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How To Use Ecommerce Metrics to Grow Your Online Store Profits?

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If you’re managing an online business, more than relying on instinct is needed to ensure success. You need to grasp how your business is performing and keep up with your eCommerce metrics and KPIs. To provide structure, these metrics can be divided into three categories:

  • Metrics related to marketing, such as conversion and customer retention rates
  • business performance indicators like profit margin and cost of goods sold 
  • Customer service-oriented measurements such as net promoter score.

What’s the difference between an eCommerce metric and KPI?

KPIs and metrics are often mistaken for the same thing. In reality, they are two different things. A metric is a single indicator that can be used to gain insight into a KPI or business process. For example, “time on page” is an excellent metric that gives insights into how interested customers are in your products and store.

A KPI is a targeted and quantifiable objective that you set to track your progress. For example, if you aim to raise your conversion rate from 2.5% to 3.5%, tracking related metrics such as time on site, bounce rate, and cart abandonment rate can provide insight into what steps need to be taken to achieve the desired result.

The goal of using metrics and KPIs is to measure, evaluate, and monitor progress. After selecting the appropriate metrics to track regularly, you can establish a baseline and gather data regarding various operations. This information can then be used to refine your business approach and enhance individual KPIs.

eCommerce metrics you should be tracking

Following are the eCommerce metrics that should be in tracking:

eCommerce metrics you should be tracking

 

Customer acquisition cost (CAC)

CAC is the average cost of acquiring a new customer. To calculate CAC, use this formula, which considers promotional costs such as those associated with running campaigns and producing content, hiring designers, and using software to create and monitor your efforts.

CAC = Promotional Expenses / Number of Customers Acquired

If you spent $2,000 on a Google Ads campaign and acquired 150 customers, your cost per acquisition (CAC) would be $13.33/customer. To ensure that the CAC is reasonable compared with the customer lifetime value (CLV), it is essential to focus on higher-margin products, optimize ad spending, and build organic strategies to reduce reliance on paid channels. Doing this can help you lower your CAC.

Organic vs. paid traffic

Understanding the origin of your website visitors can help you gauge the success of your eCommerce marketing strategies. Two significant sources of web traffic are:

  • Organic visits refer to the number of visitors you draw to your website without paying for it. A robust eCommerce SEO strategy and effective use of owned channels (email newsletters, blog posts, and social media accounts) are usually required to augment organic traffic.
  • Paid traffic refers to visitors obtained through paid channels such as Google Ads or paid social media campaigns. This type of advertising offers swift and extensive reach but requires continual monetary input for continued success.

To track how much organic and paid traffic you are receiving, use tools such as Shopiroller Analytics or Google Analytics. If your paid traffic vastly exceeds organic traffic, you should prioritize growing organic sources. On the other hand, without a steady ad budget to rely on, you may experience an overall reduction in web visitors.

Furthermore, consider the differences in behavior and conversion rates of users coming from different channels. Are customers more likely to buy after viewing a particular ad? Do they generally browse multiple items on your website or purchase one thing? Use this data to determine how to optimize your campaigns and enhance the overall user experience.

Cost-per-click (CPC)

CPC (Cost-Per-Click) is the amount you pay for each click on a link in a pay-per-click ad (e.g., Google ads, Amazon ads, and Facebook ads). Generally, more competitive keywords have a higher CPC and require you to submit an increased bid to get placement on SERPs. 

 

To ensure that you don’t overpay for ads, it’s essential to do your research, consider potential customers’ intent, look for lower-priced, longer-tail keywords, and modify targeting where necessary. Always make sure your ad drives the results you need!

 

Return on ad spend (ROAS)

ROAS (Return On Advertising Spend) is a valuable eCommerce metric that allows you to determine the profitability of an ad campaign by calculating how much revenue it generates for your business.

Return on ad spend

ROAS = Revenue from Paid Ads / Total Ad Spend

Therefore, if your Facebook Ad campaign generated $12,000 in revenue with a spending of $1,500, then the ROAS would be 8. This is usually shown as a ratio; in this case, it is 8:1. Generally, a good ROAS ratio to aim for across all industries is 2.87:1.

Bounce rate

The bounce rate indicates the proportion of visitors to a website who navigate away from the site after viewing only one page.

Bounce Rate = (Number of Visits Consisting of a Single Page View / Total Number of Entries to the Site) x 100

Most web analytics tools, such as Google Analytics and Shopiroller Analytics, provide bounce rate data. The usual range of bounce rates is between 26% and 70%, with an average between 41% and 55%, according to RocketFuel research. However, what constitutes a healthy bounce rate will vary depending on the store.

Bounce rates above 70% could signal technical problems with your website, such as slow loading times, broken links, or poor mobile responsiveness. A meager bounce rate could also indicate tracking or other issues since some bounces are to be expected. Investigate potential technical and content-related issues if you notice high bounce rates on your pages. 

It could be that customers need to be more engaging with your products, messaging, or branding. The message on the landing page might contrast significantly from the letter somebody sees in an advertisement (for example).

Average session duration

The average session duration is the time users typically spend on a single visit to your website. Generally, longer session duration is beneficial as it implies that visitors are more engaged with your brand or products. However, it could indicate that shoppers need help navigating your site.

