12 eCommerce KPIs: Understanding the Difference Between Vanity and Value

You want to track everything from conversion rates, cart abandonment rate, average time on site per visit... the list goes on.

One thing that you need to be very careful about is understanding what each metric means and why it's important for your business.

In this blog post we're going over 12 ecommerce KPIs - what they mean and how they relate back to improving your store.

What is a Key Performance Indicator (KPI)?

A key performance indicator is a number, it's a metric. More than just a number, though, an ecommerce KPI shows you how you are performing against your goals.

It's a barometer for the health of your business and can be a little complex to get right, so it's important that you understand what each ecommerce KPI means before looking at how they work together.

Which Key Performance Indicators are Valuable for an Ecommerce Business?

Ecommerce KPIs are not all the same. Some key performance indicators are more useful than others. Which ecommerce KPIs are most useful for your business?

Before we answer that question, let's mention a key concept:

As we look at each ecommerce KPI, ask yourself:

Does this ecommerce KPI help me make decisions about how to improve my business? If not, it's probably just a vanity metric.

Let's quickly review how you tell the difference between vanity metrics and ecommerce KPIs.

Net Profit

Net profit is the king of ecommerce KPIs. All the other key performance indicators affect your net profits, but your net profit doesn't affect any of them directly. This makes net profit the end result of all the other KPIs.

Net profit tells you how much money you're making after you have paid all your expenses. Ultimately, this is the figure that determines whether you go bankrupt or stay in business for decades.

Net profit isn't an easy metric to turn into a vanity number. You're making money or you're not. However, avoid viewing net profit too broadly (across your entire business) or through a large time frame (across your entire history).

Conversion Rate

Conversion rate is one of the most popular metrics and KPIs used by everyone. What is it, exactly?

Conversion rate is the percentage of your visitors who make a purchase, sign up, or take some other profitable action for your ecommerce store. To find your conversion rate, divide your total number of conversions by your number of visitors.

Different ecommerce businesses will have different conversion rate goals. 1-4% may be a target for many ecommerce businesses with simple shop fronts who are competing in the retail space.

Let's talk about a specific example of 4%. If you are selling home and furniture goods, then you'll feel really good because the average conversion rate in April 2021 was 1.37%. However, if you're selling food and beverages, you should be disappointed because the average conversion rate in this industry was 5.87% in April 2021.

You can view more information about conversion rates, including these statistics, here. [eCommerce conversion rate benchmarks by industry – XP² (dynamicyield.com)]

So, once again, context separates vanity from value. If you are comparing your business to other businesses in the same industry, then you should be comparing ecommerce conversion rates. If not, it may just be a vanity metric without much value to your business.

Customer Retention Rate

The number of customers who stay with you for months or years is one of the best performance indicators because it is closely connected to increased profitability over time.

A classic study by the Harvard Business School led to an astounding statement:

Increasing customer retention rates by 5% increases profits by 25% to 95%.

This makes customer retention one of the top business goals you should be working towards. Measuring customer retention isn't always easy, though.

Zendesk has a simple guide for calculating customer retention. Here is an excerpt:

Next, you need to collect three simple pieces of information:

1. The number of existing customers at the start of the time period (S)

2. The number of total customers at the end of the time period (E)

3. The number of new customers added within the time period (N)

When you have this data, you can plug it into the retention rate formula.

Customer Lifetime Value

Customer lifetime value (CLV) is another of the key performance indicators we think every business should be tracking. If your ecommerce business relies on repeat customers, this metric is even more important.

Again, this is one of those KPIs for ecommerce that can easily become a vanity metric because it doesn’t tell you how to increase your revenue. Nor does it tell you how often customers came back to your website.

We think this is one the important KPIs to track because of the things that feed into it. Upselling, remarketing and email list are all strategies to increase the customer lifetime value. You can tweak your strategies for any of these to bring your CLV up.

Conversion Rate per Traffic Channel

If you advertise your business across different platforms, such as Facebook, Instagram, or LinkedIn, then you should track your conversion rate per traffic channel.

