(Ecommerce Analytics is an intuitive way to measure the ecommerce success, and an organization requires the following five key metrics to grow)
Research work reveals that success of Ecommerce strategies entail consideration of five fundamentals of ecommerce that are very vital in tracking outputs and outcomes. First is the conversion rate that helps to know the rate of visitors who turn into actual customers. Consequently, a higher conversion rate means more people are ‘converting’ from visitors to customers, and hence results in increased generation of revenue. Another metric is the average order value (AOV), this is the total spending per transaction by a customer. This confirms with the fact that businesses, through increasing AOV through methods such as up-selling and cross-selling, can enhance the general business revenues without necessarily having to obtain new clients.
CLV stands for customer value over time, and it is the total amount of sales that a business can generate from a customer over the time of their relationship. This aids in determining the worth of such customer relationships in the long run and in the formulation of strategy for the retention of such customers. The fourth one is customer acquisition cost, the costs that are involved with acquiring any one customer. While controlling for CAC, the higher the CLV, the better it is for the bottom line. Finally, companies should monitor the cart abandonment rate which is the ability of the shoppers to add products in the cart and fail to check out. While cutting down the rate of abandonment of carts, there is a higher chance and rate of sales completion which in turn means higher revenues.
Therefore, monitoring through Ecommerce analysis of these indicators are crucial to improving the performance of e-commerce companies and achieving sustainable development.
Conversion Rate
In eCommerce, the conversion rate is a key metric used to measure the percentage of website visitors who complete actions such as making purchases.
Calculating Conversion Rate
To obtain the conversion rate, you need to take the number of people who bought something and divide it by the number of visitors and the time the result by 100. For example, if 1000 individuals come to the site and 50 of them make a purchase, conversion is given by (50/1000) * 100 = 5%.
Factors Affecting Conversion
There are certain aspects that determine the conversion rates. These are such factors as the qualitative characteristics of your web site and its usability, obviousness and attractive readability of your descriptions of the offered products, your prices, and even undeniable signs of trust, such as, for example, the availability of references, including the ones of actual customers. Market conditions are also other aspects that have an influence on it, for instance, competition in the market.
The highlighted strategies that can be applied to improve the conversion rate are as follows
There are several tactics to improve conversion rates. Some of them are given below:
- Ensure the UI should be user-friendly, it will be accessed responsively through a smartphone and it is capable of handling the load and should be faster.
- Optimize your product pages with the help of nice pictures with the proper product descriptions, as well as comments from loyal customers.
- Streamline the buying process, that is, decrease the number of steps a customer needs to go through to purchase an item, and accept types of payments.
- Employ A/B testing for comparing various options bet and these could be the headline, the call-to-action button or the layout of the website.
- Continue using retargeting to target all those who visited the site but did not purchase through the ads and emails.
- Promote items to buy with discounts, free delivery, or other sorts of bonuses, as well as limited time sales, coupons, etc.
- Thus, by paying special attention to these areas, you will be able to increase conversion rates and reach better results in the sphere of e-commerce.
Average Order Value
AOV stands for average order value, and it is one of the essential measures which reflect the mean sum of money spent by the customers at a time.
Understanding AOV
AOV is determined by the division of total revenues to the total order made. For example, if through the store you sell goods worth $10000 from 200 orders, then your AOV would be $10000/200 =$50. This ecommerce performance metrics is useful in explaining the customer expenditure pattern and can be applied in the overall marketing and sales promotions.
Techniques to Increase AOV
- Upselling and cross-selling suggest the customers purchase other products that come with the one they have bought or the higher-end variant of the product.
- Within bundling products, the packages offered should be more appealing and cheaper to the customers than the individual products.
- Free shipping thresholds can be applied. The minimum order amount should be set for free delivery with an aim of making customers order more items they want.
- Loyalty programs is another technique to increase AOV. Loyalty reward that encourages customers to spend more to qualify for points or discounted items/service.
- Through personalization, let the data show recommendations for products based on interest and previous orders made by each of the customers.
- Limited time offers can be developed. Add pressure on purchases by creating some limited offers, like ‘buy now and save’, ‘buy now and get a discount’ etc., but for, admittedly, expensive products.
Assess the Relationship Between AOV and Overall Profitability
AOV has been seen to enormously influence the profits of a firm and therefore the increase in AOV can help increase the general profits of a firm. When the number of purchase per customer is high, the revenue of the business increases as it does not obtain the additional costs of marketing for the new customers. This means that there will be improved margins and therefore improved profitability. Furthermore, increasing AOV makes it possible to increase the ROI of marketing activities; this is because the value per customer increases. But to have a sustainable business the management should consider other factors such as the customers’ satisfaction level and the rate at which they are retaining our products.
