Key Performance Indicator (KPI)

What are KPIs?

KPIs is a term thrown around a lot in the corporate world and for all the right reasons! They are more than just numbers that you report at the end of a quarter.

Key Performance Indicators, better known as KPIs, are measurable metrics that help you understand an organization’s success against its principal objectives.

Think of it this way - KPIs are beyond benchmarks; they are more like scorecards. They tell you how you are doing and what you should be doing to get better.

Why do KPIs matter for your ecommerce business?

In the absence of good ol’ KPIs, you are most likely winging your ecommerce business based on personal preferences or, better yet, your gut feeling.

Without reliable KPIs to fall back on, you won’t be able to identify your business strategies’ outcome. This leaves you with absolutely no insights into growing your business or achieving your goals.

What you need to understand is that it doesn’t just stop with tracking KPIs. You need to be able to interpret the data to arrive at actionable insights. These insights will further help you make informed decisions to increase sales, revenue, or even customer satisfaction for your online venture.

What are the top ecommerce KPIs that you should be tracking?

Let’s now dive into the KPIs that are paramount to the success of an ecommerce business.

1. Shopping cart abandonment rate: 

According to Statista reports, in March 2020, 88.05% of online shopping orders were abandoned. That's not a small number!

In ecommerce, cart abandonment happens when a potential customer starts a checkout process by adding items to the cart but then drops out of the process and leaves the website without making a purchase.

To measure the cart abandonment rate, you need to divide the total number of completed purchases by the number of shopping carts created. To turn it into a percentage, subtract your result from one and then multiply it by 100.

2. Customer acquisition cost

This KPI simply tells you how much it costs to buy a new customer. Knowing your CAC will help you chalk out how many customers you need to acquire in a month and the budget you need to set aside for this.

To calculate CAC, you need to add up the total amount of money you have spent via sales and marketing to acquire new customers and then divide that by the actual number of customers acquired via these channels.

3. Customer lifetime value

Customer lifetime value, commonly referred to as CLV or LTV, will help you understand the average profit that a single customer will contribute to your business during the length of their relationship with your store.

To arrive at CLV, you will first need to have the averages of 3 other metrics in place:

  1. The average number of times in a year the customer buys from you
  2. The average customer retention time
  3. The average order value

You can calculate your LTV by multiplying these averages:

CLV = (The average number of times in a year the customer buys from you) x  (The average customer retention time) x (The average order value)

4. Average order value

AOV or average order value tells you the average amount of money spent by a customer for each order. 

Quite simple to calculate, your AOV = Total revenue you’ve earned for a given time period ÷ Total number of orders.

One of the best ways to boost your revenue is to increase your AOV. Here’s everything you need to do to score a better AOV

5. Conversion Rate

The conversion rate will tell you just how effective your ecommerce website is. It will paint a picture to help you understand if your website is driving away visitors rather than doing you any good.

Conversion rate = Number of conversions ÷ Total number of visitors x 100

There you have it - you now know the top KPIs you need to be tracking.

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