When it comes to running a thriving e-commerce store, there are a seemingly endless number of tasks to master. At once, you have to be a marketer, an accountant, a sales professional, an operations manager, a shipper, and more.
If you’re running your business with a skeleton crew (or just yourself), it’s vital that you manage these tasks as efficiently as possible to maximize your outputs and profits. So, how do you know if you’re managing your business properly? You measure important KPIs.
What is a KPI?
A KPI (key performance indicator) is a measurable value that represents some important metric within your e-commerce business. In short, it’s a snapshot of how well some process is working within your site or business. KPIs can measure revenue, profits, customer satisfaction, email open rates, and more. If you want a deeper understanding of something within your business, there is likely a KPI that can capture it.
High-level KPIs measure the overall success of your e-commerce operation. Think of them like you would a 10K report for a large corporation. These measurements tell you things like your annual revenue and income, total COGS (cost of goods sold), annual growth, etc.
Low-level KPIs can measure individual pieces of your business that, when combined, make a big impact on sales or income. These are often tied to a single website mechanism or a single employee’s actions. They should be monitored for any big red flags, but are less important than your big picture KPIs.
Types of KPIs
Every KPI in your e-commerce store will fall into one of five categories:
- Business KPIs: These KPIs measure your long term goals. For instance, is your company growing? How quickly? What’s your current ROI? These are high-priority KPIs and should be measured regularly.
- Financial KPIs: Financial KPIs measure how well you’re doing in terms of revenue and profit generation. They examine where your money is going so you can better allocate funds in the future.
- Sales KPIs: Sales KPIs specifically measure sales, including how much each sale costs, how many sales your store makes in a month, and more.
- Marketing KPIs: Marketing KPIs measure the effectiveness of marketing efforts. Use marketing KPIs to measure email open rates, site bounce rates, website traffic, etc.
- Project Management KPIs: Finally, project management KPIs measure specific projects and their effectiveness at reaching larger goals. If you launch a new Facebook marketing strategy for your store, project management KPIs will collectively tell you if the effort was worth it or if you should accept the sunk cost and move on.
Developing SMART KPIs
You’ve likely heard of making “SMART” goals. SMART goals are goals that are specific, measurable, attainable, relevant, and within a time-frame. Measuring your KPIs in January is pointless if you don’t plan to compare them to your KPIs in April. Planning to hit a specific revenue goal is wasted if it’s unattainable. Keep these goals in mind as you dig into your e-commerce store’s metrics.
Which KPIs Should I Measure?
Now that you fully understand how KPIs work and why you need them in your business, let’s dive into the specific KPIs you need to measure as a store owner. Every e-commerce store is different, and you’ll learn as you go which metrics matter most to you, but these are the most important KPIs we believe every store-owner should understand and implement.
Site Visitors: Simply put, without consistent traffic to your site, you won’t make any sales. If your site visitors KPI is low, your efforts should go into driving traffic to your site before you focus on anything else.
Conversion Rates: These could be the conversion rates of prospects to leads, leads to sales, sales to return sales or site visits to referrals. In short, determine the marketing actions you are taking to drive business to your site and analyze whether or not those actions are effective. Conversion rates are available inside your e-commerce store’s metrics page.
Customer Retention Rates: Your customer retention rate can tell you a lot about your store and your customer service. A high CRR is a positive sign because it’s more expensive to get a new customer than to keep an old customer. It’s a good indicator that you can ask for testimonials and referrals - and likely get them. It’s also a good indicator that money spent on retargeting and direct email marketing is yielding solid returns. Low CRRs mean that you have unsatisfied customers - or at least customers who weren’t overjoyed with their purchase. Don’t write off these customers. A low CRR is a good reason to reach out to your customers and ask for honest feedback about your store. See this as an opportunity to improve and attempt to make amends with lost customers. To calculate your CRR, take your number of return customers and divide it by your total number of customers.
Average Order Size AND Customer Acquisition Cost: The Average Order Size (AOS) tells you how much each customer spends, on average, on your products. The Customer Acquisition Cost (CAC) measures how much you spend per customer to get them into your store. For instance, how much marketing money are you spending to take them from discovery to sale? If the CAC is higher than the AOS, you’re losing money. All of your operations should aim to push the CAC down and the AOS up. To calculate the AOS, add up the total revenue from last year and divide it by the total number of orders. To calculate CAC, add up the total number of customers and divide it by the total amount spent on marketing.
Bounce Rate: The bounce rate shows how many visitors leave immediately after opening the page. Bounce rates below 40% are considered good. If your bounce rate is hovering between 50%-60%, you should look at why this is. Is your site confusing? Unattractive? Is there a lack of symmetry between the funnel leading to your site and the site itself? If your bounce rate is higher than 60%, you should consider hiring a professional to review the site to see what’s causing the lost traffic. But keep in mind, every site is different. For an e-commerce store selling a very niche product, a high bounce rate is to be expected. You can find your bounce rate within your e-commerce store metrics data.
Cart Abandonment Rates: About 76% of shopping carts are abandoned. Learn what yours is and then actively work to decrease it. Some of these lost sales can be recaptured with a simple cart reminder email. (Since many carts are abandoned because people get busy.) You can also create a targeted email campaign to bring people back to the cart, reframing the offer to make it seem more affordable or offering bonuses to get people to take action. More important than the initial abandon rate is the shift in the rate relative to your marketing efforts. Work to bring the number down. You can find your abandoned cart rate within your e-commerce site, like inside Shopify. If you use a separate email server for your email marketing, you can find it in your analytics data.
Gross Margin: Your gross margin is your total value minus the cost of goods sold. This needs to be as low as possible to continue making a profit and growing your e-commerce store. To find it, calculate the average amount paid by your customers per product, and minus the average cost of production.
We know it’s daunting to start tracking your KPIs and working on growing your business. If you don’t know where to start, we recommend you start with these metrics and branch out as necessary. And remember - the point of reviewing your KPIs is not to just know your business metrics, but to improve them over time. At DataCue, we can help improve your KPIs by showing your customers exactly what they want to see when they land on your website.