Customer Lifetime Value
Analyzing customer lifetime value (CLV) is one of the most important strategies; this determines the overall amount of money that a businessperson expects from a single consumer all through the period of his/ her patronage.
Measuring CLV
CLV can be calculated using the formula:
CLV = (Average Purchase Value) x (APFR) x (Customer Lifespan)
For instance, at an average purchase costing $50, and the customer is estimated to make two purchases yearly and remain loyal for five years, the CLV will be $50 X 2 X 5, i.e. $500.
Importance of CLV in e-commerce
A clear understanding of CLV shows companies which customers are worth the most and to concentrate on developing long term relationships instead of short-term profits. It also assists in finding out the right amount to spend on marketing and sales, acquisition of customers and the right strategies to use to retain them. Thus, increasing the CLV can be the key to obtaining maximum profitability and long-term development for companies.
Methods to enhance CLV
- Improve customer experience by analysing how to perfect customer service and make a pleasant shopping experience to gain customers’ trust.
- Personalized marketing is another way to improve CLV. Conduct various analytic methods to target marketing communication and promotional information for the customers.
- Through loyalty programs, offer the patrons schemes that would encourage repeat purchases and loyalty with the bonus point, discounted prices, or special tokens.
- Bring regular engagement by contacting your customers by email and social media marketing among other to keep them intrigued by your brand.
- Through upselling and cross-selling, we recommend related items or higher end products to the customer.
- Feedback and improvement to strive to obtain customers’ feedback and then change some things to ensure customers’ satisfaction, and therefore increase customer loyalty.
Thus, concentrating on these approaches, companies can enhance CLV, which results in more stable revenues with enhanced organizational effectiveness.
Cart Abandonment Rate
Cart abandonment rate defines the share of users who have put something into the cart but have not made a purchase in the end.
Causes of Cart Abandonment
Unexpected Costs are a major cause of cart abandonment. Other fees like the shipping fees or taxation fees that are usually incurred later after adding them to the final price. Lack of Payment Options. Restrictions in the options available for making payment, including few payment options or difficult to access them. Complicated Checkout Process also contribute to card abandons. A slow, complicated and time-consuming process that has the tendency of making the customers annoyed or frustrated. Website technical issues including slow website speed, issues with the checkout process are some of the other reasons. Customers are also skeptical about the ability to secure personal as well as the payment information of the buyers. Finally, customers placing products into the cart see other prices that are offered, and hence use the cart for purposes other than purchasing causing further cart abandons.
Calculating Cart Abandonment Rate
To calculate cart abandonment rate, use the formula:
Cart Abandonment Rate = (Number of Abandoned Carts) / (Number of Initiated Carts) * 100
For instance, if, from a thousand shoppers, seven hundred leave the check-out process without completing the purchase, then abandonment rate is 700/1000 * =70%.
Reducing Cart Abandonment
- Simplify the Checkout Process and ensure that the customers have an easy time making their final purchase.
- Provide transparent pricing at the time of checkout. List all costs that are likely to be incurred such as shipping charges and taxes before the shopper gets to the payment mode.
- One can also offer multiple payment options so as to suit customers’ needs. One of the best strategies is to diversify payment options.
- Enhance Website Performance and work out all the technological details that may interfere with the effective completion of a purchase.
- Create badges and make these declarations to facilitate security and allow the clients to confirm the security of their data.
- Finally, implement cart recovery strategies. Ongoing and reminder emails or notifications can be sent to the customers to remind them of the abandoned cart and provide information on the free gift in the cart.
If these challenges are solved and appropriate techniques applied, the business can decrease the cart abandonment level and, therefore, enhance overall conversion rate.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is computed as the total cost to obtain a new consumer. Is how much money is required to acquire each consumer and is necessary for the assessment of demand for advertising and promotional activities.
Components of CAC
Marketing expenses incurred on the communication media as well as other promotional stumps used to attract more customers. Sales expenses which include salaries for salespeople, commissions, bonuses or any items used strictly for the purpose of selling a product. Third, we have Customer onboarding costs which are related to the implementation of a new client acquisition strategy or the beginning of a new relationship with a customer.
Balancing CAC with CLV
This is because if CAC is not controlled it is likely to outweigh the Customer Lifetime Value (CLV) whereby the money to be generated from the customer is less than the cost of acquiring the customer. Thus, a good CLV must ideally be far higher than the CAC to help justify customer acquisition costs. For instance, if the CAC is $100, then CLV should be significantly higher to guarantee that the amount spent on acquiring the client is worthwhile. This balance is good for controlling profits and is the ultimate guarantee for reasonable spending on costs of marketing and sales.
