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KPIs or Key Performance Indicators measure the performance of any given thing. Talking about ecommerce businesses, KPIs help ecommerce website/ store owners, marketing managers, and webmasters to determine whether the site/store is successful, and if not, how to improvise it for better revenue. The ecommerce KPIs can vary from one business model to the other. Therefore, it becomes more crucial for every online seller to know the most important KPIs for an ecommerce business.

The KPIs are metrics that convey how well an individual or an organization performs concerning its principal objectives. They help you in identifying your success and the ways to attain it. There are tons of metrics in the market. However, KPIs are the metrics that actually matter. Not all metrics are KPIs, but, all KPIs are metrics. Sounds confusing? Let us make it clear. Metrics are only a way of measuring things, while KPIs are the metrics that monitor only the most important aspects of your ecommerce business in order to help you take the right actions to move forward towards your goals.

Why are KPIs so important for ecommerce businesses?

Just as setting goals and forming strategies are crucial for ecommerce businesses, so are the KPIs. Without it, it becomes extremely difficult to measure the progress over time. Without KPIs, you would take decisions that feel right to you and not what your business needs. KPIs give you detailed data on your customers as well as your business to help you make informed and strategic business decisions. However, KPIs alone cannot help you achieve success. It is the decision you make based on the KPIs that can potentially change the face of your business. The key performance indicators can help you in driving more sales as well as help you understand where the problems lie in your business strategies (if any). Moreover, the data analyzed from KPIs can be distributed to bigger teams to help solve the critical problems.

The Most Important KPIs for an Ecommerce Business

Abandonment Rate

The shopping cart abandonment rate refers to the situations when the visitors place products in their shopping carts and leave the website/ store without completing the purchase. This is the last thing any ecommerce seller would want. All the money and time invested in getting the visitors from the browser to your website, product page, and checkout page goes in vain. Unfortunately, it is a very common practice in the ecommerce market. Moreover, according to Statista, the worldwide cart abandonment rate sums up to 88.05%. The reasons why people abandon carts may vary from person to person and from websites to websites. Thankfully, there are ways to counter it.

Although the abandoned cart rates are pretty high, online sellers must be able to recover the majority of it by carefully tracking and measuring the abandoned cart rates. You can calculate the abandoned cart rates by dividing the number of purchases that are completed by the number of created shopping carts. The result then can be subtracted from one and multiplied by a hundred. Once you figure out your abandoned cart rates, you can easily find ways to recover your customers through recovery emails, newsletters, reminders.

Cost Per Acquisition and Lifetime Value

These are two KPIs that can potentially determine every aspect of selling and marketing actions you take. Cost Per Acquisition refers to the cost you incurred to acquire your customers, irrespective of the channels used to acquire them. Even though Pay Pay Click or PPC is the direct way of paying for the traffic received via clicks, you are paying for the posts or other marketing pieces you create on your social media platforms for attracting organic traffic to your store. According to surveys, long-form blogs bag more ranks as compared to short-form blogs, and to produce each long-form article it may take up to 12 hours or more. You may have hired a quality writer to produce blogs for your business and the wages are no cheap, which is why we say, you pay for every visitor you acquire. In simple words, Cost Per Acquisition can be termed as the average amount you spend to acquire a single customer.

On the other hand, the Lifetime Value of the customer can be referred to as the average amount of money that a single customer spends on the products you sell throughout their journey with your ecommerce store. You might have understood that analyzing either of the KPIs alone won’t work for your business. If the CPA is more than the lifetime value of a customer, you are at loss. You’ll be paying more for the customer who’ll not spend that amount on your store. This leaves you with no profit. You can combat this situation by reducing the costs of acquiring the customers or focus on increasing the lifetime value by customer retention practices and upselling, to name a few.

And, if the lifetime value is more than the CPA, congratulations! You are doing a commendable job! Once you are in this stage, you can look forward to immense growth opportunities in your ecommerce business. With your CPA higher than LTV, you are earning profits which can be used for investing more in customer acquisition. If the ratio of your LTV to CPA is something around 3:1, you can look for sustainable growth and focus on acquiring more customers for your ecommerce store.

Conversion Rate

The first step to measure your conversion rate is to determine whether your store’s landing pages and call-to-actions are doing their job for you. You can do that by measuring your conversion rates. Conversion rate implies the rate of your store visitors who take any action in your ecommerce store. This action can range from signing up for newsletters to making a purchase. Your conversion rate is the answer to how well your webpages are designed to motivate customers to click on the call-to-action buttons.

For instance, if you are getting customers to your landing pages but are still getting lower conversion rates, it is time to re-work your landing pages. The average conversion rate globally is around 2.58% which implies that there are at least two to three conversions per 100 visitors on your website. You can calculate your conversion rate by dividing the number of conversions by the number of visitors in your store and multiplying it to 100. Keep measuring your conversion rates and it will surely help you in working on your ecommerce store to get more sales.

Average Order Value

AOV or Average Order Value is another essential KPI in ecommerce that determines how big the AOV of your website is. It is the average of all the orders placed on your website during a specific time. It signifies how many people are interested in purchasing from your ecommerce website. You AOV can be calculated by dividing your revenue by your total number of orders in a designated period. It is perceived that the more the number of orders, the higher the AOV, but, it is not correct. However, with newer customers increase your CAC. Even if you get thousands of orders from newer customers every day, your AOV will be lower. The reason is that not every customer visiting your store is becoming your long-term loyal customer. Studies have proved that the higher revenues are generated not from the newer customers acquired, but from the already existing ones.

Well, isn’t it pretty obvious? The customers who have already known your products shall be more willing to invest more than the ones who have never purchased from you. Therefore, do not look for more orders. Instead, look forwards to measures that boost your AOV. Analyzing and working on your AOV can help you define your threshold for free shipping. Also, you can use this data to increase your AOV with time. AOV is a metric that helps you understand how well you are doing in the online selling business with your existing, new, as well as loyal customers.

Conclusion

The KPIs for ecommerce businesses is never-ending as mentioned earlier. Practice the KPIs that matter the most to your business. Also, check out the world’s best ecommerce platform – Builderfly to get more ways to deliver the best to your online customers. Happy Selling!

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