As a retailer, you probably have a love-hate relationship with your metrics.
On the one hand, you know they provide you with a complete, bird’s-eye view of your business. On the other, you likely feel uncertain about which metrics to track and how to best measure your optimization strategy.
If that sounds familiar, you’re not alone. Most ecommerce retailers feel the same way.
But there’s one thing that’s certain: you want more sales. If you don’t…well, you should probably start thinking about a career change.
A handful of specific metrics are essential to focus on if you’re serious about more sales and higher revenues.
In this post, we’re going to take a look at them and give you some practical optimization tips.
What Are the Key Metrics for Retail Ecommerce?
1. Total Sales (Total Revenue)
2. Conversion Rate (CR)
3. Average Order Value (AOV)
4. Purchase Frequency
5. Retention Period (and Retention Rate and Churn Rate)
6. Customer Lifetime Value (CLV)
7. Cart Abandonment Rate
8. Checkout Abandonment Rate
9. Return on Advertising Spend (ROAS)
10. Cost per Acquisition (CPA)
Where Are Ecommerce Metrics Housed in Google Analytics?
10 Best Ecommerce Metrics: Do You Need to Track Them All?
It’s the eternal question: which metrics are most important for ecommerce?
It would be great if there were an exact, one-size-fits-all answer. But unfortunately, there isn’t.
Different online retailers tend to have their own unique “metric mixes”. And this is precisely how it should be. It’s essential to track metrics that fit with your goals, market, and value proposition.
That said, every retailer should be tracking some key metrics, irrespective of size or industry.That said, every retailer should be tracking some key metrics, irrespective of size or industry #ecommerce #metrics #cro Click To Tweet
These metrics form the basis of any successful ecommerce optimization strategy and are essential for growing sales. They’re also the best indicators of the health of a store.
With that in mind, let’s dive into the metrics themselves and look at how you can improve them.
Total sales, expressed as an amount of money, is one of the best overall barometers of how well your online store is doing. It’s a great example of “one main metric” (OMM) which you can use to measure the overall growth and momentum of your business.
Total sales is such a valuable figure because it encompasses pretty much all your ecommerce activities – marketing, traffic generation, on-site optimization, product development, and so on. As long as your revenue is increasing month-by-month, you know you’re doing something right.
It’s worth pointing out that there are potential pitfalls associated with tracking total sales. In particular, it’s crucial to ensure that you’re growing revenue in a sustainable and long-term manner.
It’s possible to incorrectly assume success when you take a short-term view, which can be detrimental to your business as a whole. But, as a general rule, it’s difficult to go wrong when you utilize total sales or revenue as your core metric.
Here’s what you can do to grow your number of total sales:
Good old conversion rate. It’s the holy grail of performance metrics for retailers. And vast amounts of time and effort are spent on conversion rate optimization campaigns.
Your conversion rate represents the percentage of visitors that make a purchase. It’s calculated by dividing the number of site sessions with a transaction by the total number of sessions (individual visits to your site), over a specific period. A site “session” constitutes one self-contained interaction with your site, whether it’s for three seconds or three hours.
The average ecommerce conversion rate for the ecommerce industry as a whole is 2.00%. But top-performing stores often achieve two or three times this. And Amazon has a whopping 13% conversion rate. That means for every one hundred people that visit the store, 13 will make a purchase. Crazy, right?
There’s an important caveat, however. Lots of ecommerce retailers, and we mean lots, develop tunnel-vision when it comes to their ecommerce store’s conversion rate. They’ll focus on it at the expense of pretty much every other metric. And this is a catastrophic mistake.
If you sideline crucial metrics like average order value (AOV) and purchase frequency, you’ll almost certainly suffer in terms of sales.
Most optimization techniques focus on product pages, cart pages, and checkout forms. This is exactly as it should be. Why? Because these pages are most crucial for sales. That said, there are some general sitewide tips that you should apply.
Here are the main steps for boosting your conversion rate across your whole site:
Check out our in-depth post on product page design optimization for some specific tips in that area. We’ve also compiled a roundup of high-converting product page templates and covered the biggest mistakes retailers make that users don’t add to cart on product pages.
Average order value is the average value of a single purchase (of one or more items) made through your site.
Average order value is calculated by dividing the total revenue over a given period of time by the total number of orders made in the same period.
No explanation is needed as to why boosting average order value will also increase your sales. What a lot of retailers don’t realize, however, is that AOV optimization often represents one of the quickest and most straightforward areas for revenue growth, even more so than conversion rate optimization. Small additions to product pages, cart pages, and post-checkout pages, can have significant impacts.
Here’s what you can do to increase your average order value:
Purchase frequency is the number of purchases an average customer makes over a given period of time, usually a year.
It’s calculated by dividing the total number of orders over the previous 365 days by the number of unique customers over the same period.
Purchase frequency optimization is unusual in the sense that it mostly involves off-site activities. It’s about fostering relationships with customers after they’ve made a purchase, through marketing channels like email, remarketing, and social media.
Optimizing purchase frequency is all about offering incentives to existing customers. To do this, you need to have a thorough understanding of your customer base’s needs, wants, and behaviors. Amazon, supposedly the most customer-centric company on the planet, reports that half of its customers make a purchase every week.Optimizing purchase frequency is all about offering incentives to existing customers. To do this, you need to have a thorough understanding of your customer base's needs, wants, and behaviors #metrics Click To Tweet
Here’s how to boost your customer purchase frequency:
Your retention period is the length of time an average customer stays active. Customers are generally considered inactive if they have not made a purchase for more than six to twelve months.
Retention period, or “customer lifespan”, can be tricky to calculate. It is essentially a measure of the time between a customer’s first and last purchases, and retailers need historical data in order to be able to calculate this number. Generally speaking, one to three years is a good estimate.
