Key performance indicators (KPIs) are like a GPS for your e-commerce business—they can tell you when your business is headed in the right direction or when it’s taken a wrong turn. With these all-important metrics, you can hone and refine your e-commerce site to better capitalize on your successes while making improvements where needed, and these are the kinds of changes that can help your business generate more revenue.
Let’s discuss the most important KPIs you should track for your ecommerce business.
What is a Key Performance Indicator in E-Commerce?
Key Performance Indicators (KPIs) are quantifiable values that measure the performance of specific business objectives in e-commerce. These metrics are directly tied to the success or shortcomings of an online retail operation, helping businesses identify the areas that need improvement to drive better results.
For example, a common KPI for e-commerce businesses is organic traffic—visitors who arrive at the site via search engines like Google or Bing. By utilizing tools like Google Analytics, online retailers can track their organic traffic and establish an average performance baseline. If organic traffic is low, the focus may shift to improving SEO strategies or content creation to attract more visitors. By monitoring this KPI on a monthly basis, e-commerce businesses can evaluate whether their efforts are effectively driving traffic and ultimately contributing to online sales growth.
Some of the most common KPIs businesses measure include:
- Lifetime Value of a Customer (LTV): Revenue X gross margin X average # of repeat purchases.
- Customer Acquisition Cost (CAC): Total marketing investment/ # of customers acquired.
- Keyword Rankings: The position your site ranks for a particular keyword search.
- Bounce Rate: The percentage of single-page sessions in which there was no interaction with the page.
- Goal Completions: The total number of conversions.
- Goal Value: The total value produced by goal completions on your site. This value is calculated by multiplying the number of goal completions by the value you assigned to each goal.
- Return on Investment (ROI): The amount of money you gain compared to the marketing cost.
- Return on Ad Spend (ROAS): Revenue earned compared to the amount spent on an advertising campaign.
- Follower Growth: The number of followers on a social media platform increased over a period of time.
- Social Media Engagement: Number of interactions with your social media content, including likes, shares, comments, messages, mentions, and tags.
What is a Retail KPI?
A retail KPI, or key performance indicator, is a metric used to measure the effectiveness of a retail business in achieving its strategic goals. In an e-commerce setting, these KPIs help track online performance, but some traditional retail KPIs—such as sales per square foot or sales per employee—may not apply. Instead, e-commerce businesses focus on metrics like conversion rate, average order value, and customer lifetime value to ensure they are meeting their targets and driving success. Some of the most common retail KPIs in ecommerce include:
- Conversion Rate: The number of purchasing customers/ total number of visitors. For instance, if 100 people visited your website and only five people purchased something, the conversion rate would be 5%.
- Average Transaction Value: The average amount of money generated from shoppers visiting your website (total revenue/ number of transactions). For instance, if you earned $10,000 from 1,000 transactions, the ATV would equal $10.
- Gross Profit: The total cost of goods sold – the cost of goods sold. For instance, if a business sold $20,000 worth of merchandise and it cost $12,000 to produce the goods, the gross profit would be $8,000.
- Shopping Cart Abandonment Rate (CAR): Divide the total number of completed purchases by the number of shopping carts created multiplied by 100. For example, if there were 50 completed purchases and 400 shopping carts created, the CAR would equal 87.5%. [1- (50/400) x 100 = 87.5%].
- Repeat Purchase Rate (RPR): The percentage of customers that complete multiple purchases. # of customers who made a purchase in a given time period divided by the total number of customers x 100. For instance, if you had 200 customers and 50 of them completed multiple purchases, your RPR would be 25% (50/200 x 100 = 25).
What E-Commerce KPIs Are Most Important?
KPIs are crucial for e-commerce businesses because they offer clear metrics for tracking progress towards business goals. Identifying the right KPIs ensures you focus on the areas that will drive the most growth for your online store. Below are the top e-commerce KPIs to prioritize:
- Conversion Rate
- Average Order Value (AOV)
- Customer Lifetime Value (CLV)
- Shopping Cart Abandonment Rate
- Organic Traffic
- Keyword Rankings
- Customer Acquisition Cost (CAC)
- Bounce Rate
- Return on Ad Spend (ROAS)
- Repeat Purchase Rate
Top Ecommerce KPIs
There are dozens and dozens of metrics you can use to measure your site’s performance. The best KPIs are typically simple, real-time, and quantifiable measurements that can directly affect a company’s profitability.
It’s integral for e-commerce retailers to partner with seasoned and experienced specialists at quantifying KPI data and showing businesses how they can integrate that KPI information into an online strategy that reaps the rewards.
Here are some of the most essential KPIs that can make all the difference in your ecommerce retail business:
1. Site Traffic
It’s vital to know how many people are coming to your site, but it’s also essential to know where that traffic is coming from. Are people finding your e-commerce site via organic search, Instagram marketing, or a pay-per-click ad? What keywords are driving people to your website? With this KPI, you can focus your marketing efforts and see what campaigns are bringing in results.
2. Conversion Rate
Of course, it’s one thing to get people to your website, but it’s something else entirely to get them to take action, whether that means placing an order or joining your email list. Conversion rate is calculated as a percentage, dividing the number of conversions by the number of site visitors during a set time period, then multiplying that number by 100.
There are numerous types of conversions, and you can measure different ones according to your business goals. Purchases are obviously the ultimate conversion, but you could also see how many people click on a video, sign up for e-newsletters, or visit a particular page on your site. You should be aiming for at least a 2.42% purchase conversion rate, which is the worldwide average.
3. Shopping Cart Abandonment Rate
Let’s say that the purchase conversion number isn’t what you want it to be. You’d want to take a look at this KPI, which can help pin down why site visitors are loading up their shopping carts but not pulling the trigger on ordering.
