- Amelia Sabestine
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Now that your e-commerce website is operational, how can you determine its level of success in digital solution services? And how do you determine what still needs to be improved? E-commerce metrics and key performance indicators (KPIs) can help with that. E-commerce KPIs and metrics provide you with a window into the operation of your company. When combined, they aid in providing a thorough picture of every aspect, including marketing, operations, sales, and service. Gaining insights that can help direct business decisions, enhance revenue, foster customer loyalty, and spur growth is possible when you track the appropriate B2B e-commerce metrics and KPIs over time.
Prior to delving into insights and innovation, let us ensure that we have addressed the fundamentals. To make the most of e-commerce metrics and KPIs, you must have a thorough understanding of what these terms imply, how they differ, and why they are so important to your company. Now let’s get started.
What Are The Kpis For B2B E-commerce?
B2B e-commerce KPIs are ways to gauge how well your online brand is performing. These metrics can be used to track sales, keep an eye on marketing initiatives, and evaluate the general efficacy of your online store. While there is a vast array of KPIs available, most merchants stick to a small number of benchmarks that best suit their goals.
Since they show you whether your daily operations are headed in the right direction to meet your objectives, e-commerce KPIs can be viewed as a gateway to understanding product or brand performance. Your business can better understand its data and gain valuable insights to drive growth by giving e-commerce key metrics top priority and conducting analysis on them.
This is so that you can precisely identify what is working and what is not working for your brand using KPIs. The sales, marketing, and operations teams can then be informed about areas for improvement or your business model can be modified with the help of this information.
What Are E-commerce Metrics?
A metric in e-commerce is a particular measurement (or data point) that lets you monitor your online business’s performance in a number of different areas. Anything from marketing to sales to loyalty and more could fall under this category. A metric, to put it briefly, offers a numerical representation of your company.
A key performance indicator, or KPI, is a particular metric that you can use to assess whether your internet business is succeeding in reaching its objectives. KPIs are frequently used as benchmarks in e-commerce, enabling companies to assess their performance in relation to their stated goals. For instance, you might set a target KPI of $100,000 in revenue per month. Whether you meet, exceed, or fall short of that amount provides you with information that you can utilize to change your approach or spur additional growth.
What’s The Difference Between An E-commerce Metric And An E-commerce Kpi?
Despite the apparent similarity between these two terms, there are some subtle but significant distinctions. As previously stated, a metric is a straightforward data point that provides you with an overview of your company at a particular moment. Progress is measured in relation to that data point using a KPI. It lets you determine how well you are doing in relation to the initial goals and objectives you set and acts as a benchmark of success. You can’t truly assess your performance or determine whether your strategy is effective without a KPI. E-commerce KPIs can give you information about top-selling items, consumer purchasing trends, website usability, and more. You can use this information to make data-driven decisions that are more likely to spur growth and boost success.
KPIs
- Closely tied to business goals and objectives
- Strategic tool
- Measure success over a longer period of time.
- May vary and can be assumed
Metrics
- General measures of performance
- Operational tool
- Offer specific insights over a short period of time.
- Mostly objective and stable
For instance, if your monthly sales target was $100,000 and you sold $200,000, your KPI was doubled and your sales target was exceeded. Your metric is the total amount of sales ($200,000). Together, your metric and KPI provide you with information about how you’re doing in relation to particular targets and goals.
Why Are E-commerce Metrics So Important?
Businesses rely heavily on e-commerce metrics and KPIs to monitor their performance and assess whether their daily activities are contributing to the company’s overall objectives. Businesses use these e-commerce success metrics for data analysis and to learn more about how their operations work.
KPIs assist companies in identifying and analyzing their shortcomings so they can adjust their approach and get back on track. More significantly, you can use the data analyzed by e-commerce KPIs to train your operations and sales teams and enhance overall business performance.
It is imperative that you examine your e-commerce business metrics at least once a month for three main reasons: it provides you with an idea of your customer engagement, helps you track growth and performance, and helps you estimate future inventory needs.
