The most important metrics in e-commerce

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1 The most important metrics in e-commerce By Matthias Beick

2 Key take-aways Introduction From this white paper, you will take away the following: Do you operate an online shop and want to know how well it s working? Characteristics of good KPIs How to create e-commerce KPIs Three foundation KPIs E-commerce KPIs: conversion rate, products per order, price per product, bounce rate Focus on the checkout process: checkout conversion rate, new visitor rate, average number of visits per visitor Marketing KPIs: cost per visitor, cost per order Do you already use a web analytics tool and track all available data? Do you create a lot of reports, analyses, tables and graphs? These scenarios are common. If they apply to you, it s important to identify the performance figures that will highlight both your strengths and weaknesses. This is where KPIs key performance indicators come into play. KPIs provide clear, concise measures that enable you to determine immediately how well your shop is doing. Tip time! «Track few KPIs, so as to focus on your important business goals. 3, 5, 10? That s your ballpark. #DigitalIntelligence» Auto-tweet this!

3 What makes a performance figure a KPI? (1) KPIs should represent an essential characteristic of your business. In other words, a KPI should make the objective of your site measurable. Don t be too detailed. For instance, the number of users who searched for a certain shoe size may be too granular to be an appropriate KPI. versus Yesterday my shop had 10% more visitors than seven days ago. Relativity allows side effects to be filtered out. For example, orders were up because of an advertising campaign, the conversion rate was much lower than usual because of technical difficulties caused by high traffic, etc. (4) KPIs should be comprehensive. (2) KPIs should be measurable and objective. General customer satisfaction is extremely important information, but packaging it in a performance figure is not always possible. KPIs should show at first glance whether or not your website is developing well. Naturally, this means that the significance of performance figures has to be evident to any reader. The usability or design of your website is a vital element of success. However, it s difficult to measure and also highly subjective, which means it is not a good candidate for a KPI. (3) KPIs should be relative. Absolute numbers are less informative than comparable ones. Find the distinction: Yesterday my shop had 1,000 visitors Creating effective e-commerce KPIs Generally speaking, the objective of a shop is easy to define: more sales. In other words, the fundamental KPIs should reflect the sales trend (e.g., higher sales compared to one year ago). In choosing the period for comparison, it is essential to ensure that it is meaningful and does not

4 distort the results. For example, if you send a newsletter to your existing customers every Wednesday, traffic may be higher on those days than on others. So if you are comparing traffic for a day this month to the same day in the previous month, you should ensure that you are not looking at the same date (e.g., the first of the month), but instead the same weekday (e.g., the first Monday). Choosing the best comparison period is by no means trivial. For example, a comparison to the prior year is wellsuited to account for seasonal influences, such as holiday business. However, shorter intervals are more meaningful when a business is growing quickly or undergoing major changes. A 1,000% increase might make you feel good, but does not necessarily help you evaluate your current decisions effectively. So how do you generate more sales, and what KPIs can you use to do so? It s very simple in theory and can be boiled down to three key points: You can increase the order value per product. You can increase the number of products per order. Or you can attract more visitors to increase the number of orders. These three measures form the foundation upon which KPIs can be defined, but they are not in themselves KPIs. Instead, you must look at the average order value, which measures the sales trend per order. The relation of the number of generated orders, to the number of visitors to a shop, is called the conversion rate. You must still add to that a performance figure to measure the increase of visitors to your shop. Here, the comparison period should match what had been chosen for sales, e.g., visitors compared to one year ago. Let us explore these three performance figures in greater detail. In order to increase your average order value, shopping carts have to contain more products, or the products have to be sold at higher prices. Therefore, the next two KPIs we ll explore are simply products per order and price per product sold. Improving your conversion rate is the ultimate e-commerce goal. Focus on macro and micro conversions. All business actions eventually affect your conversion rate. These include your

5 advertising, your products, the design and usability of your website, and more. Ultimately, the conversion rate is about retaining the customers you have guided to your shop. Because of the implicit complexity in such an allencompassing figure, there are thousands of metrics that would help here. Traditionally one chooses to look at the first and the last step: arriving at and departing from the site. When a visitor arrives at your site, it doesn t matter whether it was through a newsletter, a link in a forum, an article, an advertising banner or a search engine you only get one chance to make a good first impression. Is your shop really what the visitor wanted to find? If the visitor fails to find what is expected, leaving immediately is the usual result. When a visitor leaves your site after the first page view, that is called a bounce, and the proportion of bounces out of all visits is called the bounce rate. Let us assume the homepage, product page and presentation, and all subsequent steps work in concert, and the visitor decides to go to the checkout. While one might think a conversion is guaranteed at this point, you are probably not the only shop to have found that not every visitor who starts the ordering or checkout process actually makes a purchase. Therefore the checkout conversion rate should also be among your KPIs. Now that we ve looked at increasing conversion rates and order values, all that remains is to increase traffic. Recruiting new customers and retaining existing customers getting them to come back is important. These two measures can be represented by the proportion of new visitors out of all visitors, known as the new visitor rate, and the average number of visits per visitor, respectively. Lazy tweet «Improving your conversion rate is the ultimate e-commerce goal. Focus on macro and micro conversions. #DigitalIntelligence» Auto-tweet this!

6 A report with the KPIs mentioned above could look like this: Source: Webstar Q3. Figures are that of a test account. From here, different departments can define different objectives. In addition to traffic and sales generation via certain channels, the online marketing department must also consider the associated costs. Some possible KPIs, in addition to those named above, include the cost per visitor (CPV) or cost per order (CPO). These would be segmented based on the various marketing channels. For instance: Is the checkout conversion rate falling for existing customers or for new customers? For what channel is the traffic dropping the most? With what browser is the conversion rate falling the most? So what happens when your KPI report reveals problems or negative developments? You first segment the performance figures for a detailed analysis.

7 Conclusion The right performance figures help you quickly identify how well your website is doing. With the help of a few KPIs, improve the performance of your marketing and sales efforts. Are you evaluating marketing automation software for your e-commerce? Interested in seeing how Webstar can further assist you with improving your e-commerce? Yes, I sure am. Take me there! Webstar s Digital Intelligence Suite gives you: Analytics Testing Customer journey analysis A marketing action center User relationship management And tag management. All-in-one. Based on raw data for advanced filtering. With expert support. And the highest data security standards in the industry.