20 Key eCommerce Metrics that Matter for Retailers

Posted by Samiksha Seth on Mon, 30 Mar 2015 10:28:10 GMT

20 Key eCommerce Metrics that Matter for Retailers

Knowledge is power, and in e-commerce this is all the more true. It is the only thing differentiating you from the people who lost the game. In today's world with the sheer amount of calculating power available in the hands of individuals it is no brainer that information is just a click away. However, problem now is not non availability, rather over availability of data. How do you decide which data point is worth giving your attention? At PriceTree, we have always strived hard to provide you information on the best practices to follow and help grow your business. Read this short guide to understand the metrics every e-retailer should measure to gain actionable insights from loads of data available today. Additionally, I've also included links of reference posts to gain more detailed understanding of all the key strategy discussed.

I'll be splitting this post into sections. Each section gives metrics which are most essential for your business. These sections are:

  • Sales Performance
  • Marketing Performance
  • Service Performance
  • Cost Management

I'll cover the sales performance and marketing performance in part 1, and then service performance and cost management as part 2.

Sales Performance

Conversion rate

According to Wikipedia, conversion rate is the average number of transactions resulting from total number of customer visits on a site. For retailers higher this factor better it is for the business. Alternatively, quicker the customers say yes to a product better for the business. According to research by Forrester Research Inc., the industry average is close to 3 percent. And almost 38 percent retailers agree that this is an important parameter to measure (Source: Oracle Commerce 2014 B2C Commerce Survey).

Retailers can improve this conversion rate by targeted promotions,improved site search, implementing user reviews and recommendations, better content for decision making and personalization.

Average order value

As per E-Commerce Wiki, this is an average amount a customer spends on a particular website when buying a product. Alternatively, this can also be calculated by total revenue by total number of orders. The best scenario is that this value is as high as possible leading to lift in revenues. Bigger the individual orders better is this factor. According to Forrester Research Inc., US$ 180 is the industry average. However, this might seem to be too high in case of Indian scenario, but always remember that these are average values and retailers will try to achieve anything bigger as better. Again same research mentions that close to 38 percent respondents mention that this is an important parameter to measure.

Retailers can increase the average order value by targeted promotions and discounts, bundling items, and up-selling or cross-selling wherever possible.

Cart abandonment ratio

Research says the ratio of number of abandoned shopping carts to the total number of transactions done. Lesser this ratio, better it is for retailers as this means higher number of customers are buying the products. Abandonment ratio globally is almost 58 percent as per Forrester Research Inc(and 56% as per Statista). It is no brainer that higher the ratio lesser, will be your conversion rate and greater chances that customer comes to your site but does not buy because of multiple reasons. Read this earlier blog post to know why cart abandonment happen, where we explained why shoppers leave your site without buying stuff.

Inventory turnover

Wikipedia defines inventory turnover as a measure of the number of times inventory is sold or used in a time period. The shorter the time frame, better it is for business. According to Quora 8 to 16 is the industry average. This clearly means that business has more time to roll stock to generate revenue. How can retailers improve their inventory turnover ratio? There are many ways in which this can be done for example using pricing strategies, cross selling,upselling, and providing targeted promotions and offers.

Price competition

This refers to changing price of products by your competitors. This is the great opportunity to increase your margin with little spent on pricing intelligence strategy. As competition is increasing every day and it becomes all the more important for retailers to keep a watch on competitor’s prices 24*7 to make sure they are the lowest to increase sales and brand value. There are pricing monitoring software available in the market that help retailers to track competitors prices. These software's basically tracks prices from multiple competitor websites and alert you when price changed with different set of dynamic rules and intelligence reports. For. e.g Nick is mobile category manager @Flipkart and a mobile HTC Desire E Mobile is available in multiple competitor website(Amazon, Flipkart, Snapdeal, PayTM, eBay etc.), what should be the best pricing intelligence strategy for Nick? Obviously, track competitor website price every hour and set an price alert which reports on margin opportunity, out of stock at competitor website, low price point etc. and best part is price intelligence solution vendor can get you this report for all your product every hour. This also helps retailers to change the pricing of products depending upon demand in the market and in plan a business strategy of action when price changes depending upon market conditions. Retailers can improve it by providing superior customer service, use of reviews, omni-channel presence and free shipping.

Marketing Performance

Page views

Page views this sort of number of visitors visiting a site from direct and indirect sources. According to some research 93 percent visitors start a product search from a search engine. Hence, it is normal that any page visit to a retailers’ website is highly influenced by search engine optimization of the website. Additionally, it becomes important that your website is mobile friendly. As Google recently announced that mobile friendly websites will be ranked higher in searches done on a mobile. As more and more visitors now use mobile devices to reach a website it becomes important that this is done on priority. Retailers can personalize their websites, use social media to drive visitors to their website and start using price comparison tools.

Customer acquisition

This is the process used to secure and obtain new customers and business. According to Forrester Research Inc. $32 is spent on every customer acquisition. Hence, it becomes all the more important that not only a customer is acquired rather a customer is retained for repeat purchase. This will also help retailers stand out from competition. This can be done by personalization, promotions and targeted advertising and email communication.

Page ranking

This is the way in which search engine displays relevant webpages within the list of webpages resulting from a search. Higher page rankings improve chances of a higher conversion rate. As mentioned earlier this can be done my search engine optimization, optimization of search within your own website and creating mobile friendly websites.

