Also known as a key performance indicator, KPIs are performance measurements that assess a company’s performance against a set of objectives and targets. While this may be used by businesses across various sectors, this is primarily helpful for companies that conduct their operations online.
Unlike companies with physical spaces and brick-and-mortar stores, KPIs are the only way startups and online businesses can effectively measure their performance to improve their decision making and organisational goals.
Difference between e-commerce metrics and KPIs
It’s easy to see why metrics and KPIs are often used interchangeably. They are both still quantifiable measurements of strategic business activity, after all. Despite the similarities, the two of them are still rather distinct from one another.
While e-commerce metrics are used to track and evaluate various business processes, KPIs indicate how effective those processes have been at achieving your business goals and objectives. Metrics merely monitor the performance of a business process whereas key performance indicators provide insights into these processes, which can help business owners define and adjust their strategies accordingly.
To give you a clearer distinction and understanding between the two, here’s a helpful resource into the basics of e-commerce metrics.
Key performance indicators come in a variety of categories such as marketing, SEO, social media, website, and customer service — the list goes on. But in this article, let’s take a closer look at the general KPIs that are essential to your business growth.
6 essential e-commerce KPIs to track
- Conversion rate
- Bounce rate
- Customer lifetime value
- Net promoter score
- Time on site
- Return on ad spend
1. Conversion rate
A conversion occurs when a casual website visitor decides to take action and engage with your website. This includes anything from signing up to create an account, making a purchase, to signing up for an email newsletter. Generally, the average conversion rate is around 2.5%. If the percentage of your conversion rate hovers anywhere close to that figure, you’re on the right track.
Boost your conversion rates with these simple tips:
- Bumping up the call-to-action buttons on your website
- Allow for guest checkout
- Use compelling copy and design
- Prioritise intuitive web design for easy navigation
- Provide multiple options for e-commerce payment processing
2. Bounce rate
Bounce rate is a term used in website traffic analysis used to measure the percentage of visitors that leave a webpage without taking action. Low bounce rates send positive signals to search engines and indicate that visitors are spending more time on your website and navigating the various links.
On the other hand, a high bounce rate tells us that a visitor’s session duration is short. Factors that often contribute to this problem include excessive pop-up ads, counterintuitive UX, and slow page loading time.
Ideally, the goal is to encourage users to stay on your site long enough to take action. If users are bouncing off of your website quickly, you may want to evaluate why this is so and take the necessary steps to counter this.
3. Customer lifetime value
According to E-Commerce Consultant Kurt Elster, “no metric captures the overall health of an e-commerce business quite like customer lifetime value”. The customer lifetime value (CLV) indicates the total average revenue a business is predicted to generate from a single customer. In simpler terms, it is how much you can expect to earn from a customer throughout their lifetime as your customer — hence the apt term.
This KPI is essential for startup founders who need insights into the financial value of their customers to the business and want to improve customer retention to increase repeat purchases.
4. Net promoter score
Most e-commerce KPIs are related to generating profit and revenue. But a company’s net promoter score (NPS) is directly tied to a unique yet essential element in any business: customer satisfaction. Commonly used in customer experience programs, NPS is used to measure a customer’s loyalty and satisfaction towards a company.
A simple way to evaluate this is by conducting a survey that asks customers how likely they are to recommend your product or service to others on a scale of 1 to 10.
Learn more about the Net Promoter System in greater detail here and start exploring and applying different ways to calculate your NPS.
5. Time on site
Whether it’s skimming through the homepage or completing the e-commerce payment processing, the time an online visitor spends on your website is another important indicator to monitor. Tracking this gives you a deeper look into the length of time users spend on your site before exiting and which pages they tend to spend more time on.
Increase page engagement by optimising your website’s performance, using exit intent pop-ups, and including internal links to your content. Remember, time is money!
6. Return on ad spend
At some point, you’ll eventually find yourself investing money in ads to boost sales and website traffic. Evaluating your company’s return on ad spend (ROAS) can help you assess the reach and effectiveness of your advertising efforts by measuring the amount of revenue earned for each dollar spent on advertising, which is especially relevant for e-commerce and other online businesses.
If you regularly run paid ads as part of your business marketing efforts, tracking your return on ad spend can indicate whether your campaigns are underperforming or generating significant revenue for your company.
Stay on top of your business with the right tools
While there are a plethora of KPIs to choose from, ensure that the performance indicators you decide on are relevant to your business and will help grow your startup exponentially. It may take some time to make the right choice but be patient and trust the process.
Go back to the drawing board, clearly define your business objectives again, and choose your KPIs that best align with those goals.
Frequently Asked Questions
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