Do you have KPIs for your e-commerce site? Do you follow these indicators to evaluate your efficiency and confirm that your choices are the right ones? Of course, your sales figures speak for themselves and are a good measure of your success, but if you really want to succeed, you have to go far beyond that!
Because analyzing specific KPIs can give you access to a wealth of information, data and insights to refine your strategy and marketing plan. You will be able to understand what works and what doesn’t, the areas to work on and the corrective measures to put in place to boost the sales of your online store.
In this article, we will look at the definition of a KPI and the 6 crucial KPIs for any e-commerce site. We will give you the keys to set up a dashboard to manage and optimize your business!
1. Shopping cart abandonment rate
Shopping cart abandonment is a term used in e-commerce to designate visitors who place items in their shopping cart, but then leave the site without completing the purchase. This is a very common situation: it is estimated that the average cart abandonment rate is around 70%.
It is a good practice to measure this rate to confirm that it is within the average. How do you measure it? The cart abandonment rate is calculated by dividing the number of purchases made by the number of carts created. To convert the rate to a percentage, subtract your number from 1, then multiply it by 100, which is:
1 – [(Number of transactions made) ÷ (Number of carts created)] x 100 = Percentage cart abandonment rate
For example, if you have 50 purchases made out of 250 carts created, the cart abandonment rate will be 80%:
1 – (50 ÷ 250) x 100 = 80 %
There are solutions and tools to reduce your cart abandonment rate. We have devoted an article to this subject, called churn or attrition rate by specialists.
2. Conversion rate
Are your product sheets and call-to-actions on your site effective? Do they encourage your visitors to take action and buy your products? Your conversion rate will help you answer these questions.
The conversion rate refers to the percentage of your visitors who take an action on your website. This action can be making a purchase, but also something else like signing up for a newsletter. This is a particularly important KPI.
In e-commerce, the average conversion rate is between 2.89 and 3.31%. This means that out of 100 visitors, two or three will convert. If that’s significantly less for you, and you have a lot of traffic but few conversions, we encourage you to test ways to improve your site to boost conversion.
Sometimes small changes can make a big difference: more storytelling, a product video or a better site design.
To calculate your conversion rate, divide the number of conversions – whatever conversion you’re looking for, whether it’s newsletter sign-ups, purchases, etc. – by the number of visitors to your store, then multiply by 100 to get the percentage:
(Number of conversions ÷ Number of visits) x 100 = Conversion Rate
For example, if you make 50 sales out of 1,000 visitors to your online store, your conversion rate will be 5%:
(50 ÷ 1,000) x 100 = 5% conversion rate
3. Customer acquisition cost
The customer acquisition cost – also known as CAC – is the amount you have to spend to get a customer.
For example, let’s say that in one month, you spent 500 euros on Facebook and Instagram ads to promote your website and acquire 25 new customers. The acquisition of each customer will have cost you 20 euros (500 ÷ 25 = 20) .
If it costs you too much to attract customers compared to what they spend afterwards, you’ll have to adjust your strategy because you may have profitability problems! Understanding your CAC also allows you to better plan your marketing budget, and how much you need to spend to generate sales. The cost of customer acquisition on social networks has tended to soar in recent years (especially the cost per click on Facebook), hence the importance of tracking this KPI.
To calculate the cost of customer acquisition, simply divide the total amount you spend on marketing by the total number of customers these activities have acquired.
Amount spent on customer acquisition in Euros ÷ Number of customers acquired = Customer acquisition cost
4. Average basket
The average basket, also called average value per order (AVO), is a fundamental e-commerce KPI. It represents what each customer spends on average on your site.
Increasing the average basket is one of the most effective ways to increase your sales. Indeed, by receiving more money from each customer, you can absorb higher customer acquisition costs while maintaining your profits.
So how do you do it? We invite you to read our article on upsell and cross-sell and how these tricks and techniques can make your customers spend more.
To calculate the average basket over a given period, take your sales and divide it by the number of orders:
Sales ÷ Number of orders = Average cart
For example, if you have a turnover of $9,600 with 120 sales in one month, your average basket will be $80.
5. Customer lifetime value
Customer lifetime value (CLV) is the sum of the benefits that each customer is expected to bring to your business over the duration of the relationship.
Determining the value of a customer is a difficult but essential task. It will help you understand your return on investment (ROI), and is extremely useful when developing marketing strategies.
This KPI also helps you assess how well your company is retaining customers. This is crucial considering that studies show that:
A 5% increase in customer retention can increase company profits by 25-95%
Acquiring new customers is 5 to 25 times more expensive than retaining existing ones
Repeat customers spend 67% more than new customers.
It is important to note that customer lifetime value is rarely an exact science. However, what it lacks in accuracy it more than makes up for in the big picture this KPI provides.
Before you begin, you should have calculated three other averages from your data: average basket, average annual purchase frequency and average customer retention time in years.
Then, you can calculate the lifetime value of your customers by multiplying these 3 data:
(Average Shopping Cart) x (Annual Purchase Frequency) x (Average Customer Retention Time in Years) = Customer Lifetime Value
6. Net Margin
When you’re an entrepreneur, there’s one thing you should never lose sight of: profitability. A business is not a business if it does not make a profit.
To confirm your profitability, you need to monitor your margin. There are two types of margins:
– the gross margin, also known as the sales margin, which is what you make from the sale of products. To calculate it, simply deduct the cost of these products (purchase price) from your sales.
– The net margin goes further and takes into account all the expenses of your business (marketing, salaries, offices, etc.). It is this figure that will confirm that your business is viable.
Furthermore, a good margin allows you to free up cash, which can be reinvested in the growth of your business. On the other hand, if you spend more than you earn, you may find yourself in serious financial trouble.
To calculate your net margin, you need two things: your total sales and your total expenses (including all costs). The difference between the two is your profit: Sales – Costs = Profit
Then, to calculate the net margin rate, divide your profit by your sales, and multiply the result by 100.
(Profit ÷ Sales) x 100 = Net Margin as a percentage
For example, if you made $20,000 in sales with costs of $15,000, your profit would be $5,000. Divide 5,000 by 20,000, then multiply the result by 100 to get a margin rate of 25%.