E-commerce is mystified with unlimited metrics and KPIs. Born digital brands and companies are familiar with the vitals, but quite many traditional brands are still struggling to understand relations and the importance of vital key metrics. Understanding causalities can greatly help you to lead business and identify the right areas to work on needing your attention.
E-commerce vitals can be simplified into three formulas:
- Marketing effectiveness x ad conversion % = Store visitors (your potential new and loyal customers)
- Store visitors x store conversion % = Sales (Sales from orders by your potential new and loyal customers)
- Sales - discounts - marketing costs - shipments & returns - production & other costs = Profit
How to interpret e-commerce vitals?
Marketing effectiveness is a sum of paid and gained visibility your brand and products are gaining. Brand marketing evaluation might be difficult to do on weekly basis, but paid marketing evaluation can be done easily by tracking social media ad campaigns. Therefore paid marketing impressions, likes, or clicks are good trend metrics to evaluate your marketing spend effectiveness, and how many visitors are driven from marketing campaigns to your online stores. Ad conversion % trend gives you a very good view of how your marketing agency is performing.
Online visitors are obviously the number of users visiting your online store. They are your potential buyers. Store conversion rate tells you how many of them will buy. If the conversion rate starts to decrease or is low, you should check what prevents visitors in becoming customers. Is it because of poor product descriptions, the poor performance of the store, hidden technical problems, or lack of payment methods?
Sales is an obvious metric, but by combining it with customers and orders you get two very important metrics: Customer Lifetime Value (CLV) and Average Order Value (AOV).
Profitability is another obvious metric, however, it is only sometimes analyzed properly e.g. having product returns and returning customers data analyzed to minimize returns in the future.
Three recommendations to get started with e-commerce vital review process
- The most important one: Follow your selected metrics daily or minimum weekly. Weekly review should be quick routine and data should be in such a format that it is easily available for all relevant stakeholders. Don’t follow too many trends - it is essential to keep number of metrics limited in few so that people will remember trends.
- Don't focus only on sales, focus also on visitors so you can spot how your marketing is performing. If you are investing in campaigns and not getting expected traffic, you should change the approach as your marketing campaigns are not performing expectedly.
- Evaluate your product business profitability minimum on a monthly level, you can find major improvements by decreasing costs associated with returns.