Recognize The Performance.
As a starting point for analyzing overall growth and e-commerce performance metrics, it is crucial to examine your e-commerce sales. Examining your daily sales figures alone is not enough to accomplish this. Along with trends, you should consider whether the number is rising.
You can make necessary adjustments and adaptations for the future by monitoring the performance of your online store to determine whether any aspect of your marketing or sales strategy isn’t working.
Boost Your Forecasting.
Trends in shopping are something else you should be aware of. You can easily improve your overall sales forecasting at the same time by keeping an eye on your metrics and the products that people are actually purchasing.
Examine best-selling items, determine what you should produce or order in greater quantities, and observe consumer trends. It will be easier for you to plan sales promotions and campaigns for your slower seasons if you can identify which months or seasons are slower than others.
Additionally, you’ll be better able to predict the overall revenue of your company and what to anticipate in the coming months, giving you greater confidence when it comes to placing inventory orders and even hiring new staff.
Recognize The Engagement Of Websites.
The way customers typically interact with your online store can be better understood with the aid of your e-commerce analytics. How often do clients make the conversion? Which product pages are the most viewed (and does this correspond to the products that people actually buy)? How many people are visiting your website overall?
Read more: How the SEO company works
You can also learn more about how visitors typically use your website by keeping an eye on your Google Analytics and Shopify SEO accounts. This can assist you in determining whether your website’s flow and navigation make sense or whether some adjustments are necessary to make the process a little more flawless.
14 Essentials on How to Understand Your eCommerce Metrics
We have explained each of these metrics in detail below.
1. Take rate
The average commission you receive on each transaction is known as your take rate. If your business is similar to Upwork or Airbnb, you may divide the fees between buyers and vendors; if not, you may prefer that one side bear the whole cost. It’s critical to monitor your take rate, regardless of the reasoning behind it. Even a one percent change in a take rate can result in a notable boost to your overall revenue, so monitoring industry benchmarks and experimenting with different scenarios can have unanticipated advantages.
2. Gross Merchandise Volume (GMV)
This is the one metric you should monitor if you only have time for one for your marketplace. The total sales value of goods (or services) sold through your marketplace in a predetermined amount of time is known as the gross margin. Investors frequently choose to look at GMV rather than actual revenue because it provides a more realistic picture of the market and has all the necessary levers to work with. Having said that, GMV is insufficient to assess the true state of the market; instead, you must consider other metrics to ascertain whether the market is genuinely reaching its full potential. First, you must take GMV and multiply it by the take rate in order to get your total revenue.
Total revenue = (GMV)* (take rate)
3. Customer Acquisition Cost (CAC)
The amount you spend to bring on a new client is known as the customer acquisition cost, or CAC. It calculates the entire expense spent on obtaining a client over a given time frame. All marketing expenditures, as well as any additional costs related to turning a lead into a buyer, are combined into the CAC. The closer it is to zero, the better, in theory. Clients can recommend friends and partners to join the marketplace without incurring any acquisition costs for your company. That isn’t usually the case, though. You will undoubtedly need to invest large sums of money in advertising campaigns to entice customers to the marketplace, particularly in the early phases of growth. You must divide the entire cost of customer acquisition by the total number of customers that are converted in order to determine CAC.Â
Customer Acquisition Cost (CAC) = (total costs incurred on acquiring a customer) / (total number of customers converted)
4. Customer Lifetime Value (CLV)
The total revenue you anticipate from a single customer over time is known as the customer lifetime value, or CLV. It is always anticipated that CLV will exceed CAC. If not, the growth is thought to be unsustainable. Finding CLV can be challenging because it takes into account a number of additional factors, including the typical transaction size, the anticipated “lifespan” of a customer, and the anticipated frequency of follow-up purchases. Therefore, you must first estimate the following components in order to calculate CLV:
- Average order value (AOV) = total revenue/number of orders
- Average order frequency rate (AOFR) = number of orders/number of customers
- Customer value (CV) = AOV * AOFR
- Average customer lifespan (ACL) = sum of customer lifespans/number of customers
To calculate CLV, you need to take customer value and multiply it by the average customer lifespan, like this: Customer lifetime value (CLV) = CV * ACL
5. Customer Lifetime Value (CLV) To Customer Acquisition Cost Ratio (CAC)
The ratio of customer lifetime value (CLV) to customer acquisition cost (CAC) indicates how effective the business operations are overall. For instance, if your market share to revenue (CLV) ratio is 5:1, it indicates that you make an extra $5 for each dollar spent. How to get to the number is as follows:
CLV to CAC Ratio = (CLV)/(CAC)
6. Lead To Customer Conversion Rate (Lead To CCR)
Lead conversion or sales conversion rate are other names for lead-to-customer conversion rate, or lead to CCR. This is an important metric for assessing how well the sales funnel is working.
