How to manage an e-commerce business and make it profitable?

Project performance indicators measuring (key performance indicator, aka KPIs) is crucial for e-commerce business success. We need to measure everything that we can. Over time, you will understand which of the indicators are capital-forming and will be able to adjust them more personalized in time.

Defining Key Performance Indicators starts with clearly stated goals and understanding which areas of the business affect them. Of course, performance metrics can and should be different for each purpose. For example, if you want to increase sales, improve marketing, or improve customer service, these cases' metrics would be other.

What are KPIs in the e-commerce business?

KPI (Key Performance Indicators) is an indicator of success for every e-commerce activity. In other words, it is a quantifiable measure of the actual results achieved relative to your goals. Monitoring KPI will help any e-commerce business track progress towards its sales, marketing, and customer service goals.

Key Performance Indicators are vital if you want to understand where you are moving, your pace of growth, identify any problems early, and do better. In short, metrics allow you to track all activities at any time. For example, you can see what is worth the effort, where the money goes, and what makes the profit. With their help, you will find answers to these and other questions.

Types of Key Performance Indicators:

  • the amount of resource expenses is key cost indicators;
  • key performance indicators are how much the execution process corresponds to the established algorithm;
  • performance metrics are indicators that characterize the ratio of the result obtained and the time spent on getting it;
  • KPI efficiency (performance indicators) are derived indicators that indicate the result's rate to resources' cost.

Critical metrics for online store performance

  1. The conversion rate

    The conversion rate is the percentage of visitors who made a purchase. That is to say; conversion shows how many users bought the product. According to Marketing Sherpa, the expected conversion rate for e-commerce stores is 1% to 5%.

    And 2.5% conversion means that out of a thousand website visitors, twenty-five people bought a product. Calculation of KPIs divides the total number of site visitors (page/category/group of pages) by the total sales number. Also, you can use site-wide tags to make sure that this is accurate.

  2. Subscribe to the newsletter

    Email marketing is one of the most potent e-commerce tools to drive your business. Besides, emails allow you to communicate with customers directly. As a result, it helps you drive more traffic.

    Ideally, try to make your subscription list as large as possible even though many will not buy your products. In other words, the idea is to track the total number of subscriptions and bounces rates. We can do that in different ways, for example:

    • At first, use built-in analytics in your email marketing tool.
    • Secondly, set up a conversion goal in Google Analytics to track on which page your visitor decided to opt-out.

    And look here are tools that can help to create great email marketing campaigns for the Magento store: EMAIL PREVIEW, EMAIL TO CUSTOMERS, SMTP.

  3. Customer Lifetime Value (CLV)

    Your customer's lifetime value is the money that e-commerce makes from a typical customer over the entire interaction time. In short, CLV information shows how many resources you can spend to attract a single customer. Ensure that the cost of attracting a client does not exceed the income from the entire cycle of interaction with him. Otherwise, you will go broke.

    For example, let's say you sell auto spare parts. You get $ 30 for each order from a singular customer. For the entire collaboration with the same guy, you get 7 orders overall. Thus, you earn $ 210 in seven transactions from a typical customer.

    There are many ways to expand the lifetime value of your customer. First of all, this may be an increase in the average order value. But it's also necessary to pay attention to building long-term customer relationships.

    Here are some ideas for increasing your average purchase order:

  4. Cost of customer acquisition

    CAC (aka customer acquisition cost) is the amount you spend on customer acquisition and other costs associated with the sale until the deal is closed.

    For instance: To acquire each new customer costs you $ 100. In this case, you need to draw up a strategy so that the revenue from the client is three or four times more. That is, about $ 400. Customer acquisition costs can be lower without sacrificing efficiency for instance:

    • look for new promotion channels, use them comprehensively;
    • analyze customer behavior and rebuild the sales funnel.
  5. Revenue by traffic sources

    E-commerce websites need to analyze different traffic sources. Ordinarily, it gives an understanding of which channel is more effective and requires further development. And the most important which channel is still draining your budget and does not bring any benefit. Google Analytics has a dedicated traffic channel tab, which is the perfect tool for this job.

  6. Average check per purchase

    This indicator is quite relevant for those companies that have already built a steady stream of customers. But the number of clients is no longer growing. The basic formula for calculating the average check amount is the ratio of sales volume (for a certain period) to the purchases. By the way, earlier, we talked in detail about increasing the average check per purchase.

  7. Number of abandoned carts

    abandoned cart in e-commerceThe abandoned cart problem is common in e-commerce business. According to SaleCycle, about 77% of shoppers abandon their shopping carts. Unfortunately, —Āustomers leave the website without completing the purchase quite often. So why is this happening?

    The main reasons for customers to go are:

    • wrong button appearance (text, design, location, noticeability, etc.);
    • imperfect shopping cart (low usability, short product description, poor quality pictures);
    • incorrect display of prices (automatic recalculation in case of changes in the items of goods, no unplanned additional costs);
    • complex process of registration / authorization.

    Read also The Hidden Mystery Behind abandoned shopping carts.

  8. Net Promoter Score

    Customer Loyalty Index (NPS) is a metric that displays how much your store is appealing to your customers. And you can define it just by a simple question.

    First of all, the company asks a consumer: "Are you ready to recommend our company to your friends?" And then, the client gives a grade on a scale from 0 to 10. Where 10 means - I will gladly recommend, while 0 - I will never do this in my life. And most importantly, that the results of such a survey are effortless to collect and evaluate and then conclude.

In conclusion:

Once you have established your business goals and Key Performance Indicators, you need to track and update these metrics regularly. Generally, a CRM system is using for running an e-commerce business. So that all relevant e-commerce KPIs are stored and organized into one place.

And this, in return, greatly simplifies and automates reporting processes. Finally, it makes it easier to identify which areas require more attention.