The 8 Fundamental ecommerce Metrics and how to act on them today! Stop wasting time on Vanity Metrics! This guide explains the 8 essential ecommerce metrics that you should focus on to grow your business. FREE calculators included!
We're Metrilo. We run an ecommerce Analytics and Marketing product that empowers ecommerce entrepreneurs and marketers from 40+ countries around the world and we work with them on a daily basis. This ecommerce Metrics Guide includes the most important ecommerce metrics we've seen successful online retailers focus on while growing their businesses. We hope this guide brings a lot of value to you. Let us know at support@metrilo.com - Peter, Dimira, Stoimen and Murry
How to read this guide? We gave our best to make this guide as straight forward as possible. Each metric includes 4 sections - Why, How, Act and Actiontable Advice. Throughout the Guide, you'll see our Cheat Sheet mentioned. It's an extra downloadable resource to fill out if you want to evaluate your performance on all metrics included in the Guide - the Marketing Health Check, as we call it. You can download the Cheat Sheet by following the link on page 14 in this ebook. Explains the metric and tells you why it matters to your business Shows you how you can calculate this metric for your business Gives you a few ideas on how to improve this metric in your business We know it might be hard to translate theory into actual steps - that's why in the Actionable Advice section, we give you a tip on how you can easily do something about this metric today. Go to the next page for the first metric!
1 Customer Lifetime Value (CLV) Customer Lifetime Value is pretty self-explanatory - it's how much your customers spend on average with your ecommerce business in their customer lifetime. It's important to track this metric incredibly well and always try to bump it up as it's fundamental to increasing your profit. CLV = Total Revenue / Total Number of Customers To calculate your CLV export all your orders from your ecommerce platform and add them to our cheatsheet. This is important when it comes to spending money on advertising. It varies from business to business but as a rule of the thumb you can use up to 30% of your Customer Lifetime Value for acquisition. So if your customers spend around $100 with your business on average in their lifetime, you can spend up to $30 to acquire new ones. Fill in the CLV information in the cheat sheet in order to finish your marketing health-check report.
2 Customer Acquisition Cost (CAC) CAC is how much you spend on average to get people to purchase for the first time. A low acquisition cost is another metric that's essential to growth. If your customers spend $50 on average with your business and the cost of acquiring one customer is $45, that means there's $5 left for you. Some Acquisiting channels might even be wasting your money, so make sure to check this one in detail. General formula: CAC = Total costs associated with acquisition / total new customers This can be calculated in detail for each of your paid acquisition channels as well. If you've spent $250 on Facebook Ads this month and you got 10 new customers, that means your Facebook CAC is $25. You can find the Act and Actionable Advice sections on the next page
2 Customer Acquisition Cost (CAC) With this metric you can run a health check of your marketing activities and see if the ROI (return of investment) is actually positive. As mentioned with CLV, a general rule of thumb is to keep the CAC to be up to 30% of your CLV. If you want to improve that ratio: 1. Calculate how much it costs to acquire customers via different online channels (social networks, paid ads and so on). 2. Calculate what is the lifetime value you get per customer from these channels. 3. Concentrate on the ones that bring higher return and try to eliminate all channels that have acquisition cost higher than 30% of CLV. There you go, you just improved a pretty fundamental metric for ecommerce business' growth! Go to our cheat sheet and and add all the information related to your acquisition channels, you will get information about your best performing channels and the ones that are losing money for you.
3 Customer Retention Rate The percentage of your customers that place more than one order with your ecommerce business. If this number is low (eg. less than 10%), that means you're doing a bad job at retaining your customers. Make sure you're giving your best to provide amazing value so they keep coming back. Automatically, their CLV will go up. CRR = ( Customers with more than 1 order / Total Customers ) * 100 To calculate your Customer Retention Rate, export all your orders from your ecommerce platform and add them to our cheatsheet. You can find the Act and Actionable Advice sections on the next page
3 Customer Retention Rate Customer Retention is mostly improved by using email marketing and paid remarketing (both Google and Facebook). In order to evaluate what works and what doesn t, you need to evaluate your customer retention cohorts. Let s say you start a unique remarketing campaign to all of your first-time customers this month. Follow up closely this cohort of clients and monitor whether your efforts succeed in bringing those guys back for a new purchase. If this group outperforms your shop's averages, then your mission was successful. Another thing you need to evaluate is the retention rate by first-ordered product. Guess what, if buyers of one particular product at first order tend to never come back, they're probably dissapointed. You can improve those products, promise less in the product description or simply remove them from your product list. If you are not satisfied with your current Retention rate, start planning your next email campaign to re-activate the one-time customers. Sometimes sending an email to those people with simple "Thank you for your first purchase" message and a 5% discount can be a gold mine.
