Nowadays, every company generates vast amounts of data every day. Thanks to their analysis, it is possible to extract valuable information that helps in making business decisions. This also applies to online shop owners. Verification of several key indicators gives us an insight into the condition of the company and allows us to refine our strategy better. Which KPIs are worth analysing in e-commerce? Read more and find out.
What are the KPIs in e-commerce?
If you want to have a constant insight into the condition of your online shop, it is necessary to get to know the 5 most important KPIs for e-shop owners.
1. ROI – Return on Investment
ROI, or Return on investment, is a performance indicator used to assess the effectiveness of the actions carried out. It informs shop owners whether a given project is profitable.
Return on investment is calculated as the ratio of return on investment to costs incurred. If it is at a low level, then the expenses exceed the generated profit and the campaign brings losses. A high ROI, on the other hand, indicates low customer acquisition costs.
By analysing ROI, online shop owners can verify which advertising formats or keywords selected for the campaign are effective. Thanks to this, it is easier to optimise the budget and thus increase the effectiveness of the activities conducted.
2. CAR – Cart Abandonment Rate
Every e-commerce owner should know how many people give up shopping in their online shop, even after adding products to their shopping cart. In this case, the CAR indicator will be useful.
This indicator shows the number of online shoppers expressed as a percentage who add items to their virtual shopping cart but then abandon it before the shopping is completed. In this way, it is possible to determine what percentage of potentially interested customers drop out of their shopping cart, compared to the total number of shopping carts created in a given e-shop.
If the CAR ratio remains high, it means that an e-commerce owner loses more money than they earn. Often, optimising an e-shop and shortening the ordering procedure to a few necessary steps help to increase the CAR ratio.
3. CLV – Customer Lifetime Value
This indicator helps to calculate the estimated amount of revenue that each customer can generate for the e-shop during the relationship. Typically, the calculation of CLV is based on a predetermined measurement period, e.g. 12 or 24 months.
For example, if we know that the purchase value of a shopping cart of one of our customers is on average PLN 100 per month and we want to examine its value on a scale of 2 years, we will calculate the CLV as follows:
CLV = 100 (PLN) x 12 (months) x 2 (years)
The life value of the client, in this case, will be 2400.
Knowledge of CLV helps e-shop owners to estimate the expenses that they can incur to acquire new customers and maintain existing ones. Thanks to this, they can more accurately estimate the maximum budget worth allocating to PPC advertisements.
4. AOV – Average Order Value
Another KPI that is important for online shop owners is AOV. This indicator determines the average value of each order placed in the e-shop over a given period. This indicator is calculated according to the formula:
AOV = (value of orders in a given period) / (number of orders in a given period)
The higher the AOV, the greater the profits.
By analysing this KPI, every e-commerce owner is able to make more informed and accurate business decisions regarding advertising or pricing policies.
5. Bounce rate
The bounce rate is equally important in assessing the condition of an online shop. It is one of the most important performance indicators, which facilitates the evaluation of service traffic and its monitoring.
The bounce rate is the ratio of the number of sessions limited to one page to the total number of all sessions. It can be verified in Google Analytics. If the bounce rate is at a high level, it means that customers close it quickly when they enter a product page - then the chances of buying are significantly reduced. Therefore, it is worthwhile to improve this KPI by paying attention to UX, the time of loading the e-shop, adapting it to browsing on mobile devices or the quality of content published on the website.
It should be remembered that each e-commerce owner should individually identify the appropriate KPIs for their business. They depend on the stage of development of the e-shop and its position on the market, competitors' actions, industry, seasonality as well as the adopted business goals.