Now is a great time to be an eCommerce business owner.
Researchers expect 2.14 billion shoppers to hit the online streets this year, with eCommerce sales set to make up 22% of retail sales, totaling a whopping $6.54 trillion by 2023.
With demand this huge, there’s no limit to the number of opportunities out there for ambitious eCommerce entrepreneurs.
But how do you position your brand to not just sell but *profit* from the incredible growth in eCommerce?
Three words: the right KPIs.
With the right KPIs, you can shine a light on all areas in your business to reveal your biggest and most profitable strengths, and the areas that need a little work.
But if you’re the type of person that cringes at the mention of acronyms like AOV, CAR, and CLV, we get it. E-commerce KPIs aren’t exactly sexy, but they do have the power to transform your store into a conversion-generating machine, so it literally pays to know them.
To help you get a firm grip on the numbers you need to stay profitable, let’s roll up our sleeves and get into the powerful world of eCommerce KPIs.
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E-commerce KPIs: What We’ll Cover
- What Are E-commerce KPIs?
- Why You Should Care about Ecommerce KPIs
- The Top 8 E-commerce KPIs You Need to Track Right Now
- How to Supercharge Your Growth with the Right KPIs for E-commerce
- Let Your E-commerce KPIs Be Your Guide
What Are E-commerce KPIs?
Key performance indicators (KPIs) are quantifiable measures that enable you to see how well you’re achieving your company targets.
KPIs are different from metrics, which are calculable measures to monitor and evaluate the progress of a process in your business. Measures focus on units and are the figures in your business you can add, subtract, and average—like units sold, returned items, churn rate, order value, and margin.
When setting your KPIs, you need to go deep. With a metric, you want to go broad.
For example, say you own an ink company and have sold 15 out of 20 black ink cartridge units. The number of units sold is the measure that allows you to understand the value of the transaction. If the number of units is your measure, the metric could be tracking total sales on your website, and your KPI could be 100 sales of black ink cartridges per month.
(Note: It’s common to see the terms ‘metric’ and ‘measure’ interchangeably due to their similar definitions.)
Why You Should Care about E-commerce KPIs
When you pick the right KPIs and consistently work on improving them, you can rocket your business to new levels.
Let’s zoom in on some of the ways the right eCommerce KPIs can help you grow.
Stay on track and meet your growth goals 🎯
In this business, it’s easy to find yourself chasing multiple ideas at once. Before you know it, you’ve lost your focus and can’t work out which of your many goals add genuine value to your business. E-commerce KPIs put an end to these troubles by helping you prioritize which tasks are truly the most important to keeping your business on a firm and healthy path.
Make better business decisions 📈
KPIs can help you spot trends in your niche and store by analyzing the data you gather—helping you make the right decisions at the right time.
For example, say you run an Amazon business and from your KPI data you find average order value rockets when you run free delivery promotions. From this assessment, you could switch to free shipping as a standard to push your business toward its target revenue more quickly.
Quantify your progress ⚖️
Without a deliberate and objective effort to track your progress, it isn’t easy to know whether you’re headed toward (or away from) your goals. That’s where KPIs come in. They help you decipher which methods get your business real results and which ones are the dead weights you need to scrap.
Catch and resolve issues before they blow up 💣
Some business issues can seem like harmless annoyances on the surface, but deep down, they’re ticking time bombs.
Say you launch a new product in June and start to notice a dip in your gross margin figures (an eCommerce KPI) in the subsequent months. You may find the item isn’t selling after analyzing your data, but you’re still incurring its warehousing costs. You could then act by discontinuing the product, downsizing your warehouse space, or using it for another more successful product.
Motivate yourself to win 🏆
No matter how long you’ve been in the eCommerce game, there comes a point where you’ll need some encouragement. KPI milestones are a huge motivator to stay the course and show your efforts aren’t wasted.
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The Top 8 E-commerce KPIs You Need to Track Right Now
There are a ton of KPIs you can track in your business—but it can be difficult to know which are the best for measuring progress.
To make the process easier, here are the KPIs you will almost always need to track:
1. Customer Lifetime Value (CLV)
With CLV, you calculate the lifetime net profit from a single customer over your relationship’s duration. It’s important to reassess your CLV every 1-2 years.
Why CLV matters:
- CLV helps you understand your customers and reveals how well you’re retaining them.
- You can gauge how much money your business will produce from marketing activities.
- Allows you to allocate funds to each audience segment according to their revenue generation with greater accuracy.
