10 key performance indicators in e-commerce

Anna Meller

ata is the basis of a successful business. They allow us to analyse the customer's behaviour on the next steps of the purchase path, indicate what obstacles they encountered, what interested them, how often, and how much they buy. In this article, we will analyse the most important KPIs in e-commerce.

Only by regularly monitoring relevant indicators diagnosing sales processes and reacting efficiently to identified bottlenecks can you respond effectively and optimise e-commerce sales. In modern business, you don't need to guess what customers like best or why they abandoned a purchase - analytical tools integrated into your shop will show you this in the form of measurable indicators, giving you the opportunity to optimise your e-commerce platform and sales strategy. Here are 10 performance metrics, or KPIs (Key Performance Indicators), that are worth paying special attention to. 

1. average order value (AOV)

AOV (Average Order Value) is information about the average amount that customers spend at one time in an online shop.

Average order value = total sales revenue / number of orders

The average order value helps to set realistic targets for new customers. It is also the starting point for designing sales activities, as increasing the average basket value is the second priority strategic action, in addition to reaching new consumers. The relationship is simple: if the AOV increases, so does the company's revenue. 

AOV is an important KPI to help determine a minimum threshold of basket value for which it is worth setting promotions, discounts or sales. 

Effective methods for increasing the average order value are

  • free shipping over a given amount, 
  • selling products in sets, 
  • adding freebies to orders, 
  • cross-selling, i.e. the recommendation of complementary products in the form of add-ons or accessories to a purchased item 
  • up-selling, i.e. recommending a more expensive, better version of a product, e.g. with additional features or better performance.

2. Cart Abandonment Rate

The Shopping Cart Abandonment Rate measures the percentage of shoppers who add items to an online shopping cart, but leave the site before making a purchase. Shopping cart abandonment occurs when a customer does not complete the transaction process even though they have already selected the products they intended to buy.

Abandoned Cart Rate = (number of completed purchases / number of created carts) x 100%

The rate of abandoned baskets is one of the key indicators in the e-commerce industry. Market research shows that baskets are abandoned by almost 70% of customers who first put effort into selecting products to purchase (Chamber of the Electronic Economy, 2021). The lower the value of this KPI, the better the shopping path, although the problem of abandoned baskets cannot be completely avoided - the best-optimised shops are characterised by a basket abandonment rate of 20%. An increase in the value of this indicator means an increase in customer discomfort in the area of the ordering process, delivery, or aversion to hidden costs that surprise them when finalising the order. 

Customers leave unpaid carts when:

  • the option to purchase without registration is not available and they must create an account, 
  • have to fill in too much data when placing an order,
  • are surprised by additional payments, e.g. the high cost of delivery,
  • the delivery time is far off, e.g. more than a week,
  • The total value of the contract is very high,
  • The shopping cart does not immediately accrue discounts and promotions.

Sometimes it is difficult to identify the reasons for shopping basket abandonment. In such cases, it is worth investing in an e-commerce audit, including a UX audit analysing the quality of the shopping path. 

Other methods of lowering this KPI include: sending cart abandonment reminder emails, installing progress indicators on the checkout page to keep track of order progress, and implementing Google auto-complete, which saves shoppers time and greatly enhances the shopping experience on mobile devices.

3 Conversion Rate (CR) 

The Conversion Rate, or CR or CVR, determines the number of users who took an action that was desirable from the company's point of view, such as clicking on an advertisement, informational material, or moving on to the next stage of the purchasing process. The sales conversion rate determines the total percentage of visitors who made a purchase in an e-commerce implementation. 

Sales conversion rate = (number of purchases / number of sessions) x 100%

This indicator determines the effectiveness of advertisements and landing pages. Depending on the industry, the sales conversion rate varies between 2.4% and 9.8%. In the e-commerce industry, it averages 5.2% (Unbounce, 2021). The higher the CVR value, the more effective the targeting efforts.  