4 Revenue from Returning Customers Steady growth relies on two fundamentals - acquiring new customers and earning more revenue from existing ones (repeat purchases). Since acquisition comes at a certain cost, a healthy business would want the weight of revenue to come from repeat customers. RRC = (Revenue from repeat purchases / Total Revenue) * 100 Calculating revenue from returning customers can be tricky. You can jump on a free 14-day Metrilo trial and get the metric for free. Most marketers only focus on acquiring new customers. While that's absolutely necessary for growth, only a few work on retention and making sure that the acquired customers keep coming back. You can increase the revenue from returning customers by implementing retention hooks - eg. delivering amazing customer experience that people cannot just leave behind. As with Customer Retention Rate, remarketing and email marketing are essential. Get a list of customers who placed their first order with you in the previous month and send them a personal "Thank you" message. Measure it's efficiency, adapt the messaging if needed and then automate this process.
5 Average Order Value (AOV) You can easily increase your overall revenue by increasing the Average Order Value, even without getting more people in your sales funnel. AOV is something most ecommerce businesses don't really work on, although it's a pretty straight-forward metric. AOV = Total revenue / Number of orders Most ecommerce platforms show you the average order value. You can also use our free cheatsheet to calculate it if your platform doesn't. There are many things that you can do to increase your AOV and they depend on what type of ecommerce business you're running. A few ideas: - Check which channels bring you higher AOV and focus on them - Try upselling techniques and bundles - Offer free shipping for orders over a certain treshold. Most people prefer to spend more money on something they need rather than paying for things they won't own (like shipping fees). Offer free shipping for orders that exceed your average order value by more than 20% percent.
6 Refund and Return rates Returns and refunds are pretty common when you run an online business, and controlling their rate helps you see the big picture and minimize the chance of losing money. You can drill down further by product or country and identify potential problems with a shipping partner or a misleading product page. If a product has a pretty high return rate, maybe you shouldn't be selling it in the first place, right? Return Rate in % RrR = (Orders with returns / Total Orders) * 100 Refund Rate in % RfR = (Refunded orders / Total Orders) * 100 Check what's common between your returns and refunds - is it a particular acquisition channel (e.g. marketing message setting wrong expectations), specific products are not of good quality, or just don't hold well during transportation. Ask for feedback on refunded and returned orders. Most people are pretty honest when they have nothing to lose and they'll tell you why they're disappointed.
7 Website Traffic The oldest ecommerce metric in the books. Knowing how many people visit your ecommerce website is important because it gives you an insight about your brand's exposure. Always make sure this one is growing. The easiest way to monitor traffic is to rely on Google Analytics (although we're sure you already are doing this). Use the "Unique Users" metric as it gives you more precise number than Visitors or Sessions. You always need to keep track of your unique visitors. Try to set-up realistic goals for reach and repeat visits and meet them every month. More traffic and a healthy conversion rate means more revenue. Keep in mind that if the conversion rate drops as the traffic increase, you're bringing less qualified traffic. Define the best converting channels and focus on them. Set a goal to increase website traffic with 15% next month.
8 Conversion Rate If your traffic is increasing every month but your orders aren't - you have a problem with conversion. If less than 1% of your visitors place orders and the rest just browse, maybe you're not attracting the right people to your website. Conversion rate should be broken down - and optimized - by acquisition channel and device as well. CR = (Total number of customers / Total Unique Visitors) * 100 Also make sure to calculate this metric by acquisition channels and devices. There are a few ways you can improve your Conversion Rate: - Attract more qualified traffic (reach mostly Target Customers) - Make sure your checkout flawless. Use conversion funnels to see where you lose potential sales - Optimize mobile and tablet experience - Use remarketing to recover abandoned carts (email works too) - Use pop-ups to collect emails and try to activate them by using drip campaigns Check your conversion rate on Mobile devices. If it's way worse than on Desktop, optimize for mobile because you're losing sales at this very moment.
Cheat Sheet Included in this ebook is the Metrics cheat sheet prepared by our teammate Petar Tsachev. You can reach him at petarts@metrilo.com in case you happen to have any questions or issues. The cheat sheet can help you automatically generate the following metrics: Total Revenue, Total Customers, Repeat customers, Revenue from returning customers, Total Number of Orders, Customer Lifetime Value, Cost of Acquisition, Customer Retention Rate, Average Order Value, Return Rate, Refund Rate, Conversion Rate. You can download the cheat sheet by using the following link: https://cdn.metrilo.com/resources/metrilo-metrics-cheat-sheet.xlsx
Influencers to follow We'd like to share a few incluencers that we believe you should follow. Those are the people we usually learn from and their blogs. Richard Lazazzera (A Better Lemondade Stand) - http://www.abetterlemonadestand.com/ Hiten Shah (Hitenism) - https://hitenism.com/ Brian Dean (Backlinko) - http://backlinko.com/ Andrew Youderian (ecommercefuel) - http://www.ecommercefuel.com/ Darren DeMatas (SelfStartr Blog) - https://selfstartr.com/ Linda Bustos (GetElastic ecommerce Blog) - http://www.getelastic.com/ Practical ecommerce - http://www.practicalecommerce.com/ Gorilla 360 Blog - http://www.gorilla360.com.au/blog