In eCommerce, developing key performance indicators (KPIs) to test and measure your online store’s performance is essential. Without the right metrics, you will likely miss out on ways to optimize your product offerings, pricing, marketing, product placement, store usability, and more. While there are many KPIs to choose from, this article covers eight performance indicators that have the capacity to measure and clarify important information about your business.
Average Order Value (AOV)
Average order value is the average amount of money a customer spends when they place an order. Many sellers use this metric to understand how to improve things like pricing strategy and marketing efforts. In general, if you are able to improve average order value, you will be able to directly impact your profitability. Additionally, AOV provides insight into your customers’ purchasing behaviors. When you know how much customers are spending per order on average, you can then experiment with strategic changes to improve this value overall.
Conversion Rate (CR)
Conversion rate represents the number of visitors to your website who actually convert (place an order). When tracking individuals who arrived from particular marketing campaigns, CR allows you to understand the effectiveness of a given advertisement. Further, examining conversion rate across all traffic allows you to test and hone in on individual parts of your store that may need improvement. It is also worth noting that there is a meaningful relationship between AOV, CR, and Revenue Per Visitor (RPV).
Cost Per Click (CPC)
Cost per click (CPC) represents the amount a seller pays every time a potential customer clicks on one of their ads. If a seller’s ad is successful (yielding a high conversion rate and average order value), then the cost per click will be low. If the ad underperforms, a seller will pay a disproportionately higher cost. Sellers can minimize CPC by planning their advertising strategy well in advance — this often means completing keyword research, investing in professional photography and graphic design, creating compelling copy, and placing ads effectively for their customer segments. Overall, CPC allows sellers to measure the effectiveness of their advertisements and budget how much advertising costs on various search engines and platforms.
Cost Per Mille (CPM)
Cost per mille (otherwise known as cost per thousand) measures the cost a seller pays for one thousand advertisement impressions. An impression is equivalent to one ad view or viewer engagement on an advertisement, and it is used to determine the price of an ad on platforms like Facebook, Instagram, and Google. If CPMs are high and conversion rate is low, then you will likely need to test and make adjustments to your advertising strategy. CPMs can also be driven up erroneously by things like duplicate viewers, ad fraud, and ads that don’t load.
Customer Acquisition Cost (CAC)
Customer acquisition cost represents the money a seller invests in converting a new customer — this includes things like advertising, promotions, etc. CAC is calculated by dividing sales and marketing costs by the number of new customers acquired. In eCommerce, sellers can use CAC to optimize their sales and marketing strategies. Experiment with this KPI by testing changes to advertisements or marketing strategies independently and measuring the CAC over the duration of each test. The CAC should give a clear indication of which experiments are worthwhile and which do not deserve further consideration.
Customer Lifetime Value (CLV)
Customer lifetime value is defined as the total worth a customer brings to a business during the duration of their relationship. Securing new customers is much more expensive than reengaging existing ones, so sellers should strive to increase CLV as a way to drive growth. To improve CLV, ensure that you are taking feedback from customers at various points throughout the sales process. Measure CLV over time to understand when, how, and why attrition happens within your customer base, and test changes to improve it.
Revenue Per Visitor (RPV)
Revenue per visitor is the average amount of revenue generated from each website visitor — it is calculated by dividing a company’s total revenue by their total number of visitors. RPV is important because it measures the total value of every visitor to your website, including those who convert and those who bounce — this allows you to see which elements of your marketing and sales strategies are working effectively. Further, RPV allows you to measure new visitor acquisition tactics. If your RPV is trending positively, this likely means any changes you have made to your strategy are helping. If your RPV is decreasing, this may mean there is an issue within your conversion funnel (shopping cart malfunctions, usability issues, etc).
Shopping Cart Abandonment Rate
Shopping cart abandonment rate measures the percentage of customers who place items in their virtual shopping carts but do not complete their purchases. An important KPI, shopping cart abandonment rate can be a helpful indicator of the health of your sales funnel and website functionality. High abandonment rates often signal an issue with shipping prices, hidden fees, required signup, or an overly complex checkout process. Reducing shopping cart abandonment rates by fixing these issues will increase revenue over time.
Measuring and testing your store’s functionality, user behavior, and marketing efforts allows you to make meaningful changes that will improve your bottom line. While these eight KPIs are highly useful, there are also many other KPIs that you may want to consider when measuring different aspects of your store. When experimenting with any changes, consider implementing A/B testing (or alternatives, if your business is low-traffic) to gather data and navigate the outcomes. If you would like to learn more about how a third-party order fulfillment provider like IronLinx can help positively influence your KPIs, contact us today.