IF YOU CAN’T MEASURE IT, YOU CAN’T IMPROVE IT.
The importance of knowing how well your website is performing cannot be underestimated. All too often, ecommerce brands ignore the treasure trove of Google Analytics data that’s just sitting there waiting to be analysed, which means that they don’t know how well they’re performing.
When we start working with ecommerce brands, these are the 5 metrics we look at to determine the overall health of their ecommerce website. Although there are plenty of other measurements you can look at, these five are going to assist you the most when figuring out how to make your business more successful. Please don’t be tempted to look at just one or two of these metrics and ignore the rest. These metrics complement each other and work together to inform your business decisions.
• TIP: The easiest way to get hold of these metrics is to make sure you have Google Analytics Ecommerce tracking set up on your website. It’s easy and it’s free, so go do it.
1. CONVERSION RATE
The average ecommerce conversion rate is 1.5-3%. This means that 97-98.5% of potential customers leave your store without making a purchase. As an e-commerce store, this common occurrence can be extremely frustrating, as the customer has expressed some level of interest in your awesome product, only to leave before you make your money. Even a tiny improvement in ecommerce conversion rate can have a dramatic effect on your bottom line, as well as the overall success of your business.
• TIP: If you have a number of high-ranking pages on your website that don’t generate any revenue for your business, you might want to exclude these pages from your analysis. Examples include size chart page, laundry guide, blog posts that don’t convert visitors into customers, etc.
• WEBSITE CONVERSION RATE
Calculating this percentage is as easy as seeing how many customers visit your store compared to the number who actually make a purchase. For example, if 100 people have visited your store but only 3 of them buy products, your conversion rate is 3%.
• CHECKOUT FUNNEL CONVERSION RATE
Analyse your checkout flow to bring additional insight into why potential customers leave empty-handed. It’s as easy as seeing how many customers fill a shopping cart to the number who actually make a purchase.
A typical conversion flow looks like this:
1. Product Page View
2. Add to cart
3. Initiate Checkout
4. Paypal confirmation page (optional)
5. Complete Checkout
For example, if 100 people have items in a cart, 60 initiate checkout but only 30 of them buy products, your CCR is 30%.
2. CUSTOMER ACQUISITION COST
You can’t have a successful ecommerce business without getting a firm grip on your marketing costs. It can be tricky to understand your return on investment (ROI) when it comes to things as intangible as marketing and advertising. That’s where your CAC comes in.
Customer Acquisition Cost metric is simply the cost of convincing a potential customer to buy a product or service.
To calculate your CAC, divide all the costs spent on acquiring more customers (i.e. marketing expenses) by the number of customers acquired in the period the money was spent. For example, if a company spent $100 on marketing in a month and acquired 10 customers in the same month, their CAC is $10.00.
• TIP: Use this metric in conjunction with Customer Lifetime Value to analyse the effectiveness of your marketing efforts.
3. CUSTOMER LIFETIME VALUE
As we mentioned, knowing your Customer Acquisition cost is only half the equation. If your CAC is $10.00, that won’t mean much if the lifetime value of a customer is just $12.00. However, if your Customer Life Time Value (CLTV) is $100, then that means you’re getting a fantastic return on investment (ROI).
4. AVERAGE CART SIZE
Average Cart Size (aka average order value) is the average of all of your purchase orders, so it’s imperative that you have an accurate estimate, as it will influence other metrics, like Customer Lifetime Value.
Realistically, the best way to determine Average Cart Size is to divide your total revenue by the total number of orders. For example, if you made $1000 off of 10 orders, then your Average cart Size would be $100.
5. RETURN ON INVESTMENT
Did you know that by not calculating your e-commerce ROI, you may be losing money?
It goes without saying that you always want to invest money so that you get back more than you originally invested. To calculate your ROI, you have to take into account your margins, inventory costs, payment processing fees etc, as well as marketing costs.
Please note that calculating your return on investment requires you to be very aware of the nuance and context around your business’ framework and goals. You have to take into account other metrics like Customer Lifetime Value, long term business goals etc.
ROI = ($Profit – $Investment) / $Investment