The KPIs that matter for an online store

Data? What we think of the term & does it hold that much importance in your business? The answer is absolute “yes”. And, I don’t intend to insinuate that the mere familiarity with the term will set your business on the path of the success. But instead, it depends much on how you understand it & make use of that data.

Now, it’s not just a term but a full-fledged flourishing industry. If you see around, you will find that now there are even more companies that handle data exclusively than there ever was. Hence, you could now easily estimate the importance of data. Not only these data help businesses to perform better in the long run but also helps them in assessing their performance. 

Key performance indicators are a set of data's that reflect the performance of an organization/company against a targeted goal. These indicators help you in taking the necessary steps to improve the performance of the e-commerce business. It is worth mentioning here that it is advantageous that the performance assessment of an online e-commerce shop is possible. However, this is not the case with rudimentary brick & mortar shop.

A very palpable thought that will cross your mind is that how can we ever know which data is relevant & which one is not? The answer to the question is straightforward. The data that directly or indirectly affects transactions of the shop will be relevant & should be in the list of your KPI’s. It is seen many of the times that merchants select an industry-recognized KPI’s and wonder why they don’t reflect their own business & fails to bring any observable change.

Hence, the assessment of relevant data suitable to the needs of the store becomes very important. As there can be many indicators depending on the business, you run. But I’ll try to cover only those which are necessary for almost every business irrespective of their domain. These KPI’s can be used to glean insights & will also help implement actionable decisions for measurable improvements.

Keeping in mind of all the aforesaid importance of KPI’s. Now, let’s jump right into the terms that make their way into the list of KPI (Key Performance Indicator).

1) Cart Abandonment Rate (CAR)

This particular metric plays a vital role in your business. Let’s say, you have a sufficient number of visitors on your website, but still, you have a very low conversion rate. The reason owing to low conversion rate could be anything. But the first thing which you need to assess here is the number of visitors with an inclination to buy the product. Those visitors are the one who added the products to their cart but didn’t place the order. Here the concept of cart abandonment rate will come into play.

Cart abandonment rate refers to the percentage of visitors who added the product to the cart but didn’t place the order afterwards.

CAR = (Total Number of orders Placed / Total Number of Shopping Carts) x 100

2) Average Order Value (AOV)

Average order value is not just another term in the list of KPI’s. Rather, it too holds importance in improving the sales of the website. 

This indicator lets you know about the average amount of all the orders placed on the website so far. It also indicates the amount which is generally spent by any visitor on the site.

AOV= Total revenue generated from the website / Total number of orders placed

3) Conversion Rate (CR)

Conversion rate, a yet another term in the list of KPI’s. It is actually an important term if you need to know about the performance of your e-commerce store. It tells you about the number of visitors who actually bought something to the total number of visitors on the website on any particular day.

CR = (Total Number of Visitors on the Website / Total Number of Conversions) x 100

4) Customer Lifetime Value (CLV)

Customer lifetime value indicates the money spent by a customer in time of their connection with your business. 

Customer lifetime value helps you to analyze your current marketing strategy & prepare a suitable course of action for the acquisition of new customers.

CLV = (Annual Profit Contribution of the customer x Average Number of Year as Customer) – the Initial Cost incurred in Customer Acquisition

5) Customer Acquisition Cost (CAC)

Customer acquisition cost is the total amount spent by businesses in acquiring new customers. Let’s try to understand this with an example; suppose you spent 100$ in marketing and advertisement of your products & services. And, before the closure of the campaign, you managed to lock ten new customers. Hence, the average cost incurred in acquiring every new customer would be 10$. 

CAC = Costs Spent on Acquiring New Customers / Number of Customers Acquired

The last two terms have a very important relation between them which is worth mentioning here. If your customer acquisition cost (CAC) is equal to or greater than customer lifetime value (CLV), then you’d probably be out of the business very soon. It’s very simple math which you need to take into consideration. You can’t afford to stand higher business expenditure on lower revenue generation.

6) Churn Rate

Churn rate refers to the percentage of customers who buy from the website & never return to the site again. Higher churn rate implies lower CLV (customer lifetime value). To put it another way, it also allows you to know about the rate at which the customers are leaving the website & cancelling the subscriptions.

As we are aware of the fact that to make the business profitable, we need our customers to keep coming back to make purchases. So, to ensure it, we must implement some fruitful strategies in order to influence customers to make purchases again & again.

Annual Churn Rate =

{(Number of customers at the beginning of the month – Number of customers at the end of the month) / (Number of customers at the beginning of the month)} × 100

7) Bounce Rate

The role of the bounce rate in measuring the performance of the website is very crucial. At the end of the day, when you want to know about the prospective customers that you may have acquired, then you will surely need to know the numbers.

Bounce rate is the percentage of visitors who left the website after visiting the first page of your store. Now, you surely need to look into the reasons so that changes could be implemented ASAP. The reason to mitigate the factors contributing to an increased bounce rate is very simple.

You want your customers to stay longer so that they get to know more about the store & eventually buy from the store.

Bounce Rate = Total Number of One-page Visits / Total Number of Entries to a Website

8) Referral Sources

How visitors are landing on your website is very important to track. Hence, the role of this KPI becomes very crucial in such a case. Referral sources are the links, ads, videos that help to redirect visitors on the website. It also helps in assessing the performance of various Ad campaigns of the website running across the internet.

The info about the poorly performing campaign will help you take suitable actions to improve them. 

Look! As there are various metrics or performance indicators out there. Hence, it isn’t possible or even feasible to list out all of them here. And, you also don’t even need to know or measure all of them. Pick only those KPI’s that in any way affect the performance of the website & improvement in them might improve sales.