12 Important Metrics Every E-commerce Business Should Track

In the world of e-commerce, numbers are the pulse of the business. For instance, did you know that most online stores are only able to convert about 2-3% of their website visitors into customers, while a staggering 75% of shoppers abandon their carts mid-purchase? 

But let's not lose sight of the bigger picture amid these statistics. Instead, let’s delve deeper into metrics and their importance for e-commerce businesses.

What Are E-commerce Metrics?

Metrics are quantifiable measurements used to assess, compare and track business performance. It helps you track how many potential customers visited your website, how many shoppers left their cart mid-purchase, how much it costs to acquire a new customer, and How often your customers are returning. 

Understanding key e-commerce metrics is vital for your e-commerce business as it helps you keep track of your business’s performance and measure its ecommerce success. By tracking these metrics, businesses get insights into various functions which can help them refine user experience, allocate marketing budgets effectively, and enhance customer retention efforts.

Moreover, by aligning these e commerce metrics with different campaigns and channels, businesses can amplify their brand awareness and drive revenue with targeted promotions. This will help brands create effective marketing campaigns using channels like SMS & WhatsApp and easily measure and improve their marketing ROI.  

Importance Of E-Commerce Metrics For Your Business

We learned that tracking e-commerce metrics is essential for businesses to gauge their performance accurately and drive success. Here's why these metrics are crucial:

1. Understanding Business Performance: E-commerce metrics provide a thorough picture of your company's performance in terms of product, customer engagement, marketing, and sales. You can track how effectively you are attracting visitors and converting them into customers, which gives you an idea of how healthy your business is. 
2. Benchmark Setting: E-commerce metrics also allow you to project and predict your monthly conversion rate and set your target goals. Using metrics like Customer Acquisition Cost (CAC) and Return on Investment (ROI) enables you to set your marketing budget and also helps you understand how well your SMS campaigns are performing. It also helps you compare your performance with competitors based on industry standards and distinguish how well your e-commerce brand is performing.
3. Monitoring Trends: Tracking key e-commerce metrics allows businesses to stay informed about market trends and consumer behavior. By monitoring metrics such as traffic sources, shopping cart abandonment rates, and product preferences, companies can adapt their strategies to capitalize on emerging opportunities and stay ahead of the competition.
4. Optimizing Marketing Strategies: E-commerce metrics provide valuable insights into how well your marketing strategies and tactics perform. It also helps you gain an understanding of what works for your target audience and what doesn’t. This makes it easier for you to strategize and make the right decisions for your e-commerce business.
5. Customer Insights: Metrics offer valuable insights into customer behavior and preferences. From tracking browsing patterns to analyzing purchase history, metrics help businesses understand their customers better, enabling them to segment their customers and personalize offerings and marketing strategies accordingly.

Top E-Commerce Metrics To Measure:

Here are a few of the important metrics that e-commerce brands should track regularly -  

Average Order Value (AOV): 

Average order value is the average amount (money) a customer spends when placing an order at your e-commerce store. It is calculated by simply dividing your total revenue by total number of orders. 

For example: If your store’s total revenue in March was $10000 and the total number of orders was 220, then your AOV should be around $45.

Customer Acquisition Cost (CAC):

CAC is a key metric e-commerce businesses used to measure the cost incurred to acquire a new customer. It is calculated as sales and marketing expenses divided by the number of new customers acquired. 

It is used to analyze your marketing ROI and helps in measuring value per customer. A good understanding of CAC also helps in improving profit margins for your business.   

Cart Abandonment Rate:

Many times even after putting in all your marketing efforts, customers leave their shopping cart mid-purchase. This is called cart abandonment. Generally, the cart abandonment rate is quite high for e-commerce stores ranging between 70-85%. 

To calculate the cart abandonment rate you can take the percentage of the number of incomplete purchases divided by the total initial checkouts. 

Also Read: 7 Best Abandoned Cart Recovery Apps for Shopify Stores

Average Revenue Per User (ARPU):

ARPU is a common metric used by all types of businesses to calculate the monthly recurring revenue of the company or business. To calculate the ARPU, divide the total revenue in the set period by the total number of users in the same period.‍

Contribution Margin - CM1, CM2, CM3:

Contribution, also known as the dollar contribution per unit is generated across all products or units sold by deducting the variable cost. A product or service's profitability is evaluated using contribution margin levels CM1, CM2, and CM3.

The gross profit is represented by CM1 after the variable expenses directly related to production are removed. Additional variable costs, such as shipping and transaction fees, are included in CM2, while customer acquisition costs are included in CM3.

The formula to calculate the Contribution Margin is expressed as the difference between the total revenue and variable costs.