Why is this important?

This metric will tell you the channels that work for you and which channels might need a tweak. It also tells if your ads are working correctly so you are not wasting money on any one channel.

This is an important metric to keep track of because it helps you bring in more revenue without spending more money on other advertising venues or strategies.

Of course, it can also become a vanity metric. Your ecommerce business might have a brilliant conversion rate from Facebook. But if you're advertising your professional consultant services on LinkedIn, then Facebook is probably not your key market.

You might also consider whether each social media channel is right for your business. Different customer acquisition costs related to each platform might make one preferable to the others. High bounce rates or a low number of sales might show a poor match between your business strategy and the social media platform.

Average Order Value (AOV)

Your average order value is a measure of how much each customer spends during checkout. This tells you how much your products cost, but also how much you can add on as an upsell during the checkout or browsing experience on your website.

AOV is a key ecommerce KPI because it connects to key ecommerce activities such as upselling, product bundles, and pricing. A low average order value compared to others in your industry could show you a problem with your pricing.

Likewise, a low average order value could show you a need for more effective upselling. You may correct this by changing the options available to your website visitors or using a combination of banner ads and contextual marketing ads.

Cart Abandonment Rate

Another of the key performance indicators is your shopping cart abandonment rate. Like average order value, this metric shows you how effective your ecommerce store is at guiding customers through the purchase process.

We said KPIs for ecommerce need to lead to action. This is one of the ecommerce metrics that should point you towards the area of your website that needs to be improved.

If you need to make improvements, you could consider:

• Reducing your shipping costs or offering free shipping.

• Feature credit card payments with logos from the payment providers.

• Reduce or eliminate the need for people to sign up to your website.

These slight changes could lead to fewer people abandoning their shopping carts.

Return on Investment (ROI)

Return on investment is a key metric for ecommerce businesses because advertising is a big part of many business models. A poor ROI will damage your net profit.

There are a few different ways to measure ROI, though.

Cost Per Acquisition (CPA)

Customer acquisition cost (CAC) and cost per acquisition are very similar. Some people differentiate them by seeing CAC as the cost for gaining a new customer and CAC as the cost for acquiring a sale, even from a repeat customer.

However, if you can use effective upselling and website design, then a higher acquisition cost can be offset by a higher AOV.

Can this be a vanity number? Sure! If you take it out of context, then it will not lead you to useful insights.

For example, if you only consider customer acquisition costs without looking at your AOV or cost of goods sold, then you may end up with an overly optimistic view of your profit margin.

Time on Site

Time on site needs to be understood in a few different ways. As a single metric, it's not incredibly useful. However, if you combine time on site with a few other useful numbers, then you can gain some valuable insights into your business.

Let's take a look at two companion numbers for time on site that add more value.

Organic Search Rankings

Almost everyone has heard about SEO. SEO directly affects the total number of visitors on your site because people don't visit sites they can't find.

However, SEO is an extremely easy number to turn into a vanity metric. Ranking on page one or in the top spot doesn't matter if your top-ranking queries aren't generating sales.

Likewise, if your SEO efforts cost too much money, then your ROI will be so low that it will damage your net profit.

You can avoid this become a vanity number by making sure your SEO efforts are effective and not just costly. Do this by:

• Checking the conversion rate of web pages for queries for which you are ranking.

• Don't be trapped by vague visibility figures or average ranking positions for a page.

A single page might rank for dozens or hundreds of keywords. Find the money keywords that produce sales and make sure you rank for those.

Customer Satisfaction

However, this is an easy number to feel vain about. Of all the KPIs, this is the one that needs to be specific to be useful.

Here are two ways to make your customer success score more specific.

Conclusion

These KPIs could make the difference between meeting your business goals and wasting time and money on efforts that don't move the needle. Here's our final pro tip: think carefully about using just one or two KPIs as the main measurements.

Focusing on the best one or two numbers will help you find actionable insights and make real progress.