In essence, the customer conversion funnel charts the course a customer takes to fulfill a purchase. Conversion rates can be significantly increased by figuring out where customers are having problems.
For instance, you may need to address multiple bottleneck issues if potential customers browse catalogs but stop short of completing their shopping trips. These issues could include a poor search engine that is unable to provide relevant results, a dearth of selection, a weak catalog representation, and more.
Similar to this, if you find that a large number of customers click the “buy” button but abandon the transaction, there may be an issue with the transaction flow, such as a deficiency of practical fulfillment or payment options.
The following formula can be used to determine the lead to CCR:
Lead-to-customer conversion rate (lead to CCR) = [(total number of qualified leads that result in sales)/(total number of leads)] *100
7. Activation Rate (AR)
A user’s activation rate is the total number of actions they have taken within a given time frame. The action you choose to track needs to deliver the initial customer value, which could be anything from a purchase to the activation of a subscription or something entirely else. The formula is as follows:
Activation rate (AR) = [(Number of users who took an action)/(Total number of users)] *100
8. Monthly Recurring Revenue (MRR)
A predictable revenue that you anticipate generating each month is known as monthly recurring revenue or MRR. With the help of this metric, you can project future revenue and gauge how well the resources you’re using are performing. If you have 1,000 clients who, on average, place $100 recurring orders, your monthly recurring revenue would be $100,000.
Monthly recurring revenue (MRR) = (average revenue per account)* (total number of accounts in a month)
9. Repeat Order Ratio (ROR)
The repeat order ratio, or ROR, quantifies the portion of transactions that consist of repeat purchases. The greater the percentage, the more funds you have available for customer acquisition. You’re heading in the right direction if ROR is increasing consistently.
Repeat order ratio (ROR) = (number of repeat orders) / (total number of transactions) * 100
10. Average Revenue Per Account (ARPA)
The average revenue per account (ARPA) indicates the marketplace’s capacity to make money at the account level over a specific time frame. It is computed by dividing the total revenue for the same period by the average number of accounts. Even though it’s occasionally called a “vanity” metric, monitoring it’s crucial for several reasons: It can help you determine whether you’re matching the right customer with your offering and provide a foundation for speeding up the growth of your MRR. With increased sales and an improved and more targeted value proposition, the average revenue per account should rise over time.
Average revenue per account (ARPA) = (total revenue generated over a period of time) / (number of accounts during the same period)
11. Churn Rate
Revenue churn measures the gradual decline in revenue. Cancellations, customer bankruptcies, bounced checks, and other events can cause you to lose revenue. Finding the revenue churn is not always simple. You must determine whether you can count the loss of those customers as a churn, for instance, if they are buyers who use the marketplace to fulfill a specific purchase that is otherwise uncommon or infrequently needed. It’s a good idea to segment customers to determine what kinds of customers are likely to churn and when, as this will help you better understand the churn and what drives it. The following is how the streamlined churn rate formula will appear:
Churn rate = [(number of customers at the beginning of the period) (number of customers at the end of the period)] (Number of customers at the beginning of the period) *100
12. Customer Retention Rate (CRR)
The customer retention rate (CRR), which is the opposite of the churn rate, shows how many customers stick with your marketplace over time.
