Updated: Sep 5
Today, the eCommerce market is largely data-driven, with businesses processing massive amounts of data and user information to understand patterns, viability, and growth. Brands have now started to leverage data to get ahead of the curve. And this is where metrics come into play.
In the eCommerce industry, brands use a variety of metrics to track and manage different aspects of the business. In a competitive market, it is important to measure how well different areas of the business are performing and make the right decisions.
Today, we discuss some of the most important eCommerce metrics based on 5 different stages of a customer journey and how you can track them.
During the awareness stage, your brand needs to spread the word and help potential customers recognize your brand in the market. You need to deploy marketing strategies such as brand and content campaigns, and boost the targeting and reach of these campaigns using paid ads.
The primary metric that you need to track at this stage is the Cost Per Click or CPC.
1. Cost Per Click (CPC)
CPC is the amount that you pay for every person that clicks on your ad. The CPC is one of the first indicators of ROI for a brand, helping you understand how much it costs to promote the product. A higher CPC means that your brand is spending more money to engage with a lower number of customers.
While running ads, understand the average CPC for your campaign and set a maximum limit for CPC to remain under a certain budget. A lower CPC is always better for your brand, over time.
Total cost of clicks/Total number of Clicks = CPC
Post the awareness stage when customers have recognized your brand, you need them to visit your platform or listing and consider making the purchase. Here, you need to keep track of the customer acquisition cost.
2. Customer Acquisition Cost (CAC)
The CAC is the amount your brand spends on sales and marketing efforts per customer. Once a customer lands on your marketplace listing or website, the chances of making a sale significantly increase for your brand.
Ideally, CAC must be as low as possible since eCommerce often has tight margins. Therefore, to reduce the cost of acquisition, you must identify the right audiences, deploy marketing strategies such as affiliate marketing and referral programs, and retarget visitors.
The total cost of acquiring customers/Total customers acquired = CAC
*The CAC is calculated over a given period of time.
Following consideration, your brand needs to focus on convincing the customer to make the purchase or in technical terms – convert. Conversion is the act of a potential customer becoming a paying customer. At the conversion stage, you need to track three key metrics.
3. Conversion Rate
The conversion rate is a measure of all the customers that made a purchase out of the total number of acquired customers who scrolled through your website or listing. The conversion rate helps you determine how many potential customers are finding value in a product and finalizing a purchase. Further, it also helps understand how easy, user-friendly, and fast it is to make a purchase.
Optimize Conversion Rate
One of the most important steps to increase conversion rate is to make the purchase simpler. It can be done by improving the user interface, removing distractions from the purchase process, improving CTAs, offering multiple payment options, and more. Further, the CR can also be increased by creating a sense of urgency during the purchase such as through time-bound offers.
Calculate Conversion Rate
Total number of conversions/Total number of product page visitors x 100 = CR %
4. Average Order Value (AOV)
The AOV is the average revenue that your brand generates for every order that is placed with you. What you need is a higher AOV to move more stock from your inventory, generate more revenue per order to maximize your margins, and reduce operational costs by receiving larger orders with every purchase.
Some of the best ways to increase your AOV are to extend offers such as bundles, free shipping above a certain threshold, upselling or cross-selling products, and freebies for higher purchase values.
Total revenue from all orders/Total number of orders = AOV
5. Cart Abandonment Rate (CAR)
The cart abandonment rate is a nightmare for any organization. As the funnel brings the customer from the awareness to the acquisition stage, and the potential customer shows interest in the products, however, drops off before finalizing the purchase. You must strive to keep the CAR as low as possible in order to maximize conversions.
A primary cause for cart abandonment is issues at the checkout stage, therefore, to reduce CAR you must identify issues with your checkout process. Ideally, you can solve for this by offering more shipping options, smoothing the checkout process with guest checkouts, alternate payment options, and offering support to resolve customer queries.
Total number of orders placed/Total number of orders initiated x 100 = CAR %
6. Product Return Rate (PRR)
The product return rate is a sign of two key aspects- how many customers are unhappy with their purchase, and therefore, how many customers are likely to never return to your eCommerce brand.
