Decoding Ecommerce KPIs: Your Guide to Measuring Online Business Success

A key performance indicator (KPI) is a primary indicator that shows how well an ecommerce business or other organization is performing against its primary business goals. Ecommerce KPIs ensure that the business keeps tabs on important metrics.

Without KPIs, entrepreneurs and business leaders would have to resort to personal preferences, intuitions, estimates, luck, and other unreliable assumptions. When things go good or bad, they won’t know why.

Ecommerce Metrics and Ecommerce KPIs

E-commerce metrics evaluate the performance of specific processes while e-commerce KPIs monitor progress toward the company’s most important goals.

An online store can potentially track thousands of metrics – no online business has the financial, operational, and human resources to monitor every possible metric.

Ecommerce KPIs are the metrics that best highlight overall store performance and goals. KPIs are often created by combining two or more metrics (metrics can be ecommerce KPIs in their own right).

For example, conversion rate is the number of online sales divided by the number of unique website visitors.

Here are some of the most important KPIs in three major aspects of e-commerce business operations:

Sales

• Overall sales (also total sales, total revenue or turnover) – The money the company received from sales. This is usually a day, a week, a month, a quarter and/or a year.
• Cost of Goods Sold (COGS) – Also called cost of sales, this is the total costs of the e-commerce business. This encompasses production, marketing, operations, salaries, etc.
• Gross profit – To calculate gross profit for a specific period, deduct the total cost of goods sold from the total sales.
• Net profit margin – How much profit does the store make from the revenue it generates. Net profit (also called bottom line) is calculated by deducting COGS and taxes from total revenue. Net profit margin is net profit divided by total revenue.
• Average profit margin (also average margin) – The average margin over a specific period of time.
• Average Order Value (AOV) – Average value of a customer’s order. To calculate average order value, divide the total revenue by the total number of orders. It can be tracked over any time period, but most companies monitor average order value on a monthly basis.
• Average order size (also average market basket) – Sometimes used interchangeably with AOV but does not mean the same thing. Average order size is the average number of items in a sales order. To determine the average order size, divide the total number of items sold by the total number of orders.
• Add to Cart – Percentage of store visitors who place items in their cart. It is calculated by dividing the number of sessions in which items were added to the cart by the total number of sessions.
• Cart abandonment rate (or cart abandonment rate) – Determines the number of visitors who place items in the cart but leave before completing the transaction. Cart abandonment rate is calculated by dividing the number of completed transactions by the number of carts created. A high abandonment rate could signal a problematic checkout process.
• Conversion rate – The percentage of store visitors who purchase or take other recommended actions such as subscriptions, signing up for a newsletter, joining a loyalty program, pressing a button, clicking a link or followed by a social media page. To calculate the conversion rate, divide the number of conversions by the number of store visitors. What constitutes a good conversion rate varies depending on the type of products the store offers. That said, ecommerce conversion rates are typically between 2-3%. Anything below 2% could be cause for concern and should warrant investigation to establish the root cause and corrective actions that could potentially improve the low conversion rate.
• Customer lifetime value (CLTV, CLV or LTV) – Average net profit a customer is expected to bring to the store over the life of the relationship. This is actually the total value of a customer to the business. Customer lifetime value is determined by multiplying the average order value by the average number of times a customer purchases each year by the average customer retention period in years or months.
• Customer retention rate – Percentage of customers who continue to purchase from the store over time. This could be measured by quarter, year or more. To calculate it, subtract the total number of new customers acquired from the total number of customers and divide by the total number of customers at the beginning of the period.
• Customer churn rate – The rate at which customers stop subscribing to a service or plan. To calculate churn, divide the number of subscribers lost by the number of subscribers at the start of the period.
• Repurchase rate (RPR) – The number of customers who purchase more than once from the store. Loyal customers are an important indicator of product value as well as customer satisfaction and loyalty.

Marketing

• Customer acquisition cost (CAC) – The cost of “purchasing” a customer. Customer acquisition cost is calculated by dividing the total money spent to acquire new customers by the total number of new customers acquired. CAC combined with CLV is one of the most widely used techniques to determine whether a store is operating efficiently.
• Return on Ad Spend (ROAS) – A measure of advertising return on investment. This is the amount the store earned from money spent on advertising. The cost of advertising would cover everything from social media ads to search engine ads. To establish ROAS, divide the sales revenue generated by advertising and marketing campaigns by the cost of the campaigns.
• Website traffic – The number of visitors to the store. This is usually tracked monthly. Google Analytics is arguably the most accurate way to track ecommerce site traffic. Website traffic can be broken down into new visitors, returning visitors, and total visitors.
• Origin of traffic – The different channels where website traffic comes from. Default groupings include organic search (primarily through search engine optimization (SEO)), paid search, social media, email marketing, referrals, direct, and others. This data is available in Google Analytics. If the store invests a lot of ad spend on one channel but gets little traffic from it, it may be necessary to redistribute the spend.
• Click-Through Rate (CTR) – The number of people who clicked on an ad leading to a landing page or website, as a percentage of the total number of people who saw the ad. CTR is a measure of the success of a store’s digital marketing campaigns, including ads and calls to action (CTAs).
• Average time on site (or average session duration) – Average time users spend on the e-commerce site during a single visit before leaving. This statistic is available on Google Analytics. The more time visitors spend in the store, the deeper the engagement with the brand is likely to be. Average time on site as well as page views per visit and bounce rate are popular ways to determine the functionality, usability, navigability and stability of a website.
• Pages viewed per visit – The average number of pages a user will view each time they visit the store. Although more page views generally mean more interest and engagement, it can also mean that site visitors are having difficulty finding the articles they are looking for.
• Rebound rate – The number of users who visit a page but leave it without doing anything. Ecommerce stores do not need to manually calculate bounce rate as it is easily available on Google Analytics.

Customer service

• Customer satisfaction rate (or CSAT rate) – Indicates how satisfied an online retailer’s customers are with their shopping experience. This information could be obtained immediately after a purchase by allowing buyers to rate their user experience on a scale of 1 to 5. Customer satisfaction rating can be calculated in two ways. The first would be to add up all the scores and divide them by the total number of respondents. Another solution is to divide the total number of “positive” scores by the total number of respondents. The positive scores used depend on the scale used. On a scale of 1 to 5, positive scores correspond to ratings of 4 or 5. In other contexts, this might encompass all “Yes” responses or “Satisfied” and “Very satisfied” responses.
• Net Promoter Score (NPS) – Indicates a customer’s willingness to recommend the online store to people in their social circle. A measure of customer loyalty, NPS typically ranges from -100 (indicating extreme reluctance to recommend) to 100 (extreme willingness to recommend). Depending on their willingness, customers are classified into promoters (loyal and enthusiastic), passive (comfortable with the service but could change stores) and detractors (dissatisfied with the service).
• Success rate – The number of customers who contact support about a product. This allows you to highlight products that are difficult to understand or use. Calculate the success rate by dividing the total number of product sales by the number of customers who contacted customer service about the product.
• First Response Time (FRT) – How long it takes for a customer to receive a response from the customer service team after submitting a request. Faster FRT improves customer satisfaction, drives sales, and increases the likelihood of repeat purchases.
• Average resolution time – The average time it takes for the customer service team to resolve a customer issue.
• Active issues – The number of outstanding customer issues that have not been resolved at any given time.

Wrap

If a ecommerce store does not understand the results of his strategies, tactics and actions, he cannot develop and lead the business effectively. KPIs introduce facts, objectivity and benchmarks.