The best way to gauge user engagement with your website is to observe their behavior. Are they exploring several pages? Are they taking steps toward completing a purchase? Where do they drop off in the process? If many shoppers abandon their carts, it could indicate a lengthy checkout process.

A report by Contentsquare found that the average session duration across all industries is around four minutes and 17 seconds. In comparison, sessions dedicated to buying items tend to last slightly longer—11 minutes on mobile and 20 minutes on desktop.

Transaction

The amount of transactions from your website does not provide an accurate depiction of your profitability, but it reflects your products’ popularity over time. Transactions are the total number of sales completed on your website during a particular period – weekly, monthly, or yearly. Keeping up with this data can allow you to assess how seasonal changes and discounts influence certain products and divide your best-selling items from the least popular.

Transaction 

To ensure you’re investing in the right product, measure transactions alongside order value and profit margins.

This way, you can get a more accurate view of what works for your business.

Conversion rate

The meaning of a “conversion” can differ depending on the context. For instance, a marketing team may view it as the number of people who signed up for an event, whereas you could see it as a purchase being made. It is also possible to track other conversions, such as adding a product to one’s cart, entering a coupon code, or registering for a free trial. After determining the definition of conversion that is appropriate to your business or campaign, you can evaluate its rate using this formula:

Conversion rate = (conversions ÷ total visitors) x 100

If you’re looking to increase your eCommerce site’s conversion rate, keep in mind that the design of your store can have a major impact on user behavior. Here are some CRO tests you could try to boost your conversions.

Cart abandonment rate

The cart abandonment rate is the percentage of shoppers who add items to their cart but do not go through with the transaction.

Cart Abandonment Rate = 100 * (1 – (Number of Completed Transactions / Number of Unfinished Transactions)

Cart abandonment rate

Nearly 70% of shopping sessions end in abandoned carts, costing billions in lost revenue each year. To reduce this number and maximize sales, retailers can send abandoned cart emails to shoppers who left without buying, offer free and faster shipping, provide multiple payment options at checkout, and simplify the overall checkout process. 

Shopiroller stores with active abandoned cart recovery automation have seen a 29% increase in sales. Taking these steps can help you recover some of the lost revenue.

Return rate

The National Retail Federation and Appriss Retail recently released a survey showing that product returns are on the rise, with rates increasing from 10.6% in 2020 to 16.6% in 2021, resulting in more than $761 billion of the merchandise being returned to stores or warehouses. To determine your store’s return rate, use the following equation:

Return rate = (Number of orders refunded or returned divided by the total number of orders) multiplied by 100

It’s crucial to remember that returns don’t only come with a financial cost. If customers are not satisfied with their purchases, it can damage your brand reputation too. To minimize the rate of returns, survey shoppers during the return process to learn why they’re returning items. If the product does not meet expectations, it could indicate that product pages need to be improved or that the quality of your products needs to be higher.

Cost of goods sold (COGS)

COGS, also known as the “cost of sales,” encompasses all expenditures associated with obtaining or producing your products, including the expense of raw materials, labor fees, and other costs linked explicitly to manufacturing your product. It does not encompass utilities, taxes, marketing expenses, rent payments, or any indirect expenditures.

COGS = Beginning inventory + total purchases – ending inventory

COGS is beneficial in determining your inventory turnover rate and profit margins. It can also assist you in recognizing actual production costs, allowing you to identify potential cost-reduction opportunities without compromising product quality.

QUESTIONS ANSWER 

Q: What are the National Retail Federation and Appriss Retail’s survey stating?

A: The National Retail Federation and Appriss Retail recently released a survey showing that product returns are rising, with rates increasing from 10.6% in 2020 to 16.6% in 2021, resulting in more than $761 billion of the merchandise being returned to stores or warehouses.

Q: How can retailers reduce the number of abandoned carts?

A: To reduce the number of abandoned carts and maximize sales, retailers can send abandoned cart emails to shoppers who left without buying, offer free or faster shipping, provide multiple payment options at checkout, and simplify the overall checkout process. Shopiroller stores with active abandoned cart recovery automation have seen a 29% increase in sales.

Q: What is the “Cost of Goods Sold (COGS)”?

A: Cost of goods sold (COGS), also known as the “cost of sales,” encompasses all expenditures associated with obtaining or producing a product, including the expense of raw materials, labor fees, and other costs linked explicitly to manufacturing. It does not encompass utilities, taxes, marketing expenses, rent payments, or any indirect expenditures. COGS is beneficial in determining inventory turnover rate and profit margins.

Q: What steps can retailers take to improve their business?

A: Retailers should look at their store’s performance using data and identify improvement areas. This includes surveying shoppers during the return process to gauge why they’re returning items and recognizing actual production costs to determine potential cost reduction opportunities without compromising product quality. 

Q: How does COGS help businesses?

A: COGS is beneficial in determining your inventory turnover rate and profit margins. It can also assist you in recognizing actual production costs, allowing you to identify potential cost-reduction opportunities without compromising product quality.

CONCLUSION

Above is just a small selection of metrics that you might be tracking. There are many more that can be taken into account. But not all of them will be equally meaningful to your business, so it would be wise to focus on the most applicable to your objectives. Shopiroller already has dashboards and reports for monitoring the performance of your store. Look at what is already available and act on it by making data-based decisions. This way, you can improve your business through informed choices.

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