Modern e-commerce platforms, such as Adobe Commerce (Magento) or Shopware , have preloaded tools that report on the entire conversion path or allow the installation of analytical tools. This allows online shop owners to know the percentage of people who add products to the basket, click on the basket summary, and reach the checkout, and the actual buyers. Insight into the entire sales funnel including the payment process is one of the best ways to identify weak links in the e-commerce sales structure. 

4. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is about calculating the revenue generated from monetising a customer relationship over its lifetime. In other words, it means how much a shop will earn from a relationship with a consumer based on the value and frequency of the consumer's purchases and the length of time the person has been a customer of the shop.

CLV = annual revenue per customer * average number of years of customer relationship – initial customer acquisition costs

The Customer Value Value (CLV) is used to predict the value that a business will receive to estimate the level of expenditure worth investing in building customer relationships. The CLV allows you to optimise the budget needed to acquire the most valuable customers with a specific profile. 

The customer value index gives knowledge of the customer segments that bring the highest profit to the company. It is important in developing strategies to build long-term customer satisfaction and loyalty to increase the frequency and likelihood of customer purchase.

5 Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) is an indicator of how much it costs, on average, to acquire a new customer, i.e. how much money a company spends to convince a consumer to make their first purchase in a shop. The CAC indicator includes all marketing, communication, branding and promotional activities aimed at bringing a customer into a shop. 

Customer acquisition cost (CAC) = amount spent on marketing/number of customers acquired

The cost of customer acquisition allows the profitability of a customer acquisition strategy to be assessed and to determine whether marketing activities are profitable. For different industries, the CAC value is at different levels. However, it is always the case that the greater the difference between the customer lifetime value (CLV) measurement and the cost of customer acquisition, the more effective the marketing strategy. When the cost of customer acquisition approaches or exceeds the customer lifetime value (CLV) level, it means that the strategy is unprofitable and marketing activities should be optimised. It is important that when it comes to marketing, 'optimise' does not necessarily mean 'reduce'. Many companies, fearing a high CAC, drastically reduce their marketing budget and, as a result, not only fail to attract new customers but also lose existing customers to competitors who have been able to compete better for them. The key, therefore, is to invest resources in tools better suited to the desired target group.

6 Net Recommendation Score (NPS)

The NPS (Net Promoter Score) is an indicator based on a question that verifies the propensity to recommend a product or service to others by means of a question such as "On a scale of 0 to 10, how likely are you to recommend our product to your friend or acquaintance?". Responses are divided into three categories: promoters are customers who gave a rating of 9-10, passives are those who gave a rating of 7-8 and detractors are customers who gave a rating of 6 or lower. The NPS is then calculated using the following formula: 

NPS = % Promoters - % Critics

The Net Recommendation Index is a tool for assessing the satisfaction and loyalty of a company's customers. It provides an alternative to traditional customer satisfaction surveys. At its core is the assumption that the NPS value is correlated with revenue growth. 

The Net Promoter Score can range from -100 to 100, a negative number means that there are more detractors than promoters. Interpretations of the NPS vary. According to one of the most commonly used: 1-50 is a good score, 51-70 is very good, and above 71 is world-class (Questionpro).

The NPS provides valuable insight to design targeted activities for each group. Proven practices include rewarding promoters with discounts, free gifts and special promotions, engaging in dialogue with passives, as well as identifying sources of dissatisfaction in detractors and then eliminating them. 

7 Customer retention rate (CRR)

Customer Retention Rate is the percentage of returning customers, i.e. those who have made more than one purchase from the shop. 

Customer Retention Rate = (number of returning customers / total number of customers) x 100%

The customer retention rate provides an indication of how many consumers choose to use the services or products offered by a company again. Retaining current customers and encouraging them to buy again from your online shop is more effective and less expensive than acquiring new customers. Increasing customer retention rates by 5%, increases profits by as much as 25% - 95%, and the investment in loyalty pays off in the long term. Consumers who return to a shop 24-30 months into their first purchase spend at least twice as much in the shop as they spent within 6 months of their first transaction (HBR).

