February 11, 2019 Last updated February 23rd, 2019 1,174 Reads share

Are You Tracking the Right Metrics for Your Ecommerce Business?

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Business owners are generally so busy dealing with tasks, problems & decisions that it’s easy to lose track of the numbers that matter for your business. As a result, it becomes difficult to know what is working well and what needs to be fixed, how to grow your business.

Growth metrics are the key numbers and trends that tell you whether your business is growing as fast as you’d like and in the right direction. It is important to monitor them regularly so that you can track progress, spot and address problems before it becomes too late.

Basic Level

The growth of any E-commerce business depends on 3 levers:

  1. Acquiring New Customers

  2. Getting Customers to Spend more during every visit

  3. Getting Customers to purchase again

The following 4 metrics enable you to track new customers and measure how much they spend per visit:

1. Revenue

How much revenue did you bring in this month? This week? Today? Initially, you can start by setting monthly targets and measure your business’ monthly sales performance against it. As your business grows, you need to start tracking it using weekly performance. You can also compare the current period with previous months to see how your business is growing over time. This also helps you see the effects of seasonality, directional trends, etc.

If your business has multiple sources of revenue, it is important to monitor revenue growth by each source. This will tell you which sales & marketing channels are effective.

2. Total Orders

How many orders did you fill? Tracking orders by product or category tell you what’s selling and what isn’t. Once identified, it is advisable to spend more time promoting what’s selling and less time on what’s not. Tracking them over time gives a good idea about product and market events, and helps you respond quickly. E.g., Decline in sales of certain products might indicate the availability of an alternative. On the other hand, growth in sales may be due to the exit of a competitor, and you may need to increase inventory to handle it.

Marketing is costly and time-consuming. So it is important to track the returns for each channel, spend more on lead generation sources that work. Tracking Orders by lead source clearly tells you which lead generation sources are working. When you compare it with the associated marketing cost, you can easily identify the most effective methods for generating sales. This enables you to optimize your lead generation. Over time, as lead sources start slowing down, you can quickly identify & fix them.

3. New Customers

How many new customers did you acquire? You can measure new customers through various channels to find out which marketing campaigns and channels are attracting the most customers. You can also measure New vs Returning customers to find out what percentage of your sales is coming from new customers vs returning customers? A growing business has a healthy mix of both. A steady supply of new customers indicates that your marketing efforts are showing results. It offsets the impact of existing customers dropping off. A good number of old customers indicate that your products continue to remain valuable, and the new offerings are in line with what your customers want.

4. Visitors

How many unique visits did your site get? A number of visitors are one of the most basic and one of the most important indicators of the impact of your online store. Visitors provide specific data about the quality of traffic your business attracts every month.

You can begin by tracking the monthly or a weekly number of visitors. Once you start tracking your site traffic regularly, you can compare it with the numbers from the previous period, be it the previous week, month, quarter or year. This enables you to set monthly targets for web traffic and measure your performance against it.

A more interesting way to look at this metric is to look at the number of visitors by individual products, or categories if you have too many products. This will help you better understand the type of products your target audience is looking for.

You can even break out the total visitors into visitors by each source. Viewing visitors by the source can tell you where users came across your products and indicate how your marketing efforts are performing. You can see how much traffic each marketing channel brings in and how relevant it is, i.e., how many of them have high engagement or conversion. Once you know which channel brings in most qualified visitors, you can assign more resources to it. After all, a visitor is the first step towards a paying customer.

These four basic metrics can be used to some simple calculations and gain additional insight into your business:

Average order value: Average Purchase Value is the average revenue per sale. Tracking average purchase value helps you quantify the value of each lead and assign marketing efforts accordingly. It can be tracked for each lead source to help forecast sales, maintain inventory and budget marketing expenses. If you combine it with other metrics such as the type of customer, type of product or service, etc. it can give you a clear idea of customer behavior.

Conversion Rate: Conversion rate is the percent of visitors who perform an action on your online store. The action can be registering on your website, buying your product or anything else. Conversion rates can help you understand the effectiveness of your activities. You can see how your marketing efforts are performing, how users are responding to your new features and other offers, etc. The more the conversion rate, the better it is for your business.

If your site conversion rate is low compared to your performance in the past, it might be an indicator that you need to focus on optimizing your site for conversions, instead of trying to get more people to come to your site.

Revenue from repeat purchases: To understand how to get existing customers to buy again, you can track revenue from repeat purchases. This helps you identify the products, brands & categories that drive repeat purchase. You can even break out this revenue by customer segments to understand what customer demographic brings repeat business; which marketing channels are the best way to reach them and target your customers more effectively.

Advanced Level

At this level, you’ll need a more granular understanding of what’s working. For that, you’ll need to optimize your marketing spend. Here are 3 key metrics that can help you with it:

1. Cost of customer acquisition (CAC)

Cost of customer acquisition is the cost incurred in getting a new customer. To calculate it, you can add up the cost of marketing and sales (including salaries and overhead) and divide by the number of customers you get during a specific time frame.

For example, if you spend $100 and acquire 10 customers and your CAC is $10.

2. Customer Lifetime Value (CLV)

The lifetime value of a customer is the total revenue you expect to earn from a customer as long as he/she continues to use your product/service. The lifetime value should at least be twice as much as the cost of customer acquisition. Else you may end up spending too much money on getting customers and might need to cut back on your costs.

3. Marketing ROI

Are we recovering our marketing spend via new sales? Return on Investment (ROI) tells you how much revenue a marketing campaign is generating compared to the cost of running that campaign. It is the single most important metric to monitor your marketing efforts.

To calculate ROI, you need to track the number of leads generated through each of your marketing campaigns, such as an Adwords or banner ad campaign. Next, you need to determine the value of each lead. To calculate this, find the average value per sale and divide that value by your average lead to win ratio. Lead to win ratio is the percent of leads that you are able to convert into a sale. For example, if you know that the average value of a sale is $200, and your lead to win ratio is 10:1, then you can say that the average value of a lead is $20. This will give you a good idea to assess the performance of your campaign as you bring in each new lead.

Other than marketing metrics, there are a couple of other metrics you need to watch for growth opportunities. These aren’t metrics you need to track every week, but you absolutely want to keep tabs on their overall trends over time.

1. Top-Selling Products: For this, you need to break down your revenue by product. When you identify what your top-selling products are, you can start thinking of ways to boost their sales, using special promotional offers.

2. Returns, By Product and Reason: It’s also important to know which products are most often returned, and the reasons why. This will help you proactively deal with customer service issues.

Keeping track of growth metrics regularly helps your team achieve business goals and grow it in the direction of your vision. Seeing the growth your business is making can be highly energizing and provide positive reinforcement. When you and your team see what’s working well, it will motivate them to achieve more. You can also see where to focus your efforts in order to become even more effective.

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Sreeram Sreenivasan

Sreeram Sreenivasan

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