In the e-commerce industry, an inventory of great products is just the first step on the road to success. And with a Statista 2021 report suggesting that e-commerce will exceed $1 trillion annually by 2025 in the fashion category alone, your brand has every opportunity to reach a lucrative market online. Using the operational savvy and skills that you’ve developed through sourcing, fabrication, distribution and design efforts, you are well-equipped to create a data analytics program that will help you compete in a global marketplace. Build a program that highlights the following 10 key performance indicators (KPIs) and you’ll have the visibility to transform raw data into crucial insights.
Data Infrastructure
Building a useful data analytics infrastructure doesn’t have to be time-consuming or expensive. Most commercially available e-commerce platforms ship with simple data analytics capabilities that offer insight into your online store’s key metrics right out of the box. Build a site from scratch, however, and you’ll need to take extra care. There are a variety of software programs designed to help to ensure that your data tracking and recording are accurate. For the KPIs described below, it is essential to know how many visitors your site is attracting, where they are coming from and what actions they are taking as they navigate your store.
10 KPIs to Prioritize
According to a McKinsey & Company report, “Retailers that overemphasize e-commerce revenues could actually be damaging their prospects. … Since e-commerce is a significant contributor to growth for most retailers, they must not only have a strategy for how to generate more growth from this channel but also ensure that the strategy creates value for the organization.”
The following 10 KPIs should be top of mind anytime you’re making changes — whether that’s launching a new product, testing the efficacy of a campaign or tracking performance. Use basic tracking capabilities of your software or e-commerce platform and the formulas that follow to generate insights that will help you take your business to the next level.
1. Conversion Rate. A company’s conversion rate indicates how successful its strategies are in leading consumers to take particular actions on its website. Conversion rates track online sales, visitors that opt-in to marketing campaigns, click affiliate links, complete transactions and more.
Measuring conversation rate: Divide the total number of website visitors by the number who successfully completed a desired action.
2. Cost per order (CPO). To ensure that your total cost per order doesn’t negatively impact your profits on each sale, it’s essential to have an understanding of your non-advertising or non-marketing costs, such as shipping costs, fulfillment, operating expenses and other variable expenses as well as how these are allocated to an individual order basis.
Measuring cost per order: Divide total costs by the number of orders in that time period.
3. Net Profit. Turning a profit is the key to the continued growth and success of a company. Net profit is a useful barometer for the health of your business, allowing you to see at a glance what your e-commerce channel is making (or losing) overall.
Measuring net profit: Add your total earnings, then subtract cost of sales, operating expenses and interest.
4. Customer Acquisition Cost (CAC). Similar to your CPO, your CAC is the cost, in terms of marketing expenses, to acquire a new customer. This includes any sales or marketing-related expenses, including expenses associated with producing, placing and maintaining customer acquisition efforts. CAC may be most revealing when studied alongside your customer lifetime value (CLTV).
Measuring customer acquisition cost: Add total sales and marketing expenses, then divide that figure by total number of customers.
5. Customer Lifetime Value. Insights into CLTV, the total value of a customer to the business over the entire relatinship, help brands understand how likely a customer is to repeat their business. When analyzed alongside CAC, CLTV offers an idea of the total value of marketing, advertising and sales efforts that bring in new customers.
Measuring customer lifetime value: The total expenditure associated with a customer’s account over its lifetime is that account’s customer lifetime value. Encourage users to purchase from an account to ensure you’re capturing this data accurately.
6. Revenue Per Visitor (RPV). RPV offers insight into the value of the engagement your store earns. This metric can show which promotions bring customers or get a better sense for whether your promotional campaigns should prioritize a certain profile of shopper or simply reach as many consumers as possible.
Measuring revenue per visitor: Divide your total revenues by the total number of unique visitors to your store.
7. Average Order Value (AOV). Your AOV measures the value of orders placed over a specified time period. Knowing your AOV can help you create levers that might increase revenues; minimums for free shipping, upsell opportunities, bundle deals, loyalty programs and time-limited promotions can all drive your average order value.
Measure your average order value: Add up all of your orders and divide that value by the number of orders.
8. Shopping Cart Abandonment Rate. The shopping cart abandonment rate is the rate at which a potential customer backs out of an order. According to Shopify, the average rate of shopping cart abandonment is roughly 70%. Analyze your process to make sure shipping times, additional costs, user experience and security aren’t turning customers away.
Measuring shopping cart abandonment rate: Calculate this metric as [1 – (the total number of completed transactions)/(number of all initiated sales)]*100.
9. Return Rate. Tracking your store’s return rate will give you crucial insight into any operational issues that may be occurring between the time your customers complete their transactions and receive their orders. Review your customer return process to ensure you’re asking for feedback on any issues that the customer encountered — here, numbers won’t be as revealing as your customer’s experience leading up to their decision to return a product.
Measuring units sold: You likely already have a return process that makes reporting the total number of returned orders easy to reference, so just make sure customers submit explanations for the return.
10. Product Performance KPIs. Tie product sales to revenue so that you know how well each of your products is moving. This visibility into can help you adjust your inventory so you can meet demand, rescope your product line and rethink the sales, advertising and marketing efforts that aren’t paying off.
Measuring product performance KPIs: There are many ways to gauge and measure product performance; what is most revealing for your purposes will depend on your industry, products, competitive landscape and other factors.
KPIs are just one set of the tools available for your e-commerce growth journey. If you have any questions about effective reporting processes or putting your analytics process into practice, contact a Friedman professional today or visit friedmanllp.com.
Michael Sacco is CPA, partner-in-charge of NYC-Long Island West and consumer products practice leader at Friedman LLP, Accountants and Advisors.
