10 2023 E-Commerce Key Metrics [+1 That’s Often Missed]
Which E-commerce Metrics Should You Track?
There’s no debate that running an e-commerce store in 2023 can be challenging. Your store is roughly one of 24 million other ones competing for the same customers. You’re in the business of building customer relationships, handling supply, managing inventory, and ensuring your system is up and running 24/7.
It’s easy to get lost in the crowd when you don’t keep track of important e-commerce metrics that determine if your business will be in profit or loss. To that end, in this article, we’ll cover 10 crucial e-commerce metrics for every business owner, why you need to track them, and how they help you run a successful store.
Metrics or KPIs: Which One Matters In Ecommerce?
They both matter. With the advent of several e-commerce performance tracking tools, everything is measurable now. From shopper’s interaction, page load time, location, product shopping rate, time spent on page, down to page clicks—these are all data points.
With access to this wide variety of data points, it’s common to find yourself running your e-commerce business in a data-centric loop. This involves tracking the wrong data to validate an unrelated or insignificant output.
One example is using your store’s traffic to validate your cart abandonment rate. In this case, a heavy or low traffic volume is insignificant to the output (i.e., rate of cart abandonment). Rather, website speed, page experience, and inventory, are the big players.
To fix this this problem, you need to answer two questions:
- What data are you tracking? (metric)
- Why are you tracking it? (KPI)
What are KPIs?
KPI or Key Performance Indicator, is a measurable value (or set of values) used to evaluate a company’s performance against set goals, targets, or objectives.
What makes a good KPI?
In e-commerce (and across other industries) KPIs serve as a guidance to ensure you don’t stray from your target.
For this to happen, a good KPI must:
- ensure business performance is in line with set objectives
- provide measurable and accurate data to make informed decisions
- evaluate possible business outcomes using strategic indicators to visualize business progress
For example, if your quarterly goal is to increase sales by 7% in your online store, the KPI to track would be cart abandonment rate, average order value, conversion rate, and cost per acquisition.
Related → How To Speed Up Your Shopify Website [5 Ways]
What are Metrics?
Metrics are quantifiable measurements used to track the performance or progress of specific
business activities. Simply put, any data point tied to any activity in a business qualifies as a metric. The number of web visits your online store gets is a metric.
The simplicity of qualifying every data point as a metric diminishes its relevance to your business goals. Hence, giving way to redundant and insignificant metrics commonly known as vanity metrics. An example is tracking your Instagram likes as opposed to your ad conversion rate. Unless your metrics are closely aligned with the KPI, they’re vanity metrics.
Let’s say your goal is to reduce your cart abandonment rate using email marketing campaigns. Analyzing the email open rate alone is a vanity metric. In other words, it’s irrelevant.
However, the metric becomes relevant once you’re analyzing the open rate to see which customers are going back to the store and buying the products they left in their cart: that’s KPI.
When choosing a metric with which to measure for your e-commerce, evaluate them based on these questions.
- Does this metric have influence over other metrics?
Ideally, you’ll only want to measure metrics that have an effect over other metrics that all align with your intended KPI.
For example, optimizing your e-commerce website page speed. The domino effect is it reduces your bounce rate and increases your dwell time, which significantly improves user experience and helps shoppers buy more from your store.
- Will measuring or improving this metric have an impact on set goals and objectives?
If the metric isn’t contributing to your KPI, don't include or measure it.
Related → Read How MyKitsch Cut Their Page Load Time By <1 Seconds And Hit Record Sales
Are KPIs and Metrics The Same Thing?
No. KPIs and metrics are often used interchangeably, but they don’t do the same thing. There’s no use measuring tens or hundreds of metrics if they have no significant impact on the business’s KPIs.
💡Remember this → KPIs are metrics. But not all metrics are KPIs
10 Crucial E-commerce Metrics You Should Be Tracking
Running an e-commerce store is no easy task. There’s a lot to consider, from keeping track of inventory and supplies to order fulfillment. Keeping track of important e-commerce metrics is just one more thing to add to the ever-expanding list of to-do’s.