Paid search

This refers to the paid search content appearing on web searches. These are nothing but adds which are being paid for by the retailers. The dollars spent on paid search can be effectively utilized if you have a customized landing page for such customers, keyword search is enabled on your website.

Bounce rate

Number of people leaving your website without even visiting any other page. This might reflect to other issues in your website. Lower the bounce rate higher are the chances of getting business. Read more on this in our blog titled “10 reasons why shoppers leave your website without buying”. Retailers can improve their bounce rates by targeted promotions, customized landing pages, improved order fulfilling, and reducing user fatigue by minimizing the number of clicks for making a purchase.

Social commerce

This means using varied social media tools to promote your website and products. This mostly helps during the sale days when you want more customers to visit your website. Read more about this in our blog here, which explains why social presence is more important in today’s world. However, over reliance cannot guarantee success.

In the first part we've discussed metrics measuring sales performance and marketing performance of ecommerce. These two metrics help you understand how your business is doing in terms of attracting customers to your website. Let’s now take a look at other metrics which will help you measure and improve the internal functioning of your business and retain customers.

Service Performance

Omni-channel engagement

This indicates to seamless approach to customer experience. All touch points online or offline, virtual or physical are made relevant to client. This is mostly related to customer centric service of your business. In other words omni-channel retailing is evolution of multi-channel retailing. According to a Deloitte study conducted in 2014, omni-channel customers spend 93% more per transaction than customers that only shop online. Similarly, Omni-channel customers spend 208% more per transactions than those that only purchase in store. This in itself indicates that omni-channel engagement is one of the most important parameters of customer engagement and service levels. Retailers should now also think beyond the web in order to reach the customer at every touch points.

Retailers can improve in this area by integrated promotions (web, mobile, tablet, in-store, call center, print), reviews, creating clear consistent and compelling content, all channels work in harmony with real time inventory visibility and fulfillment from all channels.

Repeat Customers

As name suggests this indicates to number of customers coming back for repeat purchases. Having a repeat customer is always a good scenario for your business as not only they spend more, they also tend to spread good word about your business if managed well. According to Quora.com, a peer reviewed Q&A website, 20% to 40% is an industry average of repeat customer rate. Additionally, according to a report by RJMETRICS repeat customers almost spend 5X times more than single visit customers. Although, research seems to be for the North American market, logically this might be true. A repeat loyal customer will have more faith on a retailer and will not hesitate to spend more.

repeat-customer-ecommerce

Source : RJMETRICS

Retailers can improve in this area by providing preferential treatment to repeat customer such as by free (faster) shipping, creating user profiles, special offers and promotions, and providing personalized experiences.

Site performance

According to research by KISSmetrics and Akamai (a large player in website optimization), “If an e-commerce site is making $100,000 per day, a 1 second page delay could potentially cost you $2.5 million in lost sales in a year”. This also leads to page drops, lost opportunity and a bad feedback for the retailer. So ideally customers should not be made to wait for site to load. The above research suggests that most customers will wait for 6-10 seconds before they abandon a webpage.

Retailers can run optimization programs on their website, using low weight content is another option. Running A/B testing on sites is also a good idea. Alerts, in case of website crash should be intelligently designed.

Cost Managements

Returns

Returns happen when a product sold online does not meet customers’ expectation. Around 91% of customers consider a retailers return policy before purchasing a product. However, many do not even consider a retailer in case it is not clearly mentioned. In short a clear and concise return policy helps in indirectly improving sales.

A retailer can reduce returns by taking multiple steps, first and foremost is by providing concise and clear description or technical specifications of the product. In short, helping clients choose a correct product. Adding reviews, feedbacks, user reviews, videos, unboxing videos go in a long way in educating clients in setting up their experiences. Additionally, up-selling and cross-selling help customers in picking the right product and accessories.

Gross margin

Wikipedia defines gross margin as the difference between price and cost of a product being offered on the website. This is usually depicted in the form of a percentage. Obviously, higher this percentage better it is for retailers. According to some research by MarketingSherpa, the margin varies in the range of 30% to 40% depending upon the size of the e-commerce vendor. In short, a retailer can compete either on price or on value. Due to very high commoditization, competition on price is very high. Hence it’s always beneficial to track competitor’s price, read more about competitor price tracking here. In some cases some retailers may also violate minimum advertised price agreements, read more here on how to track such violations. Hence, we always suggests retailers to use price monitoring solutions to maximize retail profit. Again, traditional wisdom also works here, reduce operational costs, improve sourcing and do better pricing based on demand.

Marketing cost per order

This is the cost to generate one order. Alternatively, this can be defined as the ratio of campaign or marketing cost to the total number of orders generated within that campaign period. This may vary from retailers depending upon segments, however as per Quora.com it might range from Rs230 to Rs1, 165 depending upon the vertical of the retailers.

However, retailers can automate their promotions depending upon events, and set up overrides for campaigns and categories. Thus saving on the costs.

Return on investment

Last but the most important point is ROI. Money earned for every rupee invested in the business. The list of to do's can be very large. However, in general if the above points are followed and measured then ROI will automatically improve.

Do tell me about your experience on tracking performance metrics for your business. Also do you think there can be other parameters which can be tracked? Please post your feedbacks in the below section for comments.

About the author

http://img.pricetree.com/wp-content/samiksha-seth.jpg
Samiksha Seth is content strategist @PriceTree. She loves to write about e-commerce, m-commerce, big data. An avid blogger and Reiki practitioner.

Read my Latest posts or follow me on Twitter.

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