Customer retention rate (CRR) = [number of customers at the end of a period minus the number of customers acquired during the period minus the number of customers at the start of the period] * 100
Tracking CRR is crucial because it makes it easier to measure how well customer service and marketing work in B2B marketplaces.
13. Buyer-to-seller Ratio
The buyer-to-seller ratio, also known as the provider-to-customer ratio, indicates how many customers a single vendor can service. The indicator differs significantly among industries. In certain situations, one supplier can handle dozens of clients (think Uber); in other situations, a small number of clients will be regarded as a good benchmark (think eBay). You should pay more attention to the supply side of things the more customers one supplier can service. In this instance, getting a vendor who can service a large number of clients at once is more beneficial than getting clients. But, to attain provider liquidity, you’ll need to expand your clientele fast if you wind up with a high provider-to-customer ratio—or, worse, more providers than customers. The ratio of providers to customers is a crucial metric for assessing the overall liquidity of the market.
Buyer-to-seller ratio = (number of transactions per buyer) / (number of transactions per seller)
In addition to the buyer-to-seller ratio, a few other metrics, like search volume, time to fill, and utilization rate, also affect marketplace liquidity. While time-to-fill gauges how long it takes customers to complete a purchase, search-to-fill indicates what proportion of requests or searches truly result in a sale. In contrast, the utilization rate represents the proportion of products that a vendor sells during a given time frame. It is computed by dividing the total number of listings by the number of listings that have transactions.
14. Net Promoter Score (NPS)
Frederick F. Reichheld popularized the net promoter score (NPS) in a 2003 Harvard Business Review article. It is one way to gauge user satisfaction. “How likely is it that you would recommend [the product] to a friend or colleague?” is the only question that you ask your customers to determine their score. Any number between zero and ten can be the answer; zero indicates extreme doubt and ten indicates extreme likelihood.
Asking a simple “Do you like your product?” question is thought to be less representative of user satisfaction than asking a recommendation question.
The following groups of respondents are divided based on their responses:
- 9–10: Advertisers. Promoters are devoted consumers who will continue to purchase from you and recommend it to others.
- 7-8: Idle hands. Passives are pleased with your product, even though they are moderately enthusiastic.
- 0–6: People who dislike. Critics are dissatisfied clients who will probably tell others about their bad experiences, which will hurt your company.
Following that, the score is computed as follows and goes from -100, where everyone is a detractor, to +100, where everyone is a promoter:
Net promoter score (NPS) = (the percentage of customers who are promoters) minus (the percentage of customers who are detractors)
An NPS of +50 is regarded as exceptional, while a positive NPS is deemed good. It is important to monitor the rating over time to see if customer satisfaction has improved or declined. While NPS is widely regarded as one of the most accurate measures of customer satisfaction and loyalty, it has been criticized for being both culturally insensitive and not a very good long-term predictor.
What Are The Three Most Important KPIs For E-commerce?
The main purpose of measuring business metrics for B2B marketplaces is to estimate revenue, profitability, and customer acquisition for the company. The following three metrics are crucial for you to monitor in your marketplace:
- Gross merchandise volume, or GMV
- Customer acquisition cost, or CAC,
- Customer lifetime value, or CLV.
Conclusion
It is imperative that you regularly monitor and update your KPIs after you have established your business goals and metrics. It is crucial that you have data from every pertinent e-commerce KPI on one spreadsheet if you want to operate a data-driven e-commerce SEO service company. You must always track various e-commerce KPIs and make effective use of them by using the greatest tools available.
It is imperative that, as an entrepreneur, you see your entire marketing performance as a whole and pinpoint the exact areas that need more focus. Your performance should guide your business decisions, and you should use the KPIs discussed earlier to drive your decisions.