Here’s the formula for calculating your CLV:
Customer Lifetime Value = Average number of transactions per month x Average Order Value x Average Gross Margin x Average customer lifespan in months / Number of customers in a chosen period.
Your CLV could look something like this:
2,000 x $40 x 0.30 x 24 / 500 = $1,152
2. Average Order Value (AOV)
This KPI tells you the average amount customers spend per basket in your store. It’s crucial to consider the Cost Per Conversion and Lifetime Revenue Per Visitor metrics in conjunction with AOV, as they help build an accurate picture of your business’ performance.
Why AOV matters:
- AOV helps you uncover buying patterns in your store, e.g., whether people are buying high-priced items in your store.
- It lets you know whether your marketing and pricing strategies produce results so you can optimize them.
- When you improve your AOV, you also boost gross profit and revenue, which are essential for growth.
The formula for AOV is:
AOV = Revenue / Number of orders
Here’s an example of what your AOV could look like:
$5,000 / 300 = $16.67
3. Cart Abandonment Rate (CAR)
CAR tells you the percentage of visitors that come to your store and start their purchase, but then jump ship without finalizing their order. This KPI is different from Checkout Abandonment Rate, where your site visitor exits the checkout process without paying for the goods after inputting their information.
Why CAR matters:
- It can point to friction in your checkout process, like trust issues or a complicated checkout journey.
- Your CAR will alert you if you need to change your shopper’s website journey and, consequently, helps boost revenue.
- Each customer that abandons their cart is a sale and (possibly) future sales lost, which can hinder your growth. CAR helps you avoid these losses.
The CAR formula is:
CAR = 1 – Number of transactions completed / Transactions started x 100
Your CAR could look like this:
(1 – (6,000 / 20,000)) x 100 = 70%
4. Return Rate
The return rate details how often customers send back items to your store after receiving them.
Why your Return Rate matters:
- Your return rate tells you the truth about whether your products are a hit or miss with customers.
- It can highlight issues with production, descriptions, or photos, which dampen sales.
- This KPI will help you spot repeat offenders that return items and hurt your margins so you can take appropriate action (e.g., Amazon bans customers that abuse their returns policy).
Here’s the Return Rate formula:
Return Rate = Number of refunds / Total fulfilled orders x 100
So, your return rate could look like this:
300 / 2,000 x 100 = 15%
5. Stock Levels
Stock levels, aka inventory levels, tell you how much stock you’ve got on hand in your business. Some sophisticated solutions can also merge with your entire supply chain to help you stay informed on how much stock you have inbound.
Why Stock Levels matter:
- They confirm which items are your best sellers or are slow movers, so you can tailor your marketing initiatives to improve sales for each category.
- Stock levels can alert you to stock purchase trends, e.g., busy periods unique to your store that occur outside of peak seasons.
- This KPI helps you maintain liquidity in your business by building optimal stock levels to service clients and avoid investing more into deadstock.
Here’s how you calculate your average inventory level:
Beginning stock + Ending stock / 2 = Average Inventory
Here’s what your average inventory might look like in practice:
20,000 + 10,000 = 15,000
It’s also a good idea to look at your inventory-to-sales ratio which quantifies the relationship between inventory value and total sales. Its main aim is to assess how much capital you’ve put towards stock compared to how much you get out of it through sales. The lower your inventory-to-stock ratio, the better you are at allocating cash to stock.
The formula for calculating your inventory-to-stock ratio is:
Average Inventory / Net Sales = Inventory-to-Sales
Which could look like this:
40,000 / 200,000 = 0.2
6. Churn Rate
This KPI indicates how many customers have left your brand or canceled their subscriptions.
Why Churn Rate Matters:
- Your Churn Rate is a key indicator of customer happiness and is an essential eCommerce KPI.
- It can bring your attention to problems in your customer journey that are costing you sales and referrals. Then you can use the data to improve and recover lost customers and revenue.
- It can highlight the business areas you’re excelling in so you can double down on them, i.e., you have an extensive customer FAQ section that prevents customers from ordering unsuitable products.
The formula for calculating your Churn Rate is:
Churn Rate = (Customers at the beginning of a period – Customers at the end of a period) / Customers at the beginning of a period x 100
Your Churn Rate could look like this:
(700 – 500) / 700 x 100 = 28.57%
7. Customer Acquisition Cost (CAC)
CAC helps you uncover how much it costs to get a new customer through your online doors.
Why CAC matters:
- CAC can be the difference between a product being profitable or not, so it’s critical to understand the marketing costs you incur in your quest to find new customers.