Knowing which metrics to track to ensure you run a profitable business shouldn’t be a hassle. To that end, here are 12 important metrics that are vital to your e-commerce storefront’s success.
1. Customer Acquisition Cost (CAC)
Customer acquisition cost is how much it costs to gain a new customer. This cost cuts across all organic and paid marketing channels—and everything else it costs to make a sale.
A general formula for calculating your customer acquisition cost is:
CAC = cost of marketing / number of new customers acquired.
For example, if you spent $10,000 on a Facebook ad campaign that brought in 1000 new customers, your CAC would be $10. That means, it costs you $10 to get a new customer.
Your CAC is relative to the cost of your product and how much the average customer spends in your store (average order value).
A good rule of thumb is to ensure your average order value exceeds your customer-acquisition cost.
💡Note: Measuring your CAC will only be effective when compared with other metrics like average order value, custom lifetime value, customer retention rate, etc.
Related → 10 New Changes To Shopify Online Store 2.0
2. Average Order Value (AOV)
Average order value is the average amount customers spend each time they place an order in your store. This metric helps you gauge your overall revenue by comparing marketing spending against the cost of acquiring new customers.
A general formula for calculating your average order value is:
AOV = revenue / number of orders.
For example, if your store pulls in $10,000 from 200 orders, your AOV will be $50. That means, the average customer spends $50 each time they place an order. Now, your AOV relates to your CAC. If your CAC for each customer is $10, then 200 customers cost $2000 in marketing spend. Ideally, you’re making profit at a decent $40 margin on each order.
3. Customer Lifetime Value (CLV or CLTV)
Customer lifetime value is the average amount a customer spends over their life cycle or relationship with a business. This is a measure of projected income your store intends to generate from a single returning customer. This way, it’s easier to estimate your business’s financial viability, brand loyalty, and customer satisfaction.
The general formula for calculating your customer lifetime value is:
CLV = average order value (AOV) x average purchase frequency x average customer lifespan
For example, if your average order value is $50, and they make 20 orders per year, and continue to order from you for 5 years, then your estimated CLV is $50 x 20 orders x 5 years = $5,000. So, each customer’s worth to your business is $5,000.
Knowing your CLV helps you make strategic financial decisions on how much you should spend on customer acquisition. For instance, spending $1,000 to acquire a new customer whose CLV is $17,000 within 8 months is good business.
💡Remember this: A good CLV: CAC ratio is 3:1. This means, you should make 3X what you spend on acquiring new customers. Simply put: For every $1 spent, you have to make $3 back to remain profitable.
4. Sales Conversion Rate (CR)
Sale conversion rate (CR) measures the percentage number of people who bought a product from your store after visiting. This metric helps you estimate the amount of traffic your store needs to generate a target revenue.
The general formula for calculating your sales conversion rate is:
CR = (number of purchases / number of sessions) x 100
Since sales conversion rate is based on percentage, you need to multiply your results by 100.
Let's say last month you had 5,000 visits to your store which resulted in 1,000 sales. (500 / 5,000) x 100 = 10%That means your conversion rate is 10%—which is a great benchmark.
According to reports from Invespcro, the average e-commerce conversion rate is 2.63% in the US and 4.31% globally. Your conversion rate is dependent on several factors, like type of product, industry, location, marketing channel, audience, etc. These make the standard conversion rate vague and unreliable.
For example, for someone selling high-ticket products that cost around $5,000 per item, a good conversion rate is 0.5%. Meanwhile, for someone selling a $40 product, a conversion rate less than 3% means they’re running at a loss.
💡Remember this: Ensure your conversion rate is stable across all channels. Once you notice a heavy spike or drop in your conversion rate without any trigger from other metrics, make sure you investigate the source.
Related → How To Improve Your Conversion Rate
5. Shopping Cart Abandonment Rate
Shopping cart abandonment rate is the percentage number of people who add a product (or products) to their cart but leave without checking out.