Strategies to Lower CAC
- Optimize the marketing channels, means their concentration should be on concrete channels of communication that will give maximum results in terms of investment and address the potential audience.
- Improve targeting and segmentation of customers. Take customer segmentation data analytics as a tool to identify the better base of segmentation and avoid spending money on other segmented types that are much less effective.
- Enhance the conversion rates by building up ways to raise the conversion percentage on your site or a landing page, that way less money and effort will be required to persuade the customer to buy your product.
- Leverage referrals and word-of-mouth, this would lower the CAC. Reward your already happy customers for bringing more clients, which is usually cheaper than the other conventional marketing techniques.
- Invest in content marketing. Some tips here from members include Develop high quality, relevant content that naturally draws in consumers/customers.
- Automate and streamline processes. Decide how it is possible to use modern techniques to make the process of acquisition more efficient and with lower expenses.
Hence, by implementing and achieving these strategies, organizations cut down CAC, increasing the prospects of profitability in the acquisition of new customers.
Integrating Metrics for Ecommerce Success
These results have implications for the general measures of success in e-commerce as the latter is based on the integration of key pointers. All the measures are useful and when taken together, they present a clear imagination of how a business is performing as well as the areas that may require enhancement.
- Conversion Rate: This pointer determines the proportion of specifics that visited a website and purchased something. This rate can be increased and, therefore, sales boosted through enhancing website design and losing complexity within the check-out procedure as well as other such tactics as reflecting more recommendations.
- Average Order Value (AOV): AOV calculates the mean amount of money that customers spend at one time. Some tactics that can be helpful in the AOV strategy is upselling, cross selling, and free shipping promotions. This is due to the belief that a higher amount per order assists in generating higher revenue without necessarily having new customers.
- Customer Lifetime Value (CLV): Almost every business aims at defining and predicting the total amount of revenue one customer can translate into the business in the entire duration of their patronage, this is what CLV does. The ways for increasing CLV include the optimization of customers’ experience, customization of the marketing approach, and the management of loyalty programs. The CLV is defined as the present value of the future cash flows a customer will produce and a higher one is preferable as it means that the customers are better and results in higher long-term profits.
- Cart Abandonment Rate: This measures the proportion of site users who browse the site and leave with items in the cart but never checkout. Preventing cart abandonment is possible by solving such problems as additional charges, cumbersome checkouts, and slow-loading websites.
- Customer Acquisition Cost (CAC): Total Acquisition Cost as abbreviated is the total cost incurred in getting a new customer. Optimization of both CAC and CLV is the foundation for a business to be able to justify the amount of money that it used to acquire customers. It also includes techniques of reducing the CAC. For example, careful analysis and management of the marketing channels, better targeting, and the use of referrals.
The incorporation of the above metrics will ensure the business has an overall view of e-commerce operations. The efficiency of each area contributes to the achievement of sales, satisfaction of the clients, and increase in profitability. Concentrating on these measures and employing them in one’s strategies enables better, evidence-based results in the pursuit of e-commerce objectives.
FAQs (Frequently Asked Questions)
The above metrics should be strictly checked on a daily or weekly basis. The aim of continually working on various aspects to improve. It is recommended that at the beginning of a start-up period, tracking should take place more often.
The metrics should be checked weekly or on a monthly basis. This will help to assess performance and determine what changes should be made. However, as the business grows, it can be managed at a less frequent interval like monthly or even yearly. If the amount of data is manageable and does not pose enormous pressure on the business.
For a startup, two vital metrics are Customer Acquisition Cost (CAC) and Conversion Rate. It’s important to determine CAC to understand how much is being spent on acquiring new clients. This knowledge is fundamental for planning and expansion. Conversion Rate can assist in evaluating the success of the website and the marketing activities in defining the people into buyers. For startups particularly, concentration on such measures aids in controlling first costs and proper strategies when acquiring and transitioning clients.
Yes, there are several free tools available to track these metrics for ecommerce:
- Google Analytics: Provides a detailed report on the website performance and activity such as conversion rates.
- Google Data Studio: Aids in the creation of data visualizations and generation of numerous reports on several parameters derived from various sources.
- Facebook Insights: Gives details of consumers’ activity and results if you use Face book for advertising.
- Mail chimp: The free tier of email marketing has analytics of conversion and the engagement of the customer.
- Hub Spot CRM: Offers free tracking for sales, customers and marketing to come up with an effective strategy.
