Between Google Analytics, your e-commerce store platform and many other tools you may be using in your SMB e-commerce business, you have more numbers to analyze than you have time. However, there are five we feel you should keep a keen eye on to know how well your business is growing.
In the course of a week, as we analyze our clients’ shops, we regularly dig through dozens — if not hundreds — of various metrics. We have several “dashboards” where we can see aggregated data, but we use those to show areas where we need to dig further to find the root causes behind the surface numbers.
If you’re not aware of it yet, Google Analytics allows you to construct custom Dashboards. We use them frequently to give us snapshots of numbers on our clients’ shops. The image to the right is one we built for one of our client’s stores to show us four important metrics.
Conversion Rate is one in which we’re very interested. While we naturally pay attention to the conversion rate in AdWords, the overall conversion rate of a store is important in that it points to how effectively we’re getting visitors to buy when they come to a website. It is a measure of sales per visitor. The more visitors who end up making a purchase, the higher your conversion rate.
Before you ask, “no,” there is no “average” or “ideal” conversion rate in e-commerce. The important measurement is whether your conversion rate is rising or falling. If it’s falling or stagnant, then you need to figure out why. And there’s a whole list of reasons why a store’s conversion rate is not increasing. Your pricing might not be competitive, your store layout and design might not be mobile-ready or doesn’t convey brand confidence. You might be getting poor reviews (or no reviews at all) or you don’t have enough product information.
The better you convert visitors, the better your PPC conversion rate will improve, as well.
We’ve all gone shopping online to find items to buy and added them to a shopping cart, only to leave the site before buying. This is a “cart abandonment,” and it’s another measure of how well your store “closes” the sale. In contrast to conversion rate, we want the Abandonment Rate to go down, not up. And, as with conversion rate, there’s no “industry average” for a good abandonment rate.
However, unlike conversion rate, the causes behind a high or growing abandonment rate can usually be focused on the checkout process. While many shoppers will go to another site after starting a cart on your site to do some price checking, abandonment often comes from either high or complex shipping rates, not allowing a preferred payment method, a complicated or over-burdensome checkout process, or, in some cases, a lack of confidence in the security of the website.
If your abandonment rate is increasing — or to help lower it — do a full assessment of your checkout process from cart to completion. Look at the user interface, shipping calculations, forms, payment methods, etc.
On a related topic, we do employ a rigorous, multi-step abandoned cart engagement campaign on our client shops. It starts from the time they try to leave any aspect of the cart-checkout process. These campaigns are not highly effective, but they can bring back some customers who may have become distracted or delayed in completing their purchase. We don’t rely on these campaigns to greatly increase sales, but even a 5-6% positive result more than pays for the effort.
We had a client who came to us quite frustrated. He said he was spending thousands each month in Google AdWords and, despite creating tons of traffic and sales, his end-of-period profit was not nearly what he expected. The first question I asked him was “what are you paying to acquire each new sale that comes from Adwords?” He was taken aback, as he had never calculated that. It turned out that his cost-per-acquisition using AdWords was $127 and the average order amount from these sales was only $48.
He was losing money with every sale!
One of the most difficult concepts for new merchants to grasp is that more traffic does not mean more sales. Not directly, at least. And particularly not when you’re paying way too much to acquire the traffic. Our philosophy is that we’d rather pay to get 100 visitors, 10 of whom buy, then pay to get 10,000 of which only 5 make a purchase.
Therefore, in our world, we consider Acquisition Cost to be a very important metric. This is the cost of the advertising you spend to get one new paying customer. It’s a relatively easy calculation: take the total advertising expenditures and divide by the number of sales attributable to that advertising.
While each business will have it’s own acquisition cost targets, I can tell you that in general we try to keep acquisition costs in line with industry norms for advertising expenditures. For instance, if in your retail niche it is common for retailers to budget 15% toward advertising, then your acquisition costs should be equal or less than 15% of your average order amount. Of course, profit margin — and the amount of margin you’re willing to spend for advertising — should be the considered, as well.
Or, as we’ll discuss below, your acquisition costs should be in line for what you’re willing to pay to acquire a new customer based on the Average Customer Value of getting a new customer.
There’s no disagreement that returning customers present a far better value to your e-commerce business than a new customer. After all, you probably aren’t spending nearly the equivalent to entice a previous customer to return to your store.
However, New Customers mean more growth for your business. And, if you’re growing, you’re probably getting more sales from new customers than returning customers. Over time, you’ll probably see the percentage of new customers drop as you gain more brand loyalty from past customers.
While you should keep an eye on new customers, don’t disregard the number of returning customers. The more returning customers you have, the higher your Average Customer Value.
Average Customer Value
As far as we’re concerned, the Average Customer Value is one, if not the, most important metric in your business. It is a direct calculation of how much you’ll sell to an average customer over a particular period of time.
Some prefer to consider the Lifetime Value (LTV) of a customer. While that is certainly worth calculating, it is not a simple calculation. Furthermore, we like to consider a rolling target. In other words, we want to see if our average customer value is increasing or decreasing when comparing periods.
To calculate the average customer value, total the sales for a given period (T). Count the number of orders (O) and number of different customers (C). Since you will probably have customers that make more than one purchase during a period, C should be less than O. At worse case, C will equal O.
First, calculate the Average Order Value by dividing T by O. This shows you the average order amount for the period. Next, divide T by C. This is your average customer value. This gives you the true sales value for each customer in your system during the period analyzed.
Over time, you want the average customer value to go up, as it can point to a higher average order total or more repeat purchases — or both. And both would be great!
To decide on the period of time to consider, think of how often you feel customers should be buying repeatedly from you. If you sell tires, then customers will probably repeat about every two years or so. Selling shampoo? Then probably every two months. It just depends on what you’re selling. You can also dig into your customer data and calculate the average time between repeat purchases, too. If you calculate, for example, three months as average, I’d consider using six months as your comparative period of time.
Unless you like numbers, e-commerce analytics can sometimes be daunting and confusing. It’s easy to create numbers; it’s much more difficult to derive meaningful insights from those numbers.
However, if you focus on the five metrics described above as your “daily dose,” you’ll do quite well in steering your online store down the right course.