Website development is a troublesome matter, demanding loads of mental and financial resources. Sure enough, website owners believe in miracles that are likely to happen right after the project launch and make them more popular, loved by their visitors and well-off at the result.
Nobody wants to waste money, on the contrary, each and every website is being developed with a concrete goal – to earn money, boost sales, promote a company on the market, build a community of loyal customers and so on. Aren’t these good reasons to check if your website works well enough on regular terms? You can’t but agree with us. Would like to know how to check the efficiency of your website? Which parameters should be traced at first turn? We will share our research with greatest pleasure.
Frankly speaking, product development for web features and sites is typically hard to measure because there are usually other non-controllable factors that influence the performance. Try to imagine the situation when an e-commerce feature is released on a store. The product team controls the UX on the site but does not control pricing. Could the product team’s KPI (key performance indicator) be conversion rate? Average order value? Average sales? If the numbers are high, then the pricing team decides to increase prices (and affect AOV- average order value, conversions), should they be held accountable? As you see, the question is not simple, but we will get to its heart anyway.
Let’s dwell on another example that might seem confusing to you. Supposing you’ve added a 3rd party image management software to your current site (external vendor product – like Adobe Scene 7). How do you measure the performance of its implementation? How will you rate the product manager’s implementation of this product? What KPIs should we be looking at?
Below we enumerate a few different tools you can use for the purpose, but you’ll have to employ your own judgment and common sense to decide which one to apply.
Input vs. output metrics
Input metrics measure the inflow of users into your feature. Output metrics measure the value created by your feature on the other end. By measuring both, you are able to distinguish whether gains in the output metrics are a result of higher input metrics, or improvements within your feature (e.g. conversion gains). If your feature is promoted on search result pages, then a relevant input metric is the number of times people clicked on a link to your feature on a search result page.
Efficiency metrics measure how well you are utilizing your real estate on the website. They measure how often users engage with your feature when they are presented an opportunity to do so. E.g.: an efficiency metric might use the number of clicks as the numerator and the number of search result page impressions where your feature was promoted as the denominator. An increasing number means one of a couple things: other features on the search result page are getting less relevant, your feature is getting more relevant, user composition is changing, or some combination of these reasons.
Topline metrics measure the absolute amount of value your feature generates. If you manage an image upload pipeline, your topline metric is the total number of images uploaded. Topline metrics alone aren’t sufficient to measure the success of a feature, but they are useful to determine the size and importance of a feature. If your growth rate is 1000% month over month, you can only tell whether that number is meaningful by looking at the absolute topline value.
Growth rate and topline are usually viewed side by side to determine size and success of a product. A positive growth rate alone is not the evidence of success, and a negative growth rate alone is not the evidence of failure. The growth rate of your feature has to be put in context of the site as a whole. If your site is growing at 50% year-over-year, then you are expected to grow your feature at a rate faster than that. The smaller your feature is, the faster you should be growing. If your site is declining 10% year-over-year and your feature is flat year-over-year, then you may be viewed as successful.
Percentage of x
If your feature is one of several where users can perform a certain action (e.g. upload an image, register, make a purchase), then one way to measure its success is to determine what percentage of those actions came from your feature vs. on the site as a whole. If your percentage of that action is increasing then that’s a good thing because more users are applying your feature instead of the alternatives. This isn’t the right metric to use at launch since your feature might simply be cannibalizing the other options, but it works well post-launch to see if the mix-shift is continuing or accelerating.
One measure of feature’s success is simply what percentage of site visitors use it in a given period. Measuring this as a percent of total site visitors helps you normalize it for traffic. If the number is declining, this means that either the composition of site visitors has changed, or the site visitors are getting less value out of the feature and as a result, use it less.
It is often useful to pair two different metrics together to measure success, selecting two metrics that work as checks against each other. One metric is usually an absolute one (e.g. weekly registered users) and another is a percentage metric (e.g. one month activation rate). The first measures the raw number of new users you generate and the second measures what percentage of those users who are still using your product after one month. It’s possible to artificially inflate the registered users’ number, but unless those users are truly qualified it will hurt your one month activation rate number. Having paired push/pull metrics helps you keep the two in balance.
To make everything said above simpler for digestion, please watch the slideshow by Dave McClure. His “Startup Metrics for Pirates” is a simple illustrated 5-step model for creating a metrics framework for your business & customers, and an unsophisticated guide on how to apply it to your product & marketing efforts. The “pirate” part comes from the 5 steps: Acquisition, Activation, Retention, Referral, & Revenue (AARRR!).
