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What are the most important KPIs for ecommerce businesses to measure?

What are the most important KPIs for ecommerce businesses to measure?

Dec 15, 2023
Checkout.com

As you grow your ecommerce business, you need to make sure it’s data – not hunches – driving the decision-making. Because the best online stores don’t scale by random guesses or intuitive ‘shots in the dark’ – they do so by using all the metrics at their disposal to understand what’s working, what isn’t, and where the biggest room for improvement lies.

Here’s where ecommerce KPIs come in.

These metrics will help you not only understand your store’s underlying numbers but also use them. To set realistic targets for ecommerce success and ensure your store’s performance aligns with your business’s broader commercial aims and ambitions.

So what are KPIs in ecommerce, and how can you go about selecting the right ones for your business? We’ll answer these questions below, then explore the 10 most crucial ecommerce KPIs for your online store – with formulas to help you calculate and quantify each – before explaining how Checkout.com can elevate how your ecommerce business takes payments.

What are KPIs in ecommerce?

In ecommerce, KPIs (Key Performance Indicators) are metrics you can use to measure the performance and success of various aspects of your online business.

KPIs provide vital insights into whether your ecommerce business is hitting its targets and satisfying its customers: helping you improve operational efficiency, optimize your store’s processes, and stimulate the growth of your customer base and revenue.

With the right KPIs, you can understand how well your store converts visitors into paying customers, and how much they’re spending per visit. You can evaluate how much each customer is worth over the course of their entire relationship with your business and balance this against the cost of acquiring them.

Plus much, much more – we’ll explain all below.

How to choose the best ecommerce KPIs for your business

Before we dive into the top 10 ecommerce KPIs, let’s take a quick look at how to choose the best, most impactful metrics to meet your online store’s unique needs.

  • Define your business’s objectives: Map out your online store’s key focus points and goals. Are they to increase revenue? Improve customer retention? Optimize your marketing campaigns? Give your operational efficiency a boost? Articulating this is the first step to crafting tailored, relevant ecommerce KPIs for your store.
  • Research industry benchmarks: Hit the books to explore which ecommerce KPIs are considered as standards in your specific sector and space. Understanding how your online store’s performance compares to industry averages will provide important context, and enable you to set more realistic, achievable targets.
  • Identify your core business metrics: To ensure your ecommerce KPIs have a direct impact on your bottom line, pinpoint the metrics that will have the biggest impact on your business’s success. Sales? Operational efficiency? Customer acquisition, or retention? This will help you align your ecommerce KPIs with wider commercial goals.
  • Understand your customers’ journey: Map out your ecommerce website’s customer journey to identify key touchpoints – from their initial touchdown on your store, to their purchase decision, to each of their potential post-purchase interactions. This will help you put your finger on the critical stages where KPIs can provide important insights.
  • Prioritize the most actionable metrics: Don’t gather data for data’s sake; choose KPIs that provide insights into areas where you can take specific actions to improve your ecommerce website’s performance.

One more thing – your ecommerce KPIs should include a mix of leading and lagging indicators.

  • Lagging indicators – such as sales and revenue – measure past performance.
  • Leading indicators – such as website traffic and social media engagement – offer insights into future outcomes.

Now, let’s get to the top ecommerce KPIs you should be focusing on in 2024.

What are the most important KPIs in ecommerce?

The most important KPIs in ecommerce are:

  • Conversion rate
  • Average order value (AOV)
  • Customer lifetime value (CLV)
  • Shopping cart abandonment rate
  • Traffic (unique visitors)
  • Return on investment (ROI) for marketing campaigns
  • Customer acquisition cost (CAC)
  • Return rate
  • Net Promoter Score (NPS)
  • Revenue per visitor (RPV)

Below, we’ll unpack each ecommerce KPI in more detail – and explain exactly how you can calculate them for your own ecommerce store.

Conversion rate

Your online store’s conversion rate (CR) is the percentage of visitors to your website who complete a desired action. Typically, that’s making a purchase – though for some websites, a conversion can be a visitor joining the business’s mailing list or filling out a lead capture form.

To calculate your site’s conversion rate, use the formula:

(Number of Visitors/number of conversions) × 100

In ecommerce, the conversion rate is a crucial metric – perhaps the most important – because at the end of the day, your goal is to make money. The higher your conversion rate is, the better your business is at turning browsers into buyers – which has excellent implications for your ecommerce business’s sales and revenue.

