KPI’s are a vital part of your e-commerce business. They help you to understand how well your store is performing and what areas need improvement.
If you don’t have a KPI strategy in place for your business, it can be difficult to make informed decisions about where to spend your marketing budget and how to improve your store’s performance.
In this post, we’ll look at why Ecommerce KPIs are critical for businesses so that you can start focusing on the right metrics for your business.
Why Ecommerce KPI’s Are Critical In Your Business
1. KPIs Make Business Planning Easier
When you have a clear idea about what to expect from your business, it becomes easier to plan and make informed decisions. You can schedule marketing campaigns or initiate sales promotions based on past performance or expected trends. That’s one of the reasons why Ecommerce KPIs are critical for businesses.
2. Tracking KPIs Helps You Make Better Decisions
Keeping track of your KPIs allows you to make better decisions about your business in the future. For example, if your website traffic decreases, you know you need to make changes to increase traffic again. Or maybe your sales revenues have been declining over the past few months. In this case, it might be worth looking into new ways of generating sales leads or improving customer service. The point is that knowing what works and what doesn’t helps you make better decisions about your business going forward.
3. KPIs Provide A Snapshot Of Your Business Performance
KPIs provide a snapshot of how well your business is doing in revenue or profit generation. Tracking them gives you a better understanding of how your company performs over time, which helps you take action when necessary. You can also use them as an indicator of future performance based on past results to make predictions of certain events or decisions that will affect your business operations in one way or another (e.g., marketing campaigns). This helps you make better decisions about where to focus your efforts to produce more results.
4. KPIs Help You Identify Opportunities For Improvement
If there are certain areas where your store falls short of expectations, then it might be time for some changes. For example, if many customers abandon their carts before making a purchase, something isn’t working in your checkout process or pricing strategy. You can use this insight to fix these issues and improve sales conversions.
The Most Important Ecommerce KPIs to Track
A KPI is simply a metric that measures how well something is doing. It helps you to understand whether or not an action or process is successful and whether or not it needs improving. Here are some key performance indicators (KPIs) that you should be tracking if you want to be successful at ecommerce:
1. Average Order Value
Average Order Value (AOV) is the average amount spent by a customer on one order. It is calculated by taking the total revenue generated from sales and dividing it by the number of orders placed at a specific time. This metric provides an insight into how much each of your customers spends on average when they buy products from your e-commerce store.
2. Customer Lifetime Value
Customer lifetime value is the total profit a single customer generates throughout their relationship with your company. CLV is calculated by multiplying your average purchase frequency by your e-commerce business’s AOV. Take the number you just calculated and multiply it by the average customer lifespan for your business. CLV provides insight into how much revenue every customer will bring to your e-commerce business.
3. Abandonment Rate of the shopping cart
Shoppers who added at least one product to their cart but did not complete the checkout process are considered to have abandoned their carts. Up to four in five online shoppers fail to submit their payment information after adding products to their shopping carts, according to statistics from e-commerce websites. You can calculate this KPI manually by dividing the number of orders generated by the number of carts created and multiplying that by 100.
4. Gross Merchandise Value
GMV refers to the total value of all products sold within a specified period of time. Month-to-date (MTD), quarter-to-date (QTD), or year-to-date (YTD) are the three ways to measure it.
5. Conversion Rate
For e-commerce businesses, this KPI is crucial because it shows the percentage of visitors who buy something from your site. A low conversion rate indicates that shoppers are not making purchases from your e-commerce website.
Depending on your e-commerce website’s requirements, you can calculate conversion rates for the entire site, individual product pages, and specific traffic sources, such as pay-per-click (PPC) and organic search traffic. Divide your website’s orders during a specific period by the total visitors and multiply this by 100 to calculate the conversion rate.
6. Return
E-commerce businesses face the challenge of processing returns, which is time-consuming and exhausting. Studies show that 30 percent of all products bought online are returned. E-commerce businesses can track return rates to determine what percentage of their customers return orders. You can calculate return rates by dividing the total number of returns by the total number of sales orders generated during a particular period. Multiply by 100 to get the percentage.
7. Customer Acquisition Cost
Customer Acquisition Cost measures how much it costs to gain a new customer for your e-commerce business. Your business’s CAC is calculated by adding up all your marketing and sales expenses during a specific period and dividing it by the number of new customers you acquired. Ideally, your CAC should be lower than your CLV. Overspending on marketing and sales results in a higher CAC than CLV. You will generate more revenue through e-commerce when your CAC is lower than your CLV.
Summary
KPIs are essential to e-commerce businesses because they provide a way to measure progress and identify areas of improvement. Without KPIs, businesses would have no way to track their performance or assess their progress. KPIs are also critical for making decisions about where to allocate resources. In short, KPIs are a critical part of running a successful e-commerce business.
