Running an ecommerce business has never been easier thanks to technology that allows anyone to sell from anywhere. The online nature of ecommerce also means there’s an array of data and metrics you can track. And yet it’s never been harder to cut through the endless noise online and build a sustainable company by focusing on the most important metrics.
This is where these six key ecommerce metrics come to the rescue. These metrics - based on the advice of ecommerce experts - help you know exactly how your business is performing, what growth opportunities are available, and where growth is being stifled.
Discover why these metrics are critical and learn how to calculate them for your business.
1. Shopping Cart Abandonment Rate
Shopping Cart Abandonment Rate is the percentage of online shoppers who add items to a virtual shopping cart but then abandon it before completing the purchase. It shows the rate of interested potential customers who leave without buying anything compared to the total number of shopping carts created.
“Poor usability is a known factor in cart abandonment. The top 23 sites all gross over $1 billion per year but have a 44% worse checkout user experience. At the average abandonment rate of 68% each of these sites could be losing $3 billion, if not more.” - Hazel Bolton, Optimization Consultant at User Conversion
“Studies show that the average person gets 1 interruption every eight minutes, while the average employee gets interrupted 56 times a day. This is where cart abandonment emails come into play. By sending out one or more emails, companies can typically recover between 5% and 11% of otherwise lost sales.” - Carl Sednaoui, Director of Marketing at MailCharts
How to calculate Shopping Cart Abandonment Rate
1 - [ (#) completed purchases / (#) shopping carts created ] / 100 = (%) Shopping Cart Abandonment Rate
View the pros, cons, visualization examples, benchmarks and more for Shopping Cart Abandonment Rate here.
2. Average Order Value
Average Order Value (AOV)) is the average dollar amount customers spend when they make a purchase from your website. This metric helps online retailers understand customer purchasing behavior.
“An increase in the average order value for an online retailer has a strong correlation to an increase in profit. When an ecommerce retailer can sell more on each order, that retailer tends to make more profit overall. Thus, online retailers that are able to increase average order value — AOV — should also become more profitable.” - Armando Roggio, Director of Marketing and Ecommerce at D&B Supply
“Ultimately, average order value boils down to increased profits and continued success for your brand.” - Alex McEachern, Loyalty Marketing Specialist and Ecommerce Enthusiast at Sweet Tooth Rewards
How to calculate Average Order Value
($) total revenue / (#) orders placed = ($) Average Order Value
View the pros, cons, visualization examples, benchmarks and more for Average Order Value here.
3. Gross Profit Margin
Gross Profit Margin (sometimes just referred to as Gross Margin) is the percent of revenue that is actual profit before adjusting for operating costs such as marketing, overhead, and salaries.
“[Gross Margin] is a proxy for the profit potential of a business.” - Mahesh Vellanki, Principal at Redpoint Ventures
“The key to optimizing your ecommerce store is not even about revenue, but profit. If you change your business model, like offering free shipping, you can make more money, but still make less profit because of increased overheads. So when thinking about conversion optimization focus on increasing your profits monthly.” - Giles Thomas, Ecommerce Growth Consultant and Founder of AcquireConvert
“It’s okay to have low margin products. It is not okay to be unaware of the lack of profit those items are generating for your store.” - Meredith Boll, Partner at Evance Marketing
How to calculate Gross Profit Margin
[ ($) Total Revenue - ($) Cost of Goods Sold ] / ($) Total Revenue X 100 = (%) Gross Profit Margin
View the pros, cons, visualization examples, benchmarks and more for Gross Profit Margin here.
4. Percent Returning Customers
Percent Returning Customers is the ratio of people who completed an initial purchase to those who come back and make a second (or third or fourth) purchase. This is the percentage of repeat customers.
“One of the most critical post-sale mistakes is to assume that your job is done once you make the sale. Turns out, what you do after the sale is just as important as what you do before. You want those repeat customers who bring in other customers. They are the lifeline of your business!” - Rachel Daley, Content Manager at MadeFreshly and Author of MadeFreshly Ecommerce Blog.
“It’s cheaper to get past customers to purchase again than it is to find new customers. This is true for most businesses, especially in the crowded online ecommerce arena where ad impressions, clicks and conversions always seem to be increasing in cost, making new customers more and more expensive to acquire.” - Richard Lazazzera, Founder of A Better Lemonade Stand
How to calculate Percent Returning Customers
(#) Returning Customers / (#) Total Customers X 100 = (%) Percent Returning Customers
View the pros, cons, visualization examples, benchmarks and more for Percent Returning Customers here.
5. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the average expense of gaining a single customer. This metric includes marketing and sales expenses as well as salaries and overhead associated with attracting and converting a visitor to a customer.
“Failure to get product/market fit right is very likely the number one cause of startup failure. However… I believe the second biggest cause of startup failure is: the cost of acquiring customers turns out to be higher than expected, and exceeds the ability to monetize those customers.” - David Skok, General Partner at Matrix Partners
“One of the most important metrics for any tech startup companies is CAC, or Customer Acquisition Cost, or some others call it Cost of Acquiring Customers.“ - Faiz Rahman, Senior Investment Analyst at Convergence Ventures
How to calculate Customer Acquisition Cost
($) Total sales and marketing expenses / (#) new customers acquired = ($) CAC
View the pros, cons, visualization examples, benchmarks and more for Customer Acquisition Cost here.
6. Revenue by Traffic Source
Revenue by Traffic Source is a breakdown of total revenue by channel such as social, organic search, paid search, referral, etc. This metric highlights the most valuable sources that direct traffic to your ecommerce site or mobile app.
“The data on the growing and shrinking traffic sources is very interesting because it not only helps us identify new trends in consumer behavior but also helps us identify where marketing dollars should be spent.” - Justin Butlion, Content and Social Marketing Manager of Yotpo.
“Which traffic sources contribute the most cash on a last click basis? If money makes the world go round, Google makes the world wide web go round, contributing a whopping 67% of revenue, 42% organic and 25% CPC. The next best non-direct channel for revenue is actually email. In fact, the combo of Google and Email represents almost three-quarters of revenue (73%).” - Alan Coleman, Founder and CEO of Wolfgang Digital (from Wolfgang E-Commerce Benchmarks 2016 Report)
"Revenue by traffic source is essential since it shows which channel your customers are coming from. If you only track visits or transactions, you're missing half the story. You only get a handful of chances to reach your most dedicated customers, and spending the time and money to market through an unreliable traffic source is going to cut into your revenues." - Catalin Zorzini, Owner of Ecommerce-Platforms.com and Founder of Mostash.com
How to calculate Traffic by Revenue Source
In order to track Revenue by Traffic Source, you’ll need to use an analytics tool (such as Google Analytics or something similar) and set up ecommerce tracking. (See here and here for step-by-step instructions.)
Once each transaction is being tracked, you can breakdown your revenue by the various online sites and sources that direct traffic to your site.
View the pros, cons, visualization examples, benchmarks and more for Traffic by Revenue Source here.
Track ecommerce metrics live
Your key ecommerce metrics are too important to be buried in spreadsheets and various tools. Track your metrics live and focus your team on improving them by visualizing the data on a live ecommerce dashboard on a TV.