These are customers who have the intention of buying but for some reason have decided to not make a purchase yet. Some of these reasons include:
- Long checkout process
- Unapproved payment option
- Unsecured payment option
- Bad user experience
- Window shopping
- Absence of guest checkout option
- High shipping costs
Here’s a general formula to calculate your shopping cart abandonment rate: Shopping Cart Abandonment Rate = (number of completed checkouts / number of shopping carts created within the same period) x 100
If your store recorded 600 completed checkouts, and 3,000 shopping carts created all through the month of August, then your shopping cart abandonment rate is 20%.
It’s important to track this metric to understand your customer’s journey throughout the buying journey. If you notice customers are adding products to their cart but not making a purchase, the problem is likely your checkout process.
Related → How To Improve Your Conversion Rate
6. Bounce Rate
Bounce rate is the percentage number of visitors who exit a website without taking any action after only visiting one page. Your bounce rate gives you an idea on people’s perception of your website and their experience. So, if customers are exiting your website shortly after landing, there’s something wrong.
💡Did you know?: In e-commerce, the standard bounce rate is between 20%-45%.
Related → Why Time to Interactive (TTI) and Bounce Rate Are Most Valuable Metric
7. Customer Retention Rate (CRR)
Customer retention rate is the percentage of existing customers who repeatedly purchase from your store. It's a metric built on the benchmark of other metrics by evaluating customer experience as an underlying factor. The insights from the CRR metric gives you an overview of your ability to sustain customer relationships. More repeat customers = higher brand loyalty.
A general formula for calculating your customer retention rate is:
CRR = ((E-N)/S) X 100
E= Number of customers at the end of the period
N= Number of new customers acquired during the period
S= Existing number of customers at the start of the period
Let’s say you started with 1000 customers at the beginning of the year and ended with 750 customers at the end of the year. During this same period, let’s say you acquired 200 new customers.
CRR= ((750-200)/1000) X 100
Your estimated customer retention rate would be 55%. Considering the average e-commerce conversion rate is 30%, you’re doing fine.
Your customer retention rate is one of the core parts of your e-commerce business. Retaining customers drives more profit than acquiring new ones. According to Bain & Company’s report on Prescription for Cutting Cost, a mere 5% increase in customer retention can increase a company’s revenue by 25-95%.
In a study done by Gorgias, an e-commerce customer service help desk, repeat customers make up only 21% of customers, but generate 44% of revenue and 46% of orders. By Gorgias’ estimate, if you decide to increase your repeat customer base by 20%, you could drive up your revenue by 6%.
8. Net Promoter Score (NPS)
Net promoter score is a research metric used to gauge customers’ loyalty to your brand. The essence of this metric is to evaluate the likelihood of existing customers to refer the company to friends and family. It’s also considered the ultimate metric for evaluating customer experience.
Here’s how it works:
Since NPS is a research metric, it’s conducted by sending out a survey to existing customers. This survey inquires about customer satisfaction and asks them to rate their experience with the company on a scale of 0 to 10.
Depending on the cumulative results of these responses, the NPS breaks it down into three categories,
- Promoters: These are customers who give a rating of 9-10. They’re considered loyal customers—and ultimately the source of the customer base.
- Passives: These customers give a rating of 7-8. Although they’re satisfied with the product or service, they’re less likely to refer family and friends to do business with you.
- Detractors: These are customers who give a rating of 6 and below. They’re not satisfied with your business and would likely not buy from you again. Worse, they’ll tell others not to buy from you.
Clearly, if you get a higher score during the survey, then your customer experience is great.
The general formula for calculating your net promoter score is: NPS = % of Promoters — % of Detractors
Say you surveyed your customers and you got these results; 70% promoters, 15% passives, and 15% detractors. Therefore, 70% — 15% = 55%. Your NPS score is 55.
What’s a good NPS score?
Net promoter score ranges from -100 to +100, but any NPS score above 0 (zero) is considered good.
💡Note: Your NPS score isn’t exactly a business-ending metric if it’s low (<20). It’s a guide to help you understand the customer’s perception of your brand and know how you can improve.
