as well.
3. Customer retention rate (CRR)
A customer retention rate shows how many customers leave repeated orders after the first purchase.
Why customer retention rate is important
Low CRR is a warning sign that could indicate poor quality of the product or customer service.
By failing to retain customers, you lose the possibility to build a dedicated audience and increase the company’s revenue.
How to calculate CRR
CRR = Customers With More Than One Order / All Customers * 100
How to use CRR
In most industries, the retention rate of 25 percent is quite high. For some industries, like sales-as-a-service (SaaS), the rate of 35 percent is an average estimate.
How to increase customer retention rates
Avoid overselling. Keep in mind that skyrocketing customers’ expectations will lead to dissatisfaction and no desire to come back for the next order. If a prospect is looking for the set of features your product can’t provide, don’t hesitate to mention it in negotiation.
Think long-term. Let the customer know that you have a framework for a long-term collaboration. Explain what tangible improvements and results a client can achieve if they stick with your business for a while.
Stay active on social media. Keep in contact with clients by running a social media community. Seeing the updates from your brand in the feed, customers are more likely to come again for purchase.
The average order value shows you the size of your customers’ average cheques. It is a useful metric for getting to know the financial status of your target audience and seeing how much a shopper is willing to spend on your product.
Why AOV is important
Knowing your company’s average order value gives managers insights on how to improve pricing strategies and encourage shoppers to leave with full carts.
How to calculate AOV
AOV = Total Revenue / Number of Orders
How to use average order value
High order values are different across industries; you will need to decide for yourself if your AOV corresponds to your company’s goals and benchmarks.
Be sure to compare the average order values on a monthly basis to see if the company is reliant on seasonal trends and optimize marketing activities accordingly.
How to increase the average order value
Gradually increase product costs. Launching an expensive limited line while running cheaper products is one of the ways to do it without losing the brand’s core audience.
Cross-sell. Create special deals like ‘Get two items and save $10’, launch a recommendations reel on your website, and send emails that offer complementary products to one-time customers.
Increase order value. By leveraging positive customer reviews, you will raise the interest in the product, along with its value. E-commerce website visitors will be more inclined to pay for expensive products if they are highly rated.
5. Refund and return rates (RrR)
Product returns are common for e-commerce stores. Sometimes, a customer gets a product as an impulse purchase and, after giving it a second thought, returns it. There are cases, however, when shoppers are disappointed in the quality of the product and have no other way out than to return it.
Why refund and return rates are important
For e-commerce managers, high return rates are a warning sign. You are either targeting the wrong audience, positioning your product the wrong way, or don’t follow the best manufacturing practices. Tracking the metric gives product managers the possibility to see room for improving the line.
How to calculate RrR
RrR = Order with returns / Total returns * 100
How to use the metric
Amazon and other big e-commerce giants consider a 10 percent return rate normal. When tracking return rates, try to find the root cause of the problem (for example, an acquisition channel that generates customers who ask for refunds, wrong positioning, overly high expectations, etc.).
How to reduce refund and return rates
Improve the process of choosing. Clothing retailers, for one thing, can create size guides to help shoppers choose a fit model. Using advanced technologies, like augmented reality, helps customers choose furniture, makeup products, cars, and most products.
Add an image reel to each product description. This way, prospects can regulate their expectations and get a better understanding of the product.
Ask the customers who return products for reviews. This way, you will be able to see ways to improve an item, its positioning, or marketing campaigns.
6. Cart abandonment rate
Cart abandonment rate is a metric that shows how many customers leave the website without completing the checkout.
Why the cart abandonment rate is important
High cart abandonment rates are the red flags that prove a need to reorganize website navigation, shorten the check-out process, and encourage users to complete purchases every step through the customer journey.
How to calculate cart abandonment rate
Cart abandonment rate = Total Number of Orders / Total Number of Visitors Who Added Items to the Cart
How to use the metric
An average cart abandonment rate is around 55 percent. If the value exceeds 70 percent, e-commerce website developers have to improve the website interface and reduce response time. Consider providing customers with risk-free purchases (for example, money back guarantees, return policies, and so on).
How to reduce cart abandonment rate
Includea step-by-step guided instruction. An indicator helps website visitors to see how much time is needed to complete the checkout.
Remindcustomers of their orders as they fill the checkout form to keep the interest of the purchase alive.
Offerseveral payment methods so that customers can check out on their terms.
7. Conversion rate
Conversion rate is a key performance metric for e-commerce stores, as it proves how well you manage to convert website visitors into customers.
Why conversion rate is important
It’s crucial to track conversion, as it helps understand if your promotion efforts pay off. If, out of all e-commerce traffic, less than 1 percent place orders, you’re probably aiming at the wrong audience, failing to produce compelling content, or the user experience is too complicated to complete check-outs effortlessly.
How to calculate conversion rates
Conversion rate = Number of customers / Number of unique visitors * 100
How to use the metric
An average conversion rate in e-commerce is around 1.5 percent. Keep in mind that, for B2B businesses, an average conversion rate can be as high as 30 percent – thanks to a narrower and a dedicated audience. It takes experience and domain knowledge to determine an optimal conversion rate for your business.
How to increase conversion rate
Optimizethe mobile experience to ensure tablet and smartphone visitors are comfortable during the checkout.
Run remarketing campaigns to reach shoppers who abandoned their carts.
Use funnels to find out at which stage of the customer journey you’re losing a prospective client.
Capturing and analyzing e-commerce metrics is a way to stay focused on your goals and e-commerce marketing plans. Paying attention to performance indicators helps business managers ensure they run efficient marketing campaigns, follow the best usability trends and practices, and know the target audience well enough to build a deep connection.
Keeping track of metrics is a time-consuming task. Having said that, it improves the accuracy of planning, task allocation, and increases revenue in short time frames.
Read what users have to say about financial analysis software to see which platform is the right step to help evaluate your e-commerce metrics.
Anastasia Stefanuk is a passionate writer and Information Technology enthusiast. She works as a Content Manager at Mobilunity, a provider of dedicated development teams around the globe. Anastasia keeps abreast of the latest news in all areas of technology, Agile project management, and software product growth hacking, at the same time sharing her experience online to help tech startups and companies to be up-to-date.