If you run an e-commerce store, key performance indicators (KPI) can help you to drive actions, make business decisions and see how well your marketing campaigns are performing.
Monitoring your key performance indicators will identify progress toward customer service goals, marketing aims and sales targets. Please keep in mind the following list KPI’s is in no particular order.
What are Key Performance Indicators?
Remember, a performance indicator is a quantifiable measurement or data point used to gauge performance relative to a goal you may have. For example, some online retailers may have a goal to increase site traffic by 70% in the next year. Others may want an increase in sales by 40% and so on. The goals obviously vary from company to company and industry to industry.
Without key performance indicators, it’s hard to gauge progress over time. You’d be making decisions based on your instinct or preference rather than on solid data and metrics. Key performance indicators tell you more information about your business and your customers, so you can make informed and calculated decisions.
Here’s some of the most common Key performance indicators you need to keep your eye on, remember to check your data and metrics on a regular basis and evaluate your performance over a period of time.
1ROI – Return on Investment
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. ROI tries to directly measure the amount of return on an particular investment, relative to the investment’s cost.
ROI = Net Income – Cost of Investment
For example, suppose Lisa invested £1,000 in a local clothing store in 2017 and sold her stock shares for a total of £1,200 one year later. To calculate her return on his investment, she would divide her profits (£1,200 – £1,000 = £200) by the investment cost (£1,000), for a ROI of £200 or 20%.
2YOY – Year on Year Growth
Year-over-year (YOY) is the comparison of one period with the same period from the previous year. The period is typically a month or quarter. For example, fourth quarter of 2017 compared to fourth quarter of 2018. Your year-over-year calculations can help you measure your business’s performance. You can see if your business is growing from year to year, not just month to month. You can easily see long-term trends and if your business is improving over time.
Year-over-year Growth = [(This Year – Last Year) / Last Year] 100
For example, let’s say you want to compare your revenue from December this year to December last year. You made £40,000 this December and £25,000 last December.
Subtract last December’s revenue from this December’s revenue.
£40,000 – £25,000 = £15,000
Now, divide the difference by last December’s revenue to get the growth rate.
£15,000 / £25,000 = 0.6
Turn the growth rate into a percentage.
0.6 x 100 = 60%
You had a 60% year-over-year increase in revenue.
3CLV – Customer Lifetime Value
In marketing, customer lifetime value is a metric that represents the total net profit a company makes from any given customer. Basically, CLV is the total worth to a business of a customer over the whole period of their relationship. It’s an important metric as it costs less to keep an existing customers than it does to get new ones, so increasing the value of your existing customers is a great way to drive growth.
In basic terms to calculate the customer lifetime value, take a look at the following example. Let’s say Lisa bought a £40 pair of shoes every year from you for the last 10 years, your customer lifetime value has been worth £400. However, with larger companies it can be more difficult to calculate the value.
Customer lifetime value can be measured in the following way:
Identify the points where the customer creates the value
Integrate records to create the customer journey
Measure revenue at each point
Add together over the lifetime of that customer
At its simplest, the formula for measuring CLV is:
Customer revenue minus the costs of acquiring and serving the customer = CLV
You can add your own elements to this simple formula to reflect multiple purchases, behaviour patterns and engagement to predict CLV for your industry or sector.
4AOV – Average Order Value
Average order value (AOV) is the average dollar spend when a customer places an order on a website or in-store. Knowing the average order value helps inform businesses on their marketing and pricing strategies. By increasing their average order value, businesses can directly impact their revenue growth.
You can easily calculate your average order value by dividing total revenue by the number of orders during a given period.
AOV = Total Revenue / Number of Orders
For example, let’s say your total revenue for July was £90,000. The total number of orders on your ecommerce channels for July was 1400. You divide 90,000 / 1400 which equals 64.28. Based on this data, your average order value (AOV) during October was £64.28.
5CR – Conversion Rate
Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad clicks that can be tracked to a conversion during the same time period.
For example, if you had 50 conversions from 1,000 clicks, then your conversion rate would be 5%, since 50 ÷ 1,000 = 5%.
A high conversion rate depends on several factors, all of which must be satisfactory to yield the desired results — the interest level of your audience, the attractiveness of the offer, product or service, and the ease of the purchasing process.
6CAR – Cart Abandonment Rate
Abandonment is an ecommerce term used to describe a visitor on a web page who leaves that page before completing the desired action. Examples of abandonment include shopping cart abandonment, referring to visitors who add items to their online shopping cart, but exit without completing the purchase.
Typically a cart abandonment rate is expressed as a ratio. This will be the first number is the number of people who completed transactions with their shopping carts, and the second number is the number of people who created shopping carts, but never completed the transaction. Remember a low cart abandonment rate indicates that you’re giving your visitors a fantastic experience and they’re confident in purchasing from you.
Once you have the cart abandonment rate ratio, you can easily calculate the percentage. You divide the number of completed transactions by the total number of shopping carts with at least one item in them. You then multiply the result by 100 to get the percentage.
Let’s say you’ve had 100 completed transactions this month and 300 total shopping carts created. You divide 100 by 300 to get .33. Multiply .33 by 100 to get 33%, which is your cart abandonment rate.
7Cost of Goods Sold (COGS)
Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company. This amount includes the cost of the materials used in creating the good along with the direct labour costs used to produce the good. It usually excludes indirect expenses such as distribution costs and sales force costs.
The basic calculation is:
Beginning Inventory Costs (at the beginning of the year)
Plus Additional Inventory Cost (inventory purchased during the year)
Minus Ending Inventory (at the end of the year)
Equals Cost of Goods Sold
For example, let’s say Lisa has £15,000 cost of inventory at beginning of year + £10,000 cost of additional inventory purchased during year – £10,000 ending inventory. This would equal £15,000 cost of goods sold.
The COGS calculation process allows you to deduct all the costs of the products you sell, whether you manufacture them or buy and re-sell them.
8Revenue per Visitor (RPV)
Revenue per Visitor (RPV) is a measurement of the amount of money generated each time a customer visits your website. It is calculated by dividing the total revenue by the total number of visitors to your site, and is a method of estimating the value of each additional visitor.
For example, if your revenue for the month of July is £10,000 and your site receives 2,000 visitors, your RPV would be £10,000/2,000 or £5 per visitor.
Revenue per visitor helps you evaluate new visitor acquisition efforts to see which strategies are working. RPV can also be used to determine how much you can afford to spend on paid user acquisition.