Knowledge is power when it comes to growing your e-commerce store. Knowing exactly what’s going on with your numbers can help you make data-backed decisions and quickly determine what’s working and what’s not.
The hard part is knowing what’s worth measuring. There are multiple metrics to tap into, so which ones are the most important?
Obviously, the type of store you run and your overall brand goals will play a huge part in this, but here are the most important KPIs to track.
1. Average Order Value
Your Average Order Value (AOV) tracks the average amount that’s spent on each order. An order counts each time a customer makes it through to the checkout stage and makes a purchase, regardless of how many items are in that order.
For example, if a customer bought a $10 pair of socks, a $20 pair of sunglasses, and a $50 pair of shoes, the value of their order is $80, or the overall total of all the items purchased.
To calculate your AOV, simply divide the total revenue generated during a certain time frame by the number of orders placed during the same period.
Total revenue / number of orders = AOV
For example, if you made $25,000 in revenue in a month through 800 orders, your AOV would be 25000 / 800 = $31.25.
To improve your AOV, try the following tactics:
- Upsell or cross-sell products at checkout
- Bundle similar products
- Add free shipping to orders over a certain amount
- Provide relevant product recommendations
2. Conversion Rate
Your conversion rate takes into account the number of sales actually made compared to the number of shoppers that visited your site.
You can calculate it by dividing the number of sales by the number of visitors and multiplying the result by 100.
Sales / site visitors x 100 = conversion rate
For example, if you had 200 visitors in a month and 50 sales, your conversion rate would be 50 / 200 x 100 = 25%.
To improve your conversion rate, try the following tactics:
- Add testimonials and reviews to your product pages
- Incorporate high-quality images that show your products from every angle
- Make sure the checkout process is really easy
- Show the total price upfront
- Add a live chat to your site so shoppers can get their objections answered straight away
3. Gross Profit Margin
Your Gross Profit Margin essentially measures the financial health of your store. It calculates the amount of money left over from sales after taking away the cost of goods sold (COGS). You might have seen this also referred to as Gross Margin Ratio.
To calculate your Gross Profit Margin, you subtract the COGS from your total revenue and divide that number by the total revenue.
(Total revenue – COGS) / total revenue x 100
So, if your revenue for the month was $6000 and your COGS came to $2500, your Gross Profit Margin would be (6000 – 2500) / 6000 x 100 = 58%.
To improve your Gross Profit Margin, try the following tactics:
- Review and increase your prices
- Increase sales volumes without increasing COGS
- Optimize the COGS by looking into cheaper manufacturers and bulk buying
- Add more products to your store
4. Customer Lifetime Value
Your Customer Lifetime Value (CLTV) is the predicted value of each customer over their entire buying journey with your store. This can help you determine how much budget to set aside from acquiring new customers and help identify your most valuable customers.
To calculate your CLTV, multiply the customer value by the average customer lifespan.
Customer value x average customer lifespan = CLTV
For example, if the average value of a customer is $75 and they tend to buy from you for around seven years, your CLTV would be 75 x 7 = $525.
To improve your CLTV, try the following tactics:
- Provide excellent customer service to new and existing customers
- Increase the AOV of each customer by using the tactics outlined in the above relevant section
- Build deeper relationships with your customers
- Listen to and incorporate key customer feedback
5. Cart Abandonment Rate
Your cart abandonment rate is pretty straightforward. It helps you identify how many shoppers are adding items to their cart and then leaving without making a purchase. This can be for a number of reasons; it might be because they were just browsing, the shipping costs were too high, or they simply got distracted.
Either way, it will give you a good idea of how many shoppers had the intention of buying from you even if they didn’t go on to do so.
To calculate your cart abandonment rate, divide the number of shopping carts created by the number of completed purchases and multiply it by 100.
Shopping carts created / completed purchases x 100
For example, if you made 3,000 sales but 16,000 shopping carts were created, your cart abandonment rate would be 3000 / 16000 x 100 = 18.75. Flip that around to get your abandonment rate percentage of 81.25%.
To improve your cart abandonment rate, try the following tactics:
- Create remarketing ad campaigns to target shoppers that have abandoned their cart
- Be clear about shipping costs and other additional fees upfront
- Make the checkout process as simple as possible
- Reduce the number of form entries needed to make a purchase
- Offer a guest checkout option
- Provide a money back guarantee and a clear returns policy
6. Return on Ad Spend
Your Return on Ad Spend (ROAS) measures how much you earn in revenue for every dollar spent on marketing. Essentially, it tracks how effective your marketing methods are and whether you’re putting your money in the right places.
To calculate your ROAS, divide your total conversion value (a.k.a. how much you earn from any given conversion) by your advertising costs.
Total conversion value / advertising costs = ROAS
For example, if your total conversion value is $5000 and you’ve spent $1500 on advertising, your ROAS would be 5000 / 1500 = 3.3. This means that for every dollar you spend on advertising, you get $3 in return.
To improve your ROAS, try the following tactics:
- Refine your keyword targeting and ensure the keywords you are using are high-converting
- Optimize your landing pages or product pages to increase the chances of a shopper converting
- Add negative keywords into the mix
- Target based on shopper intent
7. Average Order Size
Your Average Order Size (or Average Basket Size as it’s sometimes known) tracks the amount of items sold in a single purchase. This can help you figure out how many products each customer is buying at a time, which means you can better track your inventory and supply in-demand products.
To calculate your Average Order Size, simply divide the number of units sold by the number of purchases made.
Total units sold / number of purchases = Average Order Size
For example, if you’ve sold 4,500 units in a month through 1,250 purchases, your Average Order Size would be 4500 / 1250 = 3.6. This means, on average, customers buy 3.6 items per order.
To improve your Average Order Size, try the following tactics:
- Bundle relevant products together and add a discount
- Cross-sell and upsell products at checkout
- Recommend relevant products on popular product pages
- Incorporate a minimum spend for free shipping
8. Cost of Goods Sold
Your Cost of Goods Sold (COGS) calculates how much it costs to produce the goods your business sells. This includes manufacturing and labor costs but not indirect expenses, like distribution costs.
To calculate your COGS, simply add your starting inventory together with your purchases and then subtract your ending inventory.
Starting inventory + total purchases – ending inventory = COGS
For example, if you had $14,000 worth of inventory at the beginning of the year and spent $8,000 on materials and manufacturing, and were left with $10,000 of ending inventory, your COGS would be 14000 + 8000 – 10000 = $12,000 COGS.
To improve your COGS, try the following tactics:
- Buy materials and products in bulk to activate discounts
- Optimize your supply chain
- Research more cost-effective manufacturers
- Increase your prices
Track the Most Important KPIs
Understanding these KPIs help you paint a picture of your business and its successes, as well as areas for improvement. Knowing where you need to focus your efforts will help you optimize your sales process quicker and therefore attract more buyers and generate more conversions.
The key is to track these metrics regularly. At Urtasker, we recommend you do this at least once a month so you can pinpoint any trends as soon as possible.
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