eCommerce vital signs: 5 metrics to measure monthly to ensure you’re on the right track
If you run an eCommerce business, you’re sitting on a treasure trove of data, and knowing how to analyze it can really help you drive sales and get control of your bottom line. With that in mind, we’ve compiled 5 eCommerce metrics that should help you get a better understanding of just how well your business is performing and which data will offer insights as to the online shopping behaviors of your customers.
Gross Profit Margin
While revenue is a metric that’s important to track, it may be too easy for an ecommerce brand to pay too much attention to it. It’s easy to understand why, as watching your revenue climb when orders come through is addicting. Knowing that your sales are growing is of course important, but revenue alone doesn’t tell the complete story as it fails to take into account the cost of goods sold. To get a real sense of the financial health of your brand and to make sure your business model makes sense, look more at your gross profit margin. It’s a simple formula that takes your profit (revenue – cost of goods sold) divided by revenue. For example, if your revenue is $100,000 and your cost of goods sold comes in at $25,000, your gross profit margin is 75%, meaning that you retain $.75 of each dollar of revenue generated.
This powerful metric will allow you to compare how various aspects of your eCommerce business are performing. In a nutshell, a conversion rate is a measurement of whether a visitor to your website is taking a specific action. That action can be any number of things, including the submission of information, the creation of an account, adding a product to a shopping cart, or even the completion of a transaction.
It can also be quite beneficial to use segmented conversion rates in which you can compare and contrast conversions based on variables such as what device your customers are using to shop on your site, what browsers they’re doing it in or where they came from. For example, if your conversion rate is significantly higher for visitors shopping via their desktop computer than those using a mobile device, it could be an indicator that the eCommerce shopping experience for those on mobile devices is needs to be addressed.
Cart Abandon Rate
Seeing customers abandon their online shopping carts can be quite frustrating for an eCommerce brand, but rest assured it’s quite common across all industries. According the Baymard Institute, the average cart abandon rate is upwards of 70%. A huge chunk of this can be attributed to the natural way online shoppers browse an eCommerce site, with many simply window shopping and adding items to their carts that they would like to purchase or price compare. There are other factors to consider, however, many of which you as an eCommerce brand do have control over.
One factor is the checkout process. Diving deeper into the Baymard Institute’s research, they cite that nearly 30% of online shoppers in the US have abandoned a shopping cart due to a complicated or too long checkout process. Look at the steps involved with your checkout process and review it from your customer’s perspective. Is it cumbersome? Can it be improved? Where you can, implement design changes that simplify and streamline the way consumers enter their personal information and pay for their goods or services. Once these changes are made, pay close attention to the cart abandon rate. If it starts to drop, you’re on the right track to recovering lost sales and further adding to your bottom line.
Percentage of Returning Customers
If you’re interested in finding out who your core customers are, this is a metric you’ll want to keep an eye on. Simply put, this metric measures the percentage of your customers who have purchased from you more than once. Having a healthy percentage of repeat customers is an incredible asset to have for any brand. It’s a sign of how well your business is liked and that you have the ideal mix when it comes to product selection and pricing. A high percentage of returning customers is also a sign of great customer service and an ecommerce platform that’s firing on all cylinders.
It’s also important to note that these are your brand’s most profitable customers, meaning that you spend minimal dollars when it comes to retaining them. They’ve demonstrated their brand loyalty and support. Do keep track of this metric though. If it starts to decline, it’s an immediate red flag that could signify something’s wrong.
Lifetime Value of a Customer
Knowing what you can reasonably expect from your customers over the lifetime that they’re going to be spending money with you isn’t just a crystal ball question. If you’re able to estimate how long your customers will typically be with you, and on average the frequency and total of their orders, you can calculate how much revenue each will bring in for your brand. It would be wise to use a conservative number, but the lifetime value of a customer metric will give you a benchmark when it comes to how much each customer is worth to your brand. With that number, you’ll be better to inform a range of decisions, especially when it comes to how much you should allocate from your marketing budget for new customer acquisitions.
If you want to learn more, check out Dotcom’s resources page where we have informative whitepapers, proprietary research and case studies, all which can help you grow your own brand.