That said, a high conversion rate doesn’t necessarily translate into more revenue. Because it doesn’t tell you how much the customers you’re converting are spending.

For that, you’ll need…

Average order value (AOV)

Average order value measures the amount your customers are spending, on average, per order.

The AOV formula is:

Total revenue/number of orders

As an ecommerce KPI, AOV helps you gauge the value you’re extracting from each customer transaction, and is useful for understanding your business’s overall performance.

Because AOV tends to be influenced by strategies like cross-selling and up-selling, monitoring any uptick or downtrend in this metric can help you evaluate how effective your marketing campaigns are – and refine how you promote your brand going forward. 

Customer lifetime value (CLV)

Customer lifetime value represents the total revenue you can expect from a customer over their entire relationship with your ecommerce business. It measures not just the value of a single transaction, but the potential value of that customer’s repeat purchases over time.

The formula for calculating CLV is:

(Average purchase value x purchase frequency x customer lifespan) / customer churn rate

Understanding your site’s CLV is vital for assessing long-term business growth and developing your customer retention strategies. It’ll help guide how much you invest in acquiring and retaining customers, and can even be used to segment your customer base according to how much value they represent to your business.

Shopping cart abandonment rate

Cart abandonment occurs when a visitor to your website adds one or more items to their shopping cart, but fails to follow through with the purchase.

To calculate it, use the formula:

Number of carts abandoned/number of carts created

A high cart abandonment rate tends to suggest that unnecessary friction – such as an overly complicated checkout process, unexpected shipping costs, or the need to create an account to complete a purchase – exists in your ecommerce site’s payment flow.

Fortunately, there’s plenty you can do to combat a high abandoned cart rate: including offering guest checkout, being transparent about your shipping rates, and minimizing the number of steps – and information required – for the customer to complete their purchase.

A low abandoned cart rate is ideal, because it goes hand in hand with a high conversion rate.  So explore our guide to how to increase checkout conversion rates to learn how to optimize your payment flow to keep friction low and sales high.

If all else fails, you can also try remarketing: luring those lapsed customers back in with ads or emails tailored to the items they came so close to purchasing from your business.

Traffic (unique visitors)

In ecommerce, traffic refers to the number of visitors who access your website in a given period. It’s an important ecommerce KPI because it tells you how many people are interacting with your online store – and thus provides valuable insights about your website and brand’s visibility, as well as the effectiveness of your SEO (Search Engine Optimization) and content marketing efforts.

‘Unique visitors’ simply means that each visitor to your website is only counted once in the time period you’ve specified. That means it rules out any visits made more than once by the same person, and therefore provides a more measured, usable insight into the overall figures.

Return on investment (ROI) for marketing campaigns

Return on investment is a crucial ecommerce KPI that, used generally, tells you how much you’re getting back for what you’ve invested. (Usually money, but it also works for time and resources, too.)

For your marketing campaigns, ROI quantifies how profitable – and successful – your efforts to promote your ecommerce site have been. It weighs the financial return you saw from those campaigns against how much it costs you to deliver them.

You can calculate your marketing campaign’s ROI with the following formula:

(Net profit from marketing campaign/cost of marketing campaign) x 100

Why is ROI such an important ecommerce KPI? Well, because over time it allows you to benchmark different marketing channels or campaigns to understand which ones are bringing in the most revenue. With this information, you can optimize your marketing budget and make data-driven decisions around allocation and spend.

That said, marketing campaign ROI is an ecommerce KPI that’s only as good as the data you supply it with. So you’ll need to ensure you’re accurately attributing your sales and conversions to the specific marketing touchpoint or channel they came through.

Customer acquisition cost (CAC)

Customer acquisition cost refers to how much it will cost your ecommerce business, on average, you obtain each new customer.

These costs include everything your business pays to market, advertise, and sell to customers to attract them to spend money on your website. It could include ad spend, marketing software subscriptions, the cost of promotional materials, and your sales team’s salaries.

To calculate CAC, use the formula:

Total cost of acquisition/number of new customers acquired

Like ROI, CAC is fundamental for understanding how successful your ecommerce store’s sales and marketing efforts are. After all, new customers are vital for offsetting the impact of churn and ensuring your business remains profitable and grows. CAC can also inform where you allocate your marketing spend for the most impact – and to see the biggest ROI.