- CAC helps measure how effective and efficient your marketing campaigns are in securing new business.
- CAC helps streamline your decision-making based on cold, hard facts, i.e, which campaigns to cut and which ones to invest more in.
- It stops you from making doomed investments in marketing campaigns.
Here’s the CAC formula:
CAC = Cost of Sales + Cost of marketing / Number of new customers
For example, your CAC could look like:
$25,000 + $15,000 / 500 = $100
8. Gross Profit Margin
This KPI offers a financial health checkup to your eCommerce store. It tells you how much money is left in your pot after you’ve taken care of all the fixed and variable costs that go into producing your goods.
Why Gross Profit Matters:
- If your gross profit margin is unstable, it can signal bad products or management practices.
- Your gross profit margin will tell you whether your sales cover your costs. This info is critical because if a product can’t support itself, it disrupts your profits and can drag down other items in your catalog.
- Your gross profits are the first resource you use to scale your business and can even help you secure eCommerce funding, so you definitely want to optimize it wherever possible.
Let’s take a look at the Gross Profit Margin formula:
Gross Profit Margin = Revenue – COGS / Revenue
So, here’s what your Gross Profit Margin could look like:
$45,000 – $20,000 / $45,000 x 100 = 55.55%
How to Supercharge Your Growth with the Right KPIs for E-commerce
Now that you’ve chosen the right eCommerce KPIs, your next step is to implement and review them regularly to make sure you’re keeping your store on an upward trajectory.
Here’s how to know whether you’re meeting your targets:
Organize your KPIs (and results) into one document and check them regularly
It’s easy for goals to fall through the cracks when they’re in various files and documents.
Bring all your eCommerce KPIs into one editable document with change-tracking capabilities so you can whizz through your goals regularly and easily share them with your team.
Make your goals SMART
For best results, keep your KPIs aligned to SMART goals for your business.
As a recap, here’s what makes a goal SMART:
- Specific: State what you want to achieve in exact terms. Keep your goals simple but worthwhile.
- Measurable: Ask yourself how you’ll know you’ve met your goal. How many and/or how much of X do you need to achieve it?
- Achievable: No pie-in-the-sky targets around here! Your goal should be challenging, but you should have the means to reach them. Consider how to make your goals a reality.
- Relevant: Ensure your targets fit your business aspirations, and that they fit in well with your other projects and commitments.
- Time Specific: Nothing motivates people like a deadline. Set a date for when you want to see this goal come to fruition in stages. Define where you want to be in a month, 6 months, 1 year, etc.
Refine your KPIs
As time passes and you get more data, you may find your original goals and KPIs need updating.
For example, if a warehouse rebuild makes meeting a KPI impossible, don’t sit back and let your progress come to a standstill. Adjust your targets and strategy according to your findings, so you can continue to move forward and grow.
Take advantage of the full range of eCommerce KPIs
As your store grows it’s important to optimize your KPI strategy to meet its trajectory. Don’t be afraid to swap and drop KPIs as you go along.
For example, newsletter subscription and unsubscribe rates may not be relevant to you before you’ve built up a solid mailing list. But as your store—and your mailing list—grows, you’ll need to start tracking its progress.
Execute, execute, execute
E-commerce KPIs can revolutionize your store. But what are they worth if you don’t utilize the information?
Before you set out to establish some solid KPIs, ensure your entire team understands their importance and put measures into place to make sure you act on your findings. For example, you could schedule a monthly strategy session where you brainstorm ways to meet your KPIs.
Use teamwork and the right tools to streamline your data (and your workload)
You’ve already got your hands full with running your store, so resist the urge to take this task on alone. Ask your team to chip in, and use tools to do the heavy lifting. Think business intelligence tools, supply chain management solutions, and marketing analytics software.
Let Your E-commerce KPIs Be Your Guide
As you scale your eCommerce brand, the right KPIs will prove crucial to your success.
Evaluating business results against KPIs can help pinpoint any potholes in advance, so you can steer clear of disaster.
But remember to be flexible in your approach and be ready to change your KPIs if the circumstances call for it. And as you measure your store’s progress with the right KPIs for your brand, don’t be surprised if your business exceeds all you set out to achieve.
Remember, the time you invest in finding, implementing, and tracking your goals, will never be wasted. So don’t delay! Start researching which KPIs fit your store today and set your business on a profitable growth path for the future.
Ready to hit the next level in your business? Find out how SellersFi can help.
