The success of an ecommerce brand hinges on carefully monitoring various metrics. Together these will indicate the direction a business is moving in and provide you with a view of which aspects are aiding or hindering your growth. But more importantly, by monitoring these metrics you’re able to understand the strengths and weaknesses of a brand’s ecommerce operation and focus your resources accordingly.
With delivering bold yet resilient growth being at the heart of Omni Insights, we take a hardline view of the importance of monitoring such metrics and using them to guide a business. After all, they act as the ‘checks and balances’ of an ecommerce brand to provide a health check of sorts that’s free of the smoke and mirrors typically found in a performance report.
In this article, I’m going to shed light on the most important KPIs for ecommerce brands. It goes without saying that a few of these are to be expected, but some are all too often missing from the vocabulary of those responsible for delivering growth. But crucially, none of these KPIs can be seen as vanity metrics but instead are all closely tied to a brand’s growth and profitability.
Conversion Rate
Albeit a somewhat ‘pedestrian’ metric that even junior members of a marketing team would be familiar with, conversion rate (CV) remains a crucial metric for any ecommerce brand. Shifts in CV can be an early indicator of reduced efficiency, although I would argue that few decisions can be made without considering other metrics mentioned in this article.
A reduction in CV could be an indicator of several things. Perhaps the quality of your traffic has dipped, or recent user experience changes have not had the desired effect. Maybe a greater portion of your traffic consists of people who have never heard of your brand, or there has been a spike in your average order value. As you can see, a shift in CV could be caused by several changes elsewhere.
This is why I consider CV to be a ‘warning metric’. Meaning that whilst it doesn’t shed much light on what’s happening, it tells you that something is happening at a relatively early stage. If this shift is either dramatic or prolonged, you’d want to delve into both channel-specific and blended data to understand the root cause. It is only then that you can begin to act.
Average Order Value
Average order value is one of the beautiful metrics virtually anybody within a brand can understand. If your AOV takes a hit, people are buying less items or choosing cheaper items. Whereas if your AOV climbs, they are instead buying more items or more costly items. So, on the face of it a brand should aim for the highest average order value possible, right?
It’s important to remember that AOV relates only to cashflow and has little baring on profitability. A higher AOV would likely push more cash into a business, but if the order has a low margin or high acquisition cost then there may be little profit. A slightly different view should be taken for a brand that has a high repeat purchase rate or is subscription based, where the profit is expected to be gained on future orders.
An all too often aspect of AOV that’s overlooked is the impact on conversion rate. Through all my work with ecommerce brands, I’ve consistently found that those with a higher AOV typically have a lower conversion rate. This isn’t necessarily bad, but it’s important to keep an eye on the ‘pendulum’ that swings between a higher order value and a lower number of orders. This is particularly if you’re aiming to gain market share at pace.
Cost Per Acquisition
For a brand to have a grasp of its financial stability, it must understand exactly how much it spends to acquire its customers. If this value is too high, your margin will be eroded and your profit depleted. But if this value is comfortably low, it provides you with the profit necessary to reinvest into growing your brand whilst also building up your reserves for a potential rainy day.
Calculating your cost per acquisition (CPA) is simple. Take your total marketing investment over a period before dividing that value by the number of customers you acquired during the same period. This can be done on a blended basis or for individual channels, with each channel likely to have varying CPA’s dependent upon the nature of the channel.
When analysing your CPA, you must consider the nature of your marketing costs. Let’s assume that this past month you began to invest a significant amount into search engine optimisation. You will undoubtedly see your CPA spike as you’re attributing a cost whilst the channel at hand is not expected to deliver immediate results. Without contextualising the data, you may make rash and unwise decisions.
Revenue Per Session
Whether it be from the launch of a new brand or at a particular point in a brand’s journey, efficiency will be important. Without it, profitability can rarely be realised and there will be little reserves available to weather the inevitable storms ahead. In my experience, this overzealous focus on pure growth at the expense of future endurance is one of the biggest killers of brands.
Revenue per session (RPS) is one of the easiest metrics for monitoring efficiency. Put simply, it gives you a view of the cash value of each visitor to your brand’s website. Meaning that if you see a dip in RPS, your marketing has become more wasteful, and the rains may need to be pulled. Equally, if your RPS has climbed significantly then your marketing is very resourceful, and you may be overly cautious.
Much like conversion rate, shifts in your RPS are an early indicator of changes elsewhere. Typically, they are driven by movement in your conversion rate or changes to your average order value. But these in themselves are results rather than causes, usually tied to changes in traffic quality, price point, user experience, consumer confidence, and more.
Profit Multiplier
As this article demonstrates, there are various metrics that come together to make an ecommerce brand ‘successful’. Whether it be your average order value, conversion rate, or cost per acquisition – one of these metrics being out of kilter can cause headaches. So, wouldn’t it be great if there was a metric that unites all of these into a single, consistent, and understandable value?
Profit multiplier (PM) is this metric and sits at the centre of each performance session I have with clients. To calculate your PM, you firstly take your average order value and multiply it by your profit margin as a percentage. This gives your profit per order, which is then divided by your cost per acquisition. The value you’re given represents the multiple of profit you recoup per order.
The beauty of this metric is that the ‘feeder’ values of average order value and cost per acquisition provide a clearcut view of your marketing efficiency. But it then provides a more commercial view by considering the margin you make on a sale. I’m fanatical about marketers using this metric, as it helps to shift their mentality from focusing solely on growth to being considerate of efficiency as well.
Is Your eCommerce Brand on Track?
Having discover 5 KPI’s that I believe are vital for ecommerce brands to monitor, take a moment to gather these metrics for your own brand. By keeping your finger on these metrics over several months, you’ll begin to understand exactly how ‘healthy’ your ecommerce operation is. Without understanding these metrics, you’ll fall into the dangerous pattern of looking at spend and revenue without any context as to what’s driving shifts in performance.
If you still require more support to achieve bold growth whilst building a resilient business, book a discover session with one of our Partners. Through an unmatched collective of specialists and enduring belief in the need for an omni-channel approach, we help ecommerce brands to realise the ambitions of the moment whilst providing endurance in the future.