It’s also important to understand CAC in relation to the other ecommerce KPIs we’ve discussed here – particularly CLV. Comparing these metrics helps you evaluate whether you’re acquiring customers at a cost that is justifiable – and sustainable – based on the revenue you can expect from those customers over the duration of their journey with your business.

Striking this balance is crucial.

Return rate

Return rate refers to the percentage of products returned by customers vis a vis the total number of products you ship. You can calculate your online store’s return rate with this formula:

(Number of returned products/number of products shipped) x 100

Analyzing your return rate unlocks a treasure trove of insights into your ecommerce store’s approach. A high return rate, for example, might indicate issues with the quality of your products, or with the descriptions or images of them you’re showcasing on your website.

Plus, returns incur a plethora of operational costs. Understanding the extent to which customers return orders can help you manage these costs: and plan for the fluctuations in revenue, profitability, and cash flow they can cause. Return rate data also offers deeper insights into customer preferences and product performance.

Net Promoter Score (NPS)

Net Promoter Score is an industry-agnostic metric used to quantify and measure levels of customer satisfaction and loyalty. It involves asking your customers – via a single survey question – how likely they are to recommend a product or service on a scale of 0 to 10:

"On a scale of 0 to 10, how likely are you to recommend our products/services to a friend or colleague?"

Based on what they say, respondents are grouped into one of three categories:

  • Promoters (9 to 10): highly satisfied customers likely to recommend you to their network. They’re considered loyal enthusiasts of your brand.
  • Passives (7 to 8): customers that aren’t enthusiastic, but are satisfied. They’re only moderately likely to recommend you, but are seen as open to competitive offerings.
  • Detractors (0 to 6): customers who are dissatisfied, and unlikely to recommend your ecommerce business’s products or services. In fact, they may even share negative feedback, which can harm your brand’s reputation.

Once you’ve gathered the data, you can use the following formula to calculate your ecommerce brand’s NPS Score:

Percentage of Promoters - percentage of detractors

The resulting score can be anything from -100 to +100. If you’re in the positive, your brand is seen as generally favorable by customers; conversely, negative integers are cause for concern.

NPS is an important ecommerce KPI because it helps you understand how your brand is perceived by those you sell to. However, the score in itself doesn’t tell you where to begin making improvements. For that, we recommend adding a comments box to any NPS survey you send out and encouraging customers to add a few words about their experience.

This can help you pinpoint those pesky problems and pain points with greater accuracy. You may find, for example, that your customers are demanding more innovative ways to pay – such as payment links – or that your return policy is too draconian. Whatever it may be, remember that all customer feedback is valuable – so don’t ignore it!

Revenue per visitor (RPV)

Revenue per visitor measures the amount of revenue your site generates per each visitor your ecommerce store attracts.

To calculate RPV, try the following formula:

Total revenue/number of visitors

RPV helps you assess how effectively your ecommerce site is turning visitors into customers, and measure your store’s performance in terms of revenue generation.

RPV provides the most incisive insights when combined with its fellow ecommerce KPIs. High RPV could, for instance, indicate the success of your marketing campaigns – but you’ll need more data about those campaigns’ ROI to learn more. Similarly, a high RPV could suggest a positive user experience – but a NPS survey will tell you if your customers concur.

Unlock your ecommerce performance with Checkout.com

Here, we’ve covered a lot of the most important ecommerce KPIs to track for your online store. 

But there’s an important KPI we haven’t covered – and one that will have a huge bearing on all the rest of the metrics ticked off above.

We’re talking about your ecommerce processing payments strategy.

How you process payments has a huge influence on the success of your ecommerce business. If you aren’t enabling customers to pay in their local currency, for instance – or in the payment methods they prefer – your conversion rate will suffer. And, if you’re not partnering with a payment processor able to keep authorization rates high and fraud incidence low, all the hard-earned revenue you’re measuring will take a big hit.

The answer? Get in touch with the team here at Checkout.com. We’ll help you process payments in over 150 currencies, and in the best payment methods for small businesses and enterprises alike. What’s more, we’ll keep your store at the cutting edge of ecommerce and online shopping trends, with all the granular, actionable insights you need to keep your online store ticking over – and ensure you hit all your KPIs.

Reach out to our team of payment experts today to find out more about how we can help your ecommerce business scale and thrive.

Unlock your payments potential today

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December 15, 2023 17:28
December 15, 2023 17:28