Typically, 69 of every 100 carts are abandoned before purchase. Perhaps the shipping fees are too high, or it takes too long to enter information to place an order. Pinpointing where these obstacles are in the ordering process can help you fix them, with the ultimate goal of improving that purchase conversion rate.
It’s worth your time: Business Insider estimated; that in 2014 alone, abandoned carts represented $4 trillion in unsold merchandise, but with the right corrections, 63% of those lost sales could have been recovered.
If someone does purchase, you better make sure you can smoothly fulfill their order. Check out our quick guide on how to improve 3pl ecommerce fulfillment.
4. Average Order Value (AOV)
Purchases are also a great KPI source. The AOV is a simple calculation of your revenue divided by your number of orders. Obviously, the higher your AOV, the better it is for your revenue. Working with the right partner on your KPI can help you determine new ways to increase your AOV, such as offering free shipping with a minimum purchase amount or bundling products together.
5. Customer Lifetime Value (CLV)
Happy customers are more likely to be repeat customers, and that can be good for business. How good? That’s where this KPI comes into play. This figure calculates how much revenue can be generated from an average customer’s lifetime spending habits on your e-commerce platform.
Long-term customer retention can be a cornerstone of a successful online retail business: Bain & Company found that customers who had spent around three years shopping at a particular site spent 67% more than customers who were new to a site. This KPI combines three metrics in its calculations:
- Your brand’s AOV.
- The average number of purchases a customer makes per year.
- The average time period for customer retention.
E-Commerce KPI Examples
Tracking the right KPIs is essential for gaining a true understanding of your e-commerce business’s performance. Here are some key metrics that provide valuable insights into the health and efficiency of your online store:
Cost of Goods Sold (COGS)
Definition:
COGS represents the direct costs involved in producing your products, including materials, labor, and manufacturing. It excludes indirect expenses such as marketing or shipping.
Use Case:
COGS helps you assess the profitability of your sales by showing how much of your revenue goes into product creation. A lower COGS means higher profit margins. By tracking this KPI, you can find ways to reduce production costs while maintaining quality, thereby increasing your overall profitability.
Inventory Turnover Rate
Definition:
This KPI measures how quickly your inventory is selling and being replenished. It’s calculated by dividing the cost of goods sold by the average inventory during a specific period. A higher rate indicates faster sales.
Use Case:
A high inventory turnover rate suggests strong demand, while a low rate may indicate excess stock. Monitoring this metric allows you to optimize inventory levels and adjust your product offerings. For instance, in a fast-moving industry like fashion, you want to avoid last season’s items lingering in stock.
Email Open Rate
Definition:
Email open rate measures the percentage of recipients who open your emails, providing insight into the effectiveness of your email campaigns.
Use Case:
This KPI helps you evaluate whether your subject lines and email timing are resonating with your audience. A low open rate suggests a need for more compelling subject lines or a different email strategy. A high open rate, on the other hand, indicates strong engagement and opens up opportunities to convert those readers into customers.
Net Promoter Score (NPS)
Definition:
NPS gauges customer loyalty by asking how likely customers are to recommend your business. Responses are categorized into Promoters, Passives, and Detractors, giving you a clear picture of customer satisfaction.
Use Case:
A high NPS means your customers are likely to recommend your brand, which is a strong indicator of loyalty and future growth. A low NPS signals areas of dissatisfaction that need attention. Use this feedback to improve customer experience and turn detractors into promoters.
Return Rate
Definition:
The return rate measures the percentage of products returned by customers after purchase. It is calculated by dividing the number of returns by the total number of sales during a given period.
Use Case:
A high return rate can point to issues with product descriptions, quality, or customer expectations. Tracking this KPI helps identify problems in the sales process that may be leading to dissatisfaction. A lower return rate indicates better alignment between customer expectations and the product, which results in greater customer satisfaction and reduced costs.
Transform Your Ecommerce Storefront With Intelligent Commerce
KPIs are a foundational tool for building a successful e-commerce platform. Nogin uses solution-driven data to help you grow the most important metrics to your brand and the best fit with your business goals.
Connect with us and learn more about how our expert team members can collaborate with you on creating a robust ecommerce strategy that will grow and energize your online retail operations to meet your brand’s goals and objectives best. Leverage our advanced and proprietary wholesale ecommerce platform and ecommerce services to explode your online revenue.
We’ve helped many clients transform their online storefront, including Blank NYC. They achieved a 100 percent growth in the first year, with a conversion rate up over 50 percent. Schedule a quick call below and check out more of our ecommerce guides below:
- 15 Luxury Fashion Ecommerce Tips
- Best Ecommerce Marketing and Conversion Funnel
- How to Colab With Brands
- Ecommerce Product Listing Strategies
- Ecommerce Retail Pricing Strategies
- Most Common Ecommerce Myths
- Coronavirus and the Future of Ecommerce
E-commerce KPIs FAQ
What are KPI in ecommerce?
Key performance indicators (KPIs) in ecommerce are measurements that show how well your online store is performing. Ecommerce KPIs include metrics such as online revenue, store visits, and repeat purchases.
How to measure KPIs in ecommerce?
You can measure KPIs in ecommerce using software tools such as Google Analytics and Shopify. These tools provide data such as site traffic, conversion rates, and average order value.
What are the top three KPIs you use to measure ecommerce health?
The top three KPIs for e-commerce health are site traffic, conversion rate, and average order value. These numbers help you see if people are visiting your site, buying things, and how much they are spending.
What is a good conversion rate for ecommerce?
A conversion rate of 2.42% is good. This means that out of every 100 visitors to your site, about 2 to 3 should make a purchase.