A high PRR indicates the need for better quality checks before shipping products out, and showcasing more accurate product information. You can lower your PRR by ensuring that you understand why customers are returning products in the first place- such information can be gathered through surveys, or by calling individual customers.
Returned items or orders/ Total items sold or orders fulfilled x 100 = PRR%
The retention stage begins after your customers have converted and made their purchase. The next step in the customer journey is to make a one-time customer, a returning customer. Since a returning customer does not incur the standard acquisition costs, retention is very important for your brand. There are two main metrics you need to consider to improve retention.
7. Customer Retention Rate (CRR)
The customer retention rate is the measure of how many acquired customers your brand retains over a period of time. It is important to track the CRR to understand how many customers remain loyal to your brand after making a purchase. A higher CRR builds brand value and goodwill and helps capture market share.
Brands must strive to increase their CRR and one of the best ways to do it is through loyalty programs. Rewarding customers who have already purchased a product from you is a serious incentive for placing repeat orders. Another way to increase CRR is to retarget customers, send reminders, and ask for feedback on their purchase experience.
(E-N)/S x 100 = CRR %
E = Total customers at the end of the period
N = Total customers acquired during the period
S = Total customers at the start of the period
8. Customer Satisfaction Score (CSS)
The CSS is a measure of how many customers had a positive experience when placing an order with your brand. The measure is critical to understand how well the brand and your sales channel is received by the customer, and how likely are they to make a repeat purchase.
CSS can be increased by using traditional practices such as offering high-quality support to the customers and improving the feedback mechanism, during and after the purchase respectively. Further, it can also be improved by sending customers regular updates about their purchases, introducing changes based on feedback immediately, and communicating with customers who had a negative experience.
Positive feedback responses/Total feedback responses x 100 = CSS %
9. Customer Lifetime Value (CLV)
Customer lifetime value or CLV is probably the strongest indicator of a successful eCommerce business. More loyal, repeat customers means more ad-free or low-ad-spend sales for your eCommerce brand. While calculating CLV, we must be mindful of the fact that not all products are bought at similar frequencies. For example, FMCG products are bought in a monthly cycle, but clothing and accessories may follow a different pattern.
Increasing your CLV is directly dependent on brand loyalty. Therefore, you must optimize every stage of your sales process, from ensuring that you have adequate inventory, to sending valuable promotional emails and ensuring the highest degree of customer satisfaction. A higher CLV means better margins for an eCommerce brand.
Total value of purchases by a single customer in one year x average retention period of a customer, in years = CLV
The advocacy stage involves understanding your customer’s likelihood of recommending your brand to other potential customers. The stage is essentially an attempt to understand the spread of word of mouth. The idea of the advocacy stage is to put the needs of the customer first to have them remain loyal and help acquire more customers for you. Similar to the retention stage the advocacy stage involves tracking the Customer Satisfaction Score, however, it also tracks a metric called Net Promoter Score or NPS.
10. Net Promoter Score (NPS)
The NPS is a feedback tool that helps you gauge how likely your customers are to recommend your platform, product, or service to another person. The NPS helps you understand how your brand is perceived in the market and if you should alter your course of action to improve business operations. Further, it helps brands predict customer loyalty.
The NPS can be increased through a variety of strategies throughout the purchase funnel, however, at the advocacy stage businesses need to focus on collecting immediate feedback, contacting the customer immediately after the purchase is made, helping the customer track their orders, and making their overall experience more fulfilling.
The NPS is measured on a scale of -100 to 100.
The customers are requested to rate their likelihood of recommending the brand on a scale of 1 to 10 and fall into one of three groups based on their rating.
Score 9 or 10 - Promoters (Likely to promote the brand)
Score 7 or 8 - Passives (Neutral towards the brand and may or may not promote)
Score 6 or below - Detractors (Unlikely to promote the brand)
The NPS is calculated by subtracting the percentage of detractors from the promoters.
Promoters % - Detractors % = NPS
Metrics are critical to gauge the current and future success of your brand. Therefore, understanding your market with the help of numbers becomes essential for your brand to compete with other brands.