Ecommerce is a cutthroat industry, and it’s only getting more competitive. The pandemic drove sales and revenues to experience ten years’ worth of growth within just three months, and there’s no sign that the trend is reversing, but that doesn’t necessarily make it easier for individual eCommerce businesses.
Online retailers are struggling as competition climbs while loyalty plummets. Online shoppers are easily swayed by issues like price and delivery speed, as well as larger concerns like customer experience and support, so there’s never a time when it’s safe to rest on your oars.
Against this backdrop, data analytics are pivotal to eCommerce success. You need to know whether sales are going up or down, where most of your traffic is coming from, which segments of your audience spend the most money or are the most loyal repeat customers, and more.
But data analytics, in turn, can’t exist in a vacuum. You need to track and store the right eCommerce metrics for your analysts to crunch – otherwise, you won’t be able to work out what you’re getting right (or wrong) and identify what needs to change to improve revenue and profits.
Each company might have different metrics that matter the most to their business goals, but there are some that pop up again and again as critical for successful data analysis. Here are three business performance metrics that every eCommerce business should track to produce reliable and meaningful data-based insights.
Average order value, or AOV, means the average amount that is spent on each order placed on your website or mobile app. It’s an excellent way to track income because it divides your income by order, so it focuses on revenue per transaction rather than the number of transactions or number of dollars you bring in.
Sales volume can be deceiving; perhaps you are making a lot of sales, but each one is for relatively low amounts. AOV gives you a clearer picture of your income trends.
AOV helps data scientists to inform important decisions at eCommerce companies, like whether to raise or lower prices or to pivot marketing towards attracting higher-paying customers. Low AOV could be a sign that you need to raise the minimum order value to qualify for free shipping, encourage shoppers to add a few more items to their cart or create higher value bundled offers so as to nudge customers to spend a little more on each order.
AOV is also an important metric for calculating costs and expenses. For example, if your AOV is high but your overall profits are low, it could be a sign that your firm is spending too much on acquiring each customer. Only the data can tell you for sure. This brings us to our next metric.
Customer acquisition cost, or CAC, measures the amount you spend to attract each new customer. You can calculate it by dividing your total marketing spend by the number of new customers in a given period.
CAC is an important way for you to track the success of your marketing and decide how much you’re willing to spend on it. If your CAC is too high, it could make it difficult for you to make a profit, especially if your AOV is also low.
But it’s important to remember that high customer acquisition costs aren’t necessarily a warning sign. If your customers are high-spending and loyal, then it can be worth it to spend more on attracting each one. On the other hand, it would be a mistake to spend too much to bring in new customers who churn quickly and place low-value orders.
Your eCommerce company’s profit margins might vary dramatically from one product to another, so using profits to determine CAC thresholds is tricky. However, by limiting your analysis to only the most popular products on your site, you can gain some useful insights.
You’d also expect new businesses to see higher CAC rates than more established businesses because they don’t yet have an established customer base or widely-known reputation.
The conversion rate is the percentage of people who carry out a specific action. It could be signing up for your email newsletter, clicking through to the “new collection” space of your online store, or completing a purchase.
It’s up to you to decide which conversions to track, but the most common eCommerce conversion rate metric is transactions per session, or to put it another way, what percentage of visits to your website result in a sale.
Your conversion rate is critical for guiding your marketing strategies, including your spending on paid ads and other forms of paid marketing. If your conversion rate is low, that could mean that you’re not targeting the right keywords for SEO, or you’re defining the wrong audience for paid social ads because the people who come to your site aren’t looking for the products you’re selling.
Conversion data also inform any experiments you might make to try and optimize your web page designs for maximum sales. To get even more sophisticated with these efforts, it’s a good idea to segment the data by traffic acquisition channel, so you can correlate the conversion rate per landing page design with what the audience was looking at prior to clicking through.
The right business metrics are your eyes through the murky and crowded waters of eCommerce, so it’s vital that you make sure you have the right ones. By tracking average order value, conversion rate, and customer acquisition cost, you’ll have a bank of critical data that you can use to run data analyses and gain deeper insights into your online store performance, and boost your bottom line.