The next issue of Website Magazine addresses the topic of high-performance analytics. As you might imagine, a great deal of the content related to identifying and discovering how to make the most of key performance indicators (KPI's) was included. Today let's look at what makes an appropriate KPI for Internet retailers, and identify those which will be most meaningful to your bottom line.
A key performance indicator is simply a measure of performance. KPI's help to determine how successful or unsuccessful a company is in terms of making progress towards its goals.
Good KPI's cover everything (good and bad), can be assigned to be monitored and evaluated by the appropriate personnel or department(s), can be tied directly to profit and loss and most importantly need to be actionable. The problem most of retailers have with KPI's is that we're measuring the wrong ones. Instead of a KPI like average order value (which is important) we can do a lot more with KPI's, measuring all sorts of things and how they impact our businesses performance.
There are but a handful of essential KPIs commonly used to track performance, return on investment and conversion rates for ecommerce websites. The ecommerce KPI listed below are ratios and percentages that can be used in addition to traditional conversion rates and return on investment calculations. Let the KPI's listed below act as a means to find out what might be really helping or hurting your ecommerce store.
Editors Note: It is important to note that the KPI's we are covering below ultimately need to be trended but they could prove useful as weekly measurements. Once a sufficient amount of data is gathered, fluctuations will become apparent, as well as site performance measurement indicators. When analyzing performance and overall ecommerce health, these KPI need to be compared in a YOY (year over year) manner.
Let's get down to business. While most of us are content looking at the number of orders, the profit per order, and perhaps even some customer satisfaction metrics, let's look at a few additional KPI's that can be monitored and improved upon. You'll notice we've not included a few of the more popular (average order value, shopping cart abandonment, etc.) metrics and opted instead to look at more value driven, yet esoteric or avant-garde ways to measure success or failure.
Buying Sessions: What you'll discover with a KPI for buying sessions is how well your actual site is performing - specifically the advertising. Divide visitor sessions with a purchase by the total number of sessions.
New vs. Returning Visitor Percentage: How often are new people visiting your site versus those which return periodically to see what's new? This KPI will tell us. Just take the number of new visitors and divide it by all unique visitors. You'll find out how effective customer communications are (e.g. email marketing). You can also establish a ratio to help understand the performance of new versus returning visitors by diving returning visitors by new visitors.
Order Conversion Rate: While most merchants track the number of orders that occur from day to day or month to month, understanding the order conversion rate helps to identify issues which may be hindering visitors from completing their purchases. Calculate this KPI by dividing visitors by orders. Use in line with shopping cart abandonment to identify stumbling blocks in the sales funnel. If you are currently tracking the order conversion rate, add another layer to this valuable KPI by comparing it to the buyer conversion rate (buyers divided by visitors).
Items Per Order: This KPI might ultimately be the most valuable one of those listed here. The items per order percentage will (if trended year over year) help us identify how well we are doing selling related or adjunct products.
The ratios and measurements for these KPI will vary from site to site, and are quite dependent on the industry and online business model. To get started you'll need to find the right data (again, at least one years worth) within your analytics solution and if it is not already available in the formats listed above get out a pen and paper (or a calculator) and do some good old-fashioned math.
Each ratio that you calculate should or can then be used as a target. For example, is the items per order ratio falling? If the answer is yes perhaps it's time to ramp up our merchandising efforts. Is the order conversion or buyer conversion rate increasing? Give your web designer a pat on the back? Buying sessions decreasing? Fire the ad executives. Analytics tells us a lot about performance but you'll need to do the harder management work to make sure what you've learned sticks in your business processes.