Normally, e-commerce implementations record a retention rate of 20%-30%. The higher the value of the ratio, the greater the sales effectiveness with less ad spend. 

Activities that increase the value of CRR are 

  • retargeting ads, 
  • loyalty and subscriber programs, 
  • digital gift vouchers,
  • personalisation of product recommendations,
  • newsletters.

8 Click-through rate (CTR)

The CTR (Click-Through Rate) is the number of clicks on an advertisement divided by the number of times it is displayed. The click-through rate defines how often users click on a piece of information about a product or service and are thus directed to a page dedicated to that product or service. 

Click-through rate (CTR) = number of clicks / number of impressions) x 100%

The CTR can apply to an advert, post, article, or mailing within a campaign, determining its effectiveness. A high CTR means that potential customers find the adverts or other messages displayed to them relevant and useful, which positively influences the SEO. The click-through rate is also indirect information used to determine the effectiveness of keywords and individual graphic variants of advertisements.

If the click-through rate is 2%, this means, for example, that the ad has been clicked 2 times per 100 impressions and is a good result for the e-commerce industry in Google search. 

9. Bestsellers

Bestsellers, or simply the most frequently purchased products is information for retailers on the popularity of a product range. This indicator is qualitative, not quantitative, and is created in the form of a list of the most popular products in the shop. Knowing it allows you to maintain an appropriate stock threshold and plan production or purchases in advance. It also shows which items in the range represent a brand differentiator and have the greatest promotional potential. It is worth noting that bestsellers often change seasonally; for example, in a cosmetics shop, creams with UV filters and moisturisers may be more readily chosen in summer, while rich, nourishing formulas that protect against the cold reign supreme in winter.

Every zloty spent on advertising a product that is attractive to high-demand customers has a greater chance of return on investment than less popular products. According to the BCG matrix, this group of products generally includes 'stars' and 'milking cows'. Stars are blockbuster products that are worth investing in because the market growth rate is high and the product itself is competitive and growing. Milking cows are products whose positioning growth is slow, but due to their large market share, they have a strong and stable position, generating net surpluses.

10. Site traffic

In the decalogue of KPIs that guard the quality of e-commerce, data on all visitors to the shop could not be missing. Four important metrics related to site traffic relate to total site traffic, traffic sources, devices, and the location from which traffic is coming. 

Website traffic - basic indicators:

  • Site traffic: the number of visitors to the site over a selected time (e.g. day, month, year)
  • Sources of traffic: possible options are search results, direct address, social sources, and email
  • Traffic-generating devices: computers, tablets, mobile devices
  • Locations from which traffic flows (by country, city, etc.)

Website traffic is a measure of the number of users who visit a website in a certain period. It is one of the basic indicators verifying the effectiveness of a shop's marketing and SEO. 

In simple terms, the more visitors to the site, the greater the effectiveness of the outreach, as a large number of users increases the chance of making a purchase. In practice, the quality of the traffic and reaching the right target group is also important, i.e. identifying the channels that provide real customers. If your shop is visited by several hundred thousand people per month, but a few thousand make a purchase, it is worth verifying that your communication efforts are not focused on the wrong target group or analysing the UX of the website.

Interpreting data on traffic sources and devices makes it possible to determine where customers are coming from, which devices they are using, and how they are responding to campaigns. Analysis of this data enables a better understanding of consumer behaviour and the planning of offers and communications profiled to their needs and habits. 

E-commerce metrics are valuable sources of knowledge about the market, customers, their behaviour, habits, and even their aspirations. These data, precisely monitored, should form the basis of important business decisions regarding marketing activities and improving the purchase path a customer goes through. Properly optimised, they are the key to e-commerce sales success.  

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