Whether you're a retailer or an online service provider, it's essential to measure how well your business is doing. By determining the essential metrics and how to utilize them, you can increase your chances of success.
You can only make smart business decisions if you have the right metrics; otherwise, it’s like trying to navigate your way through a dark room. You might stumble across the coffee table and find a lamp to flip on, but wouldn’t it be easier just to turn on the overhead light?
The great thing about online businesses is that they are incredibly easy to track. Every click and every conversion can be tracked and analyzed so you know exactly where and when potential customers are abandoning their carts or leaving your site without converting. The right data allows you to change and improve strategies, helping you achieve faster growth and success.
Why do businesses need to use different metrics?
As with any business, it's not enough to manage your e-commerce initiatives blindly. Using metrics helps you understand what's working (and what isn't), make informed decisions, improve performance, and compare your performance to industry benchmarks. Metrics help you understand customer behavior and predict future performance by showing trends in past performance.
In other words, useful data and carefully selected metrics are the way to go if you want to grow your e-commerce business.
Create a baseline for your metrics
Measuring e-commerce success requires you to establish a baseline for your metrics. What were your sales and revenue before taking any recent action? Once you have this information, decide how often you want to measure their performance whether it's daily, weekly, or monthly. You can then set goals for growth and compare them against industry benchmarks or best practices you've gathered from others. While some of the major online data collection systems have plenty of reporting tools available, they can be overwhelming. Use time-saving software to create a schedule for reporting. When it comes to gathering and analyzing data on your e-commerce site, automation tools are quite handy; otherwise, you take the risk of errors through manual work.
How to measure the success of your business
Once you have your goal, it's time to define what metrics you will use to measure progress. This is where the rubber meets the road, and where most companies fall apart when it comes to measurement. Identify metrics based on your business goals. For example, for an e-commerce business, a common goal would be attracting more traffic and increasing sales. In this case, you'd want to measure things like average order value (AOV), conversion rate, and sales growth or revenue. You can also measure vanity metrics like site traffic or social followers as long as they make sense for your business model and are ultimately tied into a meaningful outcome.
Once you've identified what metrics you'd like to track, it's time to get data! Analyzing your data allows you to evaluate performance and compare results over time. You can use the information you collect to determine whether or not your business is improving or on the right track, and then create a strategy for success.
Every step that customers experience, every action taken or not taken, in short, every decision, creates useful information for businesses. Gathering that data effectively and turning it into meaningful understanding paves the way for you to create a suitable strategy for your e-commerce assets.
Is traffic lower than expected? Are people not buying as much as they used to? Are too many people abandoning their carts before checking out? The answers to these questions can help you make informed decisions about what changes need to be made within your e-commerce store in order to be successful in the long run.
Common metrics to use
An easy way to start measuring your wins and losses is by monitoring which metrics are most valuable to your business. Once you've determined what you want the metrics to tell you, it's a good idea to establish a baseline for each of them. That will give you something to compare future results against and allow you to track your progress over time. Here are the top 5 e-commerce metrics you need to keep an eye on:
>> Conversion Rate
Conversion rate is the percentage of visitors who take the desired action (like make a purchase) when they land on your page. It's calculated by dividing the number of conversions by the total number of visitors and multiplying by 100 to get a percentage.
If you want to grow your e-commerce business, conversion rate should be one of your top three priorities. It represents how many people take an action that will move them closer to becoming customers, whether that's making a purchase, filling out a form, or clicking through to another page.
>> Average Order Value
Average order value is another key metric to be watching closely. It's the average amount of money spent during a purchase on your site, and it's one of the easiest ways to see if you're doing well or not. If your average order value is going up, that's awesome it means that customers are spending more money per transaction than they were before. You're probably doing something right! But if it's going down, you might want to consider re-evaluating how you sell your products.
To calculate this number, simply add up all the transactions on your site over a given time period (say in a month), then divide by the total number of transactions. This will give you an average order value that can help you set goals for future sales and track whether or not those goals are being met. Increasing your average order value can have a huge impact on overall profits and revenue.
>> Cart Abandonment Rate
Cart abandonment rate refers to the percentage of customers who add items to their shopping cart, but do not complete the purchase. The typical cart abandonment rate is around 70%, which means you’re losing seven in 10 potential sales. By having a better understanding of why your customers leave, you can try and recover some of those lost sales. You also have a higher chance of re-engaging these shoppers in the future with relevant offers and discounts, leading to greater conversions. Take a closer look at this important metric by reading our detailed article.
>> Customer Lifetime Value
Customer lifetime value (CLV) is a metric that describes the total amount of revenue a customer brings to your business over the duration of their relationship with your brand. It’s important to realize that CLV does not equate to the “average” amount of money one customer will spend. It’s more about knowing how much you can spend on marketing and sales efforts that don’t exceed the return on your investment.
CLV also helps you set smarter goals for your e-commerce store. If CLV is high, then it’s a no-brainer to invest in activities that will help retain existing customers and grow their lifetime values; if it’s low, then it might be time to invest in customer acquisition until the average CLV increases.
>> Bounce Rate
The bounce rate is the percentage of visitors who navigate away from your site after viewing only one page. A high bounce rate indicates that visitors are not finding what they want on your site and are leaving quickly. A low bounce rate, on the other hand, indicates that visitors are finding what they want on your site. As you can imagine, a high bounce rate is typically not great news for e-commerce sites it means there's likely something about the user experience that needs to be improved in order to get people to stay longer and make more purchases.
Get better results with the power of data
The best way to evaluate your e-commerce success is unique to your brand, meaning that the answer depends on what you ultimately want to get out of your online sales.
There are several ways to measure success. You can examine the traffic coming into your site, are people coming there from social media? Are they searching for a certain keyword in search engines? Do the buttons in your app attract shoppers? These details can also track whether or not your business is performing well.
Accurately measuring a business's most important metrics requires a comprehensive strategy and effective execution. Managing this process on your own can be challenging, and details you may overlook can cause a loss of income. Digital growth management professionals who are experts in their field can facilitate this process for you. Inveon's talented team GrowthLab can help your business to leverage the power of data, turn the collected data into actionable insights and execute the required actions.
Contact us today to gain a better understanding of your consumers and provide the best experiences possible.
