How do you know if you have a successful online business? There are certain e-commerce metrics that every online business must monitor and manage. These metrics track sales value, profitability, and the customer experience. Below are the five most important e-commerce metrics to monitor.
Customer Acquisition Cost (CAC)
In order to attract customers to your web store and complete a sales transaction with them you will incur many different costs along the way. What are the total costs associated with obtaining one customer?
This is an important number to know and understand. The goal is to reduce this amount as much as possible so that you can increase profitability. To determine this cost you must consider all costs including marketing (Pay-per-click, email campaigns, lists, etc.), sales costs (including salaries, commissions, etc.), web store technology and software tools, sales discounts, and per transaction costs.
Divide these costs by the number of customers that have made purchases to determine the cost to acquire one customer.
Customer Lifetime Value (LTV)
The goal in any business is to have as many repeat customers as possible. If you have provided products and services that the customer gets value from, they will be a customer for a long time. What is the expected total amount that your customers will spend with you over the life of your relationship with them?
This e-commerce metric is only significant when you compare it to the costs of acquiring the customer. If the amount you spend to get the customer is more than the expected sales you will get from the customer you will not be in business very long.
As a result, comparing the LTV to the CAC is very important. Decide what a good ratio is for you. Typically having a customer value of 2.5 times the cost of acquiring the customer is a good benchmark. As you monitor this metric you want to see it get larger over time.
Average Order Value (AOV)
The average order value describes the typical sales value of an order. This is an important e-commerce metric because it tells you how many sales you need to make in order to meet your goals. If your monthly sales goal is $10,000 and an average order value is $200. Then you will need to make 50 sales that month.
As discussed above with the customer’s lifetime value, the average order value is more meaningful when it is compared to the transactions costs associated with an order. When the ratio of AOV is compared to average transaction costs a profit margin ratio can be determined which helps to identify profitability trends.
If taken one step further and monitored on a product or product line basis, you can easily determine which products and services are your most profitable allowing you to focus your marketing and sales efforts on those business lines that drive organizational growth.
Website traffic is the life blood of every e-commerce business, but traffic that is not converted into sales is useless. Knowing what percentage of your visitors become buying customers is an important e-commerce metric because it helps you to determine where to spend your time and money.
If you have good traffic to your site and a low conversion rate, you need to spend your efforts on finding out why they are not buying. Getting more traffic will not provide the results you want. Over time you want this ratio to increase so that more visitors become buyers.
Getting a visitor to your site that goes through the effort to find the products and services and adding them to a shopping cart only to abandon the cart is very disappointing. How often does this happen to you?
This e-commerce metric shows the percentage of visitors that have added products to a shopping cart that did not complete the buying process. If this percentage is increasing you may have an issue with your shopping cart experience.
Maybe you are trying to upsell too much during checkout. Or you are not informing the customer of extra costs like shipping, insurance, or transaction fees prior to checkout. Review the checkout process of your site and determine how you can make it more efficient and user friendly.
The most important e-commerce metrics that you can monitor are the ones that make sense for your business and contribute to its growth. When deciding on which ones to track, look at those that monitor sales value, profitability, and customer experience. These are the ones that will add the most value.
Martin Begley, CISA, is Director of Management Consulting Services at Business Solution Partners and is a Certified Information Systems Auditor (CISA). He specializes in helping small and mid-sized businesses meet their strategic goals through designing, implementing, and executing performance management strategies, technology solutions, and corporate policies and procedures. You can follow him on LinkedIn at www.linkedin.com/in/martinbegley/