Retention and churn rate are also useful metrics, both closely linked to retention period.
Your customer retention rate measures how many customers you retain on average over a given period. You can use it to measure how effectively you’re boosting your customer retention period over the short-term. If you’re improving your customer retention rate or lowering your churn rate, your retention period will increase.
Retention period is very closely linked to purchase frequency. If you’re sending offers to customers and remarketing them via email, they’re more likely to make a purchase, and thus remain active as customers. But the two shouldn’t be confused.
Retention period techniques are geared towards building loyalty as opposed to encouraging purchases.
Here are some tips for ensuring long-lasting relationships with your customers:
Customer lifetime is calculated by multiplying three metrics: average order value, purchase frequency, and retention period.
Let’s take an example: let’s say the average value of a purchase on your store is $100. And on average customers make five purchases per year. Your retention period is two years. To calculate your CLV: $100 x 5 x 2 = $1000.
When you optimize the three metrics described above (AOV, repeat transactions average or purchase frequency, and retention period), your customer lifetime value will increase.
As has already been mentioned, traffic and store conversion rate are the other two crucial metrics, which together form the basis of a complete optimization strategy. When you optimize customer lifetime value (CLV), you increase the value of customers that you already have. When you boost your conversion rate, you increase the number of people becoming customers. And when you drive more traffic, you have more people to actually convert.
Now that you’ve got a solid understanding of where to focus your attention when running optimization campaigns, let’s dig into some more specific metrics. These can be described as “micro” metrics, as opposed to the “macro” metrics above.
You might not have heard this distinction before. So just what are macro-conversions and micro-conversion metrics on ecommerce sites?
A macro-conversion represents a “big” goal – a purchase, for example.
A micro-conversion is a smaller action that contributes towards a macro-conversion. Micro-conversions include clicking a CTA on a product page, filling out all the details on a checkout form, and sharing a product on social media after purchase. All of these have a direct impact on the “bigger” metrics outlined above.
There are two important micro-conversion metrics from a sales perspective: cart abandonment rate and checkout abandonment rate. Cart abandonment is when a user puts items in their cart, then leaves your site. Checkout abandonment is when a user has already started the checkout process, but leaves the site before completing the purchase.
Let’s take a look at each:
Your cart abandonment rate is the percentage of visitors that leave your site without making a purchase after adding a product to their shopping cart.
Cart abandonment is a wide-ranging metric that is determined by a range of micro-conversions. Specifically, these are: clicking the “Proceed to Checkout” button, proceeding from the cart page to the checkout form, and successfully completing payment during checkout.
Here’s a quick rundown of how to reduce cart abandonment:
Your checkout abandonment rate is the percentage of visitors that start the checkout process but leave without completing the purchase.
The industry average for checkout abandonment is 25%.
If a customer has reached the checkout stage, it’s likely they want to buy. For this reason, high checkout abandonment rates are usually indicative of poorly designed forms rather than the absence of elements that increase the desire to buy. Focusing on user experience (UX) issues is the best way to ensure conversions.
How to Reduce Checkout Abandonment
Here are some other important micro-conversion metrics to be aware of:
Well done on getting this far. There probably isn’t enough room in your head for anymore metrics. But before you head off to make yourself a nice cup of tea, there are two more that need mentioning.
Traffic metrics are essential because they enable you to cut costs associated with generating new customers. Optimizing for them can significantly boost your profits.
Let’s take a look:
ROAS is your return on advertisement investment measured as a percentage of the initial investment. There are two ways to increase it: by reducing ad spend or increasing ad revenue.
Here are some ways to boost your ROAS:
Your cost per acquisition (CPA) is the amount of money you need to spend to gain one new customer. It can be a tricky metric to calculate because it requires you to put a figure on all your marketing activities, including search engine optimization.
To calculate CPA divide your total marketing spend for a given period by the total amount of new orders. For example, if a company spends $1000 on marketing over a 30 day period, and generates 100 new customers, the average CPA is $10.
Your average CPA needs to be lower than your customer lifetime value (CLV) for your marketing activities to be profitable, whether generally or in terms of specific campaigns.
You can track most of the key metrics in Google Analytics.
Most importantly, you should familiarize yourself with the “Ecommerce Tracking” section of GA and 8 Must-Have Google Analytics Reports for Ecommerce Optimization. Unfortunately, you will have to use other tools to calculate CLV, retention period and purchase frequency.
“Google Analytics Goals” is a flexible feature that can be used to track a range of targets, including both macro and micro conversions (plus abandonments).
It’s also essential to mention that metrics are best understood in the context of segments. Analyzing metrics that are specific to new vs. returning customers, device type, traffic source, country, and more, will enable you to pinpoint the best areas for sales growth.
Keeping track of so many metrics is difficult. But don’t despair. There are numerous ways to ease the burden of ecommerce optimization.
First, it’s crucial to have a comprehensive strategy based on solid fundamentals. The “big four metrics” described at the beginning of this post – conversion rate, average order value, retention period, and purchase frequency – should form the bedrock of your campaigns.it's crucial to have a comprehensive strategy based on solid fundamentals. The big four metrics - conversion rate, average order value, retention period, and purchase frequency - should form the bedrock of your campaigns Click To Tweet
Second, you should take advantage of software to streamline your optimization processes. Doing so will allow you to manage huge datasets and keep on top of optimization campaigns or “sprints” aimed at smaller parts of your website or specific audience segments.
Want even more tips and tactics for boosting conversions and increasing customer lifetime value? Download your free 115-point ecommerce checklist. It’s comprehensive, clear, and practical. What’s more, it includes tips for every part of your site, from your homepage to your cart page.
💡 At Growcode, we develop and maintain online shops and B2B ecommerce on Magento!