Related → 7 Most Important Google Ranking Factors For 2022
9. Refund and Return Rates (RRR)
Refund and return rates measure the percentage of orders returned or refunded compared with the total number of orders within the same period. Here’s how to calculate your refund rate:
Refund rate = (number of orders refunded / total number of orders returned) x 100
Let’s say 2,000 sneakers were returned in 12 months, and you refunded 500. Then you refund rate would be: (500 / 2,000) x 100 = 25%
Here’s how to calculate your return rate. Return rate = (number of orders returned / total number of orders sold) x 100. So if you sold 10,000 products in a year, and 1000 were returned, your return rate would be: (1000 / 10,000) x 100 = 10%.
Tracking this metric can be dicey because not all returns result in refunds. Let’s say a customer returns a pair of sneakers and swapped for another one. That won’t count as a refund or return; rather, it’ll be an exchange. Understanding this metric gives you an idea of customers' experience using your product. First, if you’re getting high return rates, causing you to offer refunds, then the problem is with the product. Perhaps it’s not what was advertised, or it’s defective. Find out what the problem is, and fix it to avoid losing more money.
According to Narvar’s State of Online Returns study, the #1 reason for returning a product was due to the wrong size, color, or fit.
💡Side note: The average return rate in e-commerce is 18.1% but aim to stay under 10-12%.
10. Website Speed [+1 That’s Often Missed]
Website speed refers to the time it takes for a website to load. In e-commerce, website speed influences nearly 70% of a customer's buying decision from a merchant. It’s the key to the door to all other e-commerce metrics.
Tracking your website speed determines if your e-commerce store will run at loss or profit—because every second counts.
In a study done by CrazyEgg, they discovered that a one-second delay in website speed leads to:
- 11% fewer page views
- 16% decrease in customers satisfaction
- 7% loss in conversion
How do these stats affect your e-commerce store? If your store makes $100K monthly when your site loads at 6 seconds. A one-second delay will cost you $7K monthly, and $84,000 yearly. It gets worse if it costs you $15K in acquiring customers that’ll make you the $100K monthly. That means, you’ll be losing $22K monthly—just because of a one-second difference.
Apart from the revenue loss, poor website speed reflects badly on your website as it gives potential customers the wrong perception about your brand. Customers who decide to stick around will also likely bounce later if they find a brand that fulfills their needs—and at a faster website speed.
What’s the upside of an improved website by sheer micro seconds? Look at these reports from Google:
- Over 9.1% more shoppers added items to their cart when mobile site speed increased by just 0.1 seconds.
- With just a 0.1 seconds improvement on mobile site speed, retail sites saw a 8.4% and travel sites saw 10.4% increase in conversion rate.
Shoppers are time-cautious spenders with an influx of complex decision processes. Eliminating roadblocks in your website speed helps them make their decision faster. This leaves them no room to second guess their buying decision. If you don’t track and optimize your website speed, you’ll lose out on a lot of potential customers.
Related → 10 Website Performance & Optimization Tips [For 2022]
How To Evaluate Your Ecommerce Metrics Performance
So far we’ve covered 10 essential metrics that align with every e-commerce store’s KPI.
How do you use these metrics to evaluate your performance? First, understand that the performance of an e-commerce business is based on internal and external standards.
- Internal standards involve comparing your current metrics with the proposed KPI of the company. An example is using your sales conversion rate to understand how much traffic your store needs to drive in order to meet the next quarter’s revenue.
- External standards involve using industry benchmarks to evaluate your company’s metrics. For example, using the average e-commerce conversion rate to gauge if you're under- or overperforming.
When you collect the data from these metric systems, it becomes easier to see where your business is compared to the intended goals and objectives (internally) and to competitors (externally). This way, you can make data-driven decisions that’ll increase your bottom line.
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Case Study → How Edgemesh Helped Andar Increased Transactions By 29.72% and AOV By 14.9%
Andar was facing an influx of traffic that slowed their site speed and overall performance. This caused them to lose out on sales as most potential customers bounced. After trying other tools and not getting their desired results, Andar landed on Edgemesh via a recommendation from a customer.
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- 14.9% increase in average order value
- 28.72% increase in transactions
- 36% improvement in time to first byte
The ROI of fast websites is increased conversion rates. We know this because our clients see an average increase in conversion rate of up to 20%—simply because we take this statement to heart.
Your conversion rates drop by 4-7% for every additional second your website delays. The choice is yours.