7 most important KPIs for your ecommerce business

Progress is always a process. And a result of your daily actions. In this case, it would be very imprudent of you not to track it. So, if there is any progress, let’s celebrate; if there is not, well, we’ll find a mistake.

For companies it’s extremely important to know how to measure the progress or its lack, because everyone wants to run an effective business. The measuring should be absolutely objective like you view your business from the outside. In this case, the Key Performance Indicators are coming to the rescue.

First of all, Key Performance Indicator (KPI) is a metric that after a careful analysis turns some aspects of your business into a number. But it’s not just a number to show that you somehow care about your brainchild. The metric becomes a KPI if it indicates what really matters for your business. The point is that there are a lot of metrics you can use on your way to success, and only few of them will be completely relevant. Depending on your goals, on the type of your ecommerce business, different metrics can be your KPIs. But despite all these possible differences, there are some key KPIs (sorry for the tautology, but they’re really key) that always matter and should be tracked on a regular basis. And all of them you can measure with Google Analytics. So, here they are!

1. Ecommerce Conversion Rate

Where to find in the Google Analytics reports:

Conversions -> Ecommerce -> Overview -> Ecommerce Conversion Rate.

Formula: [Number of Transactions] / [Number of Sessions] x 100% = [Ecommerce Conversion Rate]

When it comes to conversion rate, there is no such epithet as ‘too high’. And there is always something to optimize. But as I’ve already said, it all depends on your business. Conversion Rate shows how many visitors made the desired action. Regarding ecommerce web-sites, this desired action is making a purchase. So, tracking this metric can help you to answer the most important question for your business: are you actually selling? And if you aren’t, it’s time to take measures toward CRO (Conversion Rate Optimization). By the way, to have Ecommerce Conversion Rate tracked for you automatically, you simply need to setup the transactions tracking in Google Analytics.

2. Revenue

Where to find in the Google Analytics reports:

Conversions-> Ecommerce -> Overview -> Revenue

Formula: The total revenue or grand total associated with the transaction

Yes, here it comes, the metric every ecommerce business owner desires to know in the first place. Revenue is about the total amount of money you’re receiving from your web-site. This number may include shipping costs, taxes or other adjustments, depending on your preferences. By the way, if revenue is not set, Google Analytics will calculate it for you automatically by adding together the prices of all sold products.Tracking this metric on a regular basis will help you to answer the simplest and most important question: is my path leading to success?

3. Average Order Value

Formula: [Revenue] / [Number of Transactions] = [Average Order Value]

Of course, you want more customers. But the real blessing is when all of them make big purchases on your website. The Average Order Value shows how big is the sum of money received from the average transaction.

Let’s think about backpacks. For example, there are three SKUs in the online backpacks store priced at $30, $50 and $70. You’ve calculated AOV, and it turns out to be $42. So, there are two conclusions to be drawn from this: customers don’t order more than one item and something prevents most of them from buying the expensive backpacks. Maybe the price is too high? Maybe they haven’t found out yet that it’s worth it? Or maybe it’s the problem with the layout that stops them and the more expensive items go unnoticed? These are the questions tracking your AOV should lead to. If you’re happy with the result, I’m happy for you. But if you started to doubt and question yourself or your team, it’s a great opportunity for growth.

4. Customer Lifetime Value

Formula: CCC – confusing, complicated, challenging.

No, I don’t want to keep it a secret. The thing is that if you have Enhanced Ecommerce installed you just don’t need this formula because this parameter will be calculated for you automatically. And using the Google Analytics also makes it much easier to understand the meaning of this metric, because in the GA interface it’s listed as Revenue Per User (LTV). How is it calculated? LTV is the total average revenue per user per the time increment you’re using (you can always get more details here).

But even if you couldn’t care less about the technical side, you probably want to know what’s special about LTV and why this metric is so extremely important for you. Okay, suppose, you’ve calculated your AOV, but you know, that customers of our dreams have a tendency to come back, make another purchases and do it on a regular basis. It’s great, because in this case you reduce the cost per acquisition (we’ll talk about it later). So, why not to track your revenue received from one customer?

I guess in most cases it’s also the best way to indicate specifically the quality of the product you offer. Because high LTV shows that they liked your service once and decided to come back. Well, if they didn’t, there is a lot of room for improvement.

For those who want to dive deeper and figure things out there is this beautiful Kissmetrics infographics.

5. Cost per Acquisition

Formula: [Total Cost of Marketing Activities] / [Number of Transactions] = [Cost per Acquisition]

As I’ve promised earlier, let’s talk about cost per acquisition and why we don’t want it to be high, unlike the previous metrics. Cost per acquisition is about how much money you spend to get every new customer. You pay a lot for a traffic, but what if it doesn’t pays off? In this case we can say that the cost per acquisition is too high, so you’d better review your acquisition online channels and choose the best performing ones. And don’t be afraid of losing potential customers by giving up some channels. Let’s face it: what we are here for is money, so what’s the point in spending it for nothing instead of getting it?

6. Cart-to-detail Rate

Formula: [Products added to the cart] / [Product details page viewed] x 100% = [Cart-to-detail Rate]

This metric shows how many times the certain product was added to shopping cart after viewing the product details. For example, you sell a particular model of jeans and a pink shirt. The jeans were viewed for 1,000 times and added to the cart for 40 times. The shirt was viewed 200 times and added to the cart only once. Cart-to-detail rates for these products are 4% and 0.5%, respectively. And considering the average cart-to-detail rate for all of the items (3%), we can say that there is definitely something wrong with the shirt.

7. Cart Abandonment Rate

Formula: (([Sessions with Add to Cart] – [Sessions with Checkout started]) / [Sessions with Add to Cart] ) x 100% = Cart Abandonment Rate

Why do they leave without a purchase? Of course, there are some factors you can’t control. But what if all the process after adding the item to the shopping cart is way too long? What if the interface isn’t clear for user to actually buy the product added to cart? So, Cart Abandonment Rate is one more metric you should track to find out how often users change their minds at the last moment. And then question yourself again: what am I doing wrong?

That’s it. You’ve learned what are the indicators of your success and why tracking each of them can help you to boost your business. Of course, there is a lot more metrics, but let’s concentrate on the most important things.

Finally, just one more reminder: all of these metrics can be tracked with Universal Analytics Enhanced Ecommerce. And our professional team can help you with that. We have a huge experience working with this tool, defining KPIs our clients need to concentrate on and track it! It’s a great chance for you to really see your ecommerce business externally and objectively.

Wish you high revenue and success in your business!