E-commerce tracking isn’t just about the number of sales you get, which is important, but not the only metric that’s important. This is especially true if you are in an industry that relies heavily on return customers (like niche businesses and subscription models). No, businesses can’t just be concerned with the sale, but what it took to get there and beyond.
In e-commerce there are a number of metrics that we should be tracking to ensure the profitability of the business model, therefore, the success of the business as a whole. So we’ve put together 5 e-commerce tracking metrics that you should be measuring outside of net sales.
The first thing you need to determine if you’re a business is, what is a conversion? This is different for everyone. In some companies it’s a demo of a software, others it might be a newsletter sign up. Many companies, such as ourselves have multiple points of conversion at different areas of the marketing funnel. So our conversion rate goes up the more places we have a place to convert.
Most e-commerce businesses however only consider a sale as a conversion point. But what about those who put an item in their cart? If you understand what your conversion rate from cart abandonment is, a cart entry can count as a conversion. Why? Because you know that 20% of those people will come back and purchase an item. Therefore the more people that put items in a cart, will lead to an increase in sales during the buying process.
Additionally, of the people who sign up for your store’s newsletter looking for deals and sales, how many end up purchasing? Knowing that number can help you understand how that conversion point can help your overall goal of growing sales.
Not all conversion points happen at the point of sale. As buyers do more research to purchase a product, the number of places that you can covert them in some way along that journey will be important.
It’s cheaper to keep a customer than it is to get a new one right? Do you know how many of your buyers each month are return customers? Or, how long does the average subscriber keep their subscription? If 80% of your customers return for another purchase that’s pretty good right? But do you know that information for a fact?
Without knowing your retention rate it’s difficult to forecast growth for the future. You can say “we grew 20%” this quarter, but that could just be all return customers who won’t be back for another year and your new sales were only up 5%. There are a number of ways to calculate churn, either on a customer basis or on a revenue basis. For more on that I suggest a blog by Evergage.
While churn and retention are big factors in SaaS companies, or businesses with subscriptions, it doesn’t mean that any e-commerce business shouldn’t be looking at that metric. There are a number of ways to get that information. When building your website it’s important to bring these kind of metrics up for tracking.
Adwords is a great at giving you this information. It tells you how much you how many clicks you got, how much they cost, and how many conversions you got from a campaign/ad/keyword. When it comes to calculating CPA, nothing beats Adwords. But for the rest of your marketing activities, it can be a little harder.
Take organic traffic for example. I know in our business most of our conversions/acquisitions come from organic traffic. So for us, SEO, content creation, creating conversion points, etc. are very important to the success of our business. So how would I calculate the CPA of these activities.
For this example let’s do some “hypothetical” math. Each month we do 100 hours of marketing for ourselves across all our channels. We charge $125 an hour. So our marketing investment is $12,500 a month in our own marketing.
We get an average of 6 leads per week, of those 25% are sales qualified leads. We close 50% of our sales qualified leads. So our cost per acquisition is calculated as such.
(6*.25) *52= 78
78*.5= 39 (new acquisitions per year)
12,500*12 = $150,000 (total marketing expense)
$150,000/39=$3,846.15 (Cost Per Acquisition)
By doing this calculation, we know exactly how much each acquisition costs. For any e-commerce business, they can easily know how much they spent on each digital marketing channel, how many sales they got, and therefore calculate their CPA. By doing this they can change which of their activities will bring them the best cost per acquisition, and therefore impact the overall profitability of the business.
Customer Lifetime Value
Remember up above when we were talking about retention rate? Yeah, in e-commerce this equation helps us also understand a customer’s lifetime value to us. While, SaaS companies and subscription companies generally take this the most to heart, general e-commerce websites can also calculate for this.
For this example let’s take use a hypothetical example of a clothing company. They’ve discovered that their cost per acquisition is $200 per acquisition. The average person purchases $100 worth of clothing when they purchase. This would look like an out of balance business model. However, they find that the average customer returns 75% of the time year-over to purchase new clothes.
There are some complex ways to calculate a customer’s lifetime value but I’m going to make it as simple as possible.
CLV = Avg Order Value * (Retention rate * Avg # of Years a customer stays)
So in this case the CLV looks like this
CLV = $100 * (.75*5)
CLV = $375
Now that $200 investment per customer is actually profitable. Could it be more profitable? Sure, but that means that you’ll need to do more work to ensure that people either stay longer with your brand, or return at higher rates.
Not all who have Googled are searching. You can quote me on that. We all know that word of mouth is quite literally the best form of marketing. If you’ve gotten someone to become a brand advocate, it’s the ultimate win for any business. But how do you know who came from a search because they were searching for your product, or who came because someone told them to look for you?
It’s actually pretty easy, just ask; and when that doesn’t work, incentivize. Asking where someone how they found you in your contact forms will help your e-commerce business know a little more information on them and what campaigns are working. Of course, if they tell you who referred you, offering that person a discount or a gift card goes a long way to keeping that momentum rolling.
But the point is, knowing what percentage of your customers are referring business to you can help you understand how well you’re doing as a business in keeping customers loyal. It can also be an entire new campaign to invest in. One that may yield better results than many other paid media channels.
Knowing your sales isn’t the end of the story for e-commerce businesses. This is especially true when you’re just getting started. Your cost per acquisition could be astronomical. But as you grow in your lifetime values for your clients, they share your story and your products, those costs will diminish.
But if you’re trying to prove the value of an e-commerce website, those first sales aren’t going to do it. You need these metrics to help you understand the long-term benefit of the business you’re running. Hopefully these 5 e-commerce metrics will help you understand that and improve your business in the long run.