Customer Life Time Value (CLTV):

Customer Life Time Value is the metric used to measure the average revenue you can generate from your customer’s entire lifetime with your business. It is important because it helps you understand how much revenue you can expect to be generated from your customers. 

It is calculated by multiplying your single customer value by the average customer lifespan.

Also Read: 5 Shopify Apps That Help You Increase The CLTV

Repeat Customer Rate: 

Repeat Cohort Rate, also known as the returning customers rate is the number of users who have made more than one purchase from your ecommerce site. It's a crucial metric for understanding customer loyalty and the effectiveness of your retention strategies.

It is calculated by taking the percentage of the number of returning customers divided by the total number of customers. It gives you a fair idea about your loyal customers who enjoy using your products.

Recency, Frequency, Monetary (RFM) Analysis:

RFM analysis is a marketing strategy that groups and ranks customers quantitatively according to the amount, frequency, and recentness of their transactions to pinpoint the best clients for focused advertising campaigns.

The RFM model is based on three quantitative factors:

1. Recency: The time since a consumer last made a purchase
2. Frequency: How frequently a buyer makes a purchase
3. Monetary value: The amount of money that a buyer spends on goods
   

The RFM model evaluates your clients and customers based on their spending habits. It is done by assigning your clients a score of 1 to 5 (from worst to best) on each of these three parameters. This helps in identifying your ideal buyer and hence helps you target your customer base effectively.

Product Categories / ABC Analysis

ABC Inventory Analysis is a method to categorize your products based on their value to your eCommerce business. It divides your products into three groups: A, B, and C. But what do they represent?

Item A: These are your top-selling items requiring frequent restocking. While they comprise a small portion of your inventory, they contribute 80% of your store’s revenue.

Item B: These items generate 15% of revenue with moderate sales and profits. They are regularly evaluated to determine if they should be categorized as A or C.

Item C: These items have high inventory levels but low sales, contributing only 5% of revenue.

Categorizing products manually seems like a lot of work, right?

‍Fabrikatör, an inventory planning solution for e-commerce brands, make ABC analysis and creates insightful reports for you to make better plans for your e-commerce store.

Customer Churn Rate:

The rate at which customers discontinue using or purchasing your products after a predetermined amount of time is known as the churn rate. A growing business needs to make sure that the number of new consumers it acquires in a certain time frame exceeds the number of lost customers. 

While some experts believe that 5% is a reasonable churn rate for e-commerce companies, some companies can prosper with far greater churn rates.

To calculate the churn rate, divide the total number of customers lost by the total number of customers acquired at the same time. Then multiply by 100 to find the percentage.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA):

EBITDA full form stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the alternate method of measuring profitability in net income. The earnings before interest, taxes, depreciation, and amortization attempt to display cash profit that is generated by the company's operations.

It is mostly calculated by subtracting a company’s expenses other than interest, taxes, depreciation, and amortization from its net income.

Return on Advertising Spend (ROAS): 

Return on Ad Spend, or ROAS, is a marketing term that calculates how much money your company makes for every dollar it spends on advertising. When it comes to marketing and advertising, this is the most important metric to track to assess your ad campaign conversion. 

Calculating ROAS is easy. The ROAS formula is the amount of revenue from an ad campaign, divided by the amount spent on the campaign itself. ‍

Return on Investment (ROI):

Return on investment is a performance metric that can be used to compare the effectiveness of several different investments for your business or assess how profitable or efficient an investment is. For example, you can calculate the ROI for any SMS or WhatsApp marketing campaigns or for integrating new features, etc. 

The ROI calculation is simple and helps you decide whether to take or skip an investment opportunity. It is calculated by taking a ratio of your net return on investment (i.e. the initial cost subtracted from the final value) to the cost of investment.

Conclusion:

Managing an e-commerce store involves multiple tasks from establishing your brand’s online presence to ensuring smooth customer experience and these e-commerce metrics mentioned above helps you keep an eye on your brand's overall performance. Sustaining a brand’s value success requires a lot of effort and metrics like customer acquisition costs (CAC), Cart abandonment rate & retention rates play a crucial role in tracking profitability and growth.

By delving into essential e-commerce metrics, such as Average order value (AOV), return on investment (ROI) and customer lifetime value (CLTV), The ConvertWay helps you track important stats for your SMS and Whatsapp campaigns, like how much it costs to get a new customer, how long they stick around and how many are repeat customers. With these insights, you can fine-tune your marketing and re-marketing strategies for better conversions.

Using automation flows from The ConvertWay like customer-win back and abandoned cart, our app helps you refine your marketing approach and keep your cart abandonment rate below the benchmark. By focusing on keeping customers engaged and returning, you're not just building customer loyalty and boosting sales; you're also keeping an eye on the overall health of your business. Plus, with The Convertway measuring your marketing ROI and campaign performance is a breeze.