Many site owners consider Dave’s approach to website efficiency metrics very handy.
Here is another couple of really cool reports for GA (Google Analytics) site owners frequently use:
1. Comparing the efficiency of various channels that drive traffic:
Let us explain what we are talking about.
Make this custom report:
- Metric group: visits, unique visitor, new visits, any custom goals (to check the engagement), conversion percentage, per visit conversion value.
- Dimensional drilldown: source/medium > medium > campaigns.
The serviceability of this report is that you can value your traffic channels effectively and against different benchmarks. So, while the first 3 columns tell you the number of visits you can attribute to a site, the 4th column shows the engagement. It is important to understand which channels bring you new visits and strategize accordingly, isn’t it? For the 4th column, you can have a custom goal to measure engagement as per your site benchmarks, (it can vary from time on site to number of pages visited). This helps you understand which source is providing qualified visitors. The 5th and 6th column represents how much monetizable your traffic sources are. You can use the conversion as the custom goal. The conversion percentage and per goal value help you understand the business value for all the traffic sources. The last but not the least, cost makes you understand what it takes you to bring those visitors to your website.
2. Another good report is to compare paid visits to organic visits:
What should you do?
Make a custom report:
- Metric group: visits, unique visitors, bounce rate, page views, transactions, average value, revenue.
- Dimensional drilldown: keyword > landing page.
This is a great report as it helps you analyze how good your organic traffic is compared to the paid one. Paid traffic should always be below the organic one and nowhere close to it. Also, since you are paying for your paid traffic, it should be more qualified (having better bounce rates and more average time spent on page).
Generally, this data speaks volumes of the efficiency of your PPC campaigns and plenty of ways to optimize.
Now we would like to cover the following essential question. Maybe you asked it yourself many times and found no answer. We sincerely hope that it will be clarified today.
What are the most important metrics for e-commerce companies?
1. First, segment your data by at least a few different dimensions:
Traffic source / channel / campaign: how users came (links, e-mail, SEO, and PPC) will influence their behavior. Also, metrics will differ by why users came in (offer-based vs sale vs competitive vs unqualified).
Product category: the more products you sell, the more variation you’ll see.
Time: to track seasonality and trend initiatives. Many site owners generally pick weeks. Day of week tends to have too much volatility. Month tends to be too long a period, and the start/end dates are arbitrary.
Device: computer / tablet / phone. Metrics will vary dramatically by what device consumers are using.
2. Second, keep your eye on some key metrics (segmented by channel):
Average order value: what does an order mean to you?
Average order profit: what does an order really mean to you?
Cost per acquisition: how much can you afford to pay for that sale?
Conversion rate: how efficient is your website at closing the deal (adding to cart, registration, checkout, payment, subscription, upsell).
Return on investment (ROI): typically cost per sale / sale amount. Also tracked as the inverse: Cost of sales (COS).
Customer lifetime value: can you afford to pay a lot for an acquisition, knowing you can make up the money over the next x months?
Repeat purchase rate: related to CLV, and allows more bites at the apple.
Revenue per visit: are you making the most of every visitor?
Customer satisfaction rate or net promoter score: are you getting orders or are you getting customers?
Demographics: even at a high level, it provides some customer context.
3. Third, ask the right questions, because metrics are meaningless without an actionable insight:
Identify your most important channels for revenue / acquisition; find opportunities.
Identify your best selling and most profitable products; prioritize them but also figure out why your other products aren’t doing better.
Identify which products are purchased together to uncover merchandising and bundling opportunities.
Test offers to determine what drives your goals: shipping, guarantees, freebies / samples, upsell, discounts, BOGO (buy one, get one), etc.
Isolate conversion barriers and tune them all down.
What’s the best way to increase revenue by 10% for your business: increase traffic by 10%, increase conversion by 10%, or raise prices by 10%?
What are the 50%, 80%, and 95% scenarios? Means, edge cases, and subjective priorities can mislead you from the bigger picture.
Unless you completely missed something, you’re more likely to find a bunch of 1% improvements rather than one 50% improvement. Also, unless you’re already processing a lot of orders, you probably won’t have enough clean data to make decisions quickly, so be methodical and patient.
Helpful collection of e-commerce metrics, grouped for your convenience
Below, you will find a helpful collection of e-commerce metrics, grouped for your convenience. Of course not all items in the list are absolutely necessary, but they at least give a pointer to what web community considers important.
1. Customer metrics:
- Number of orders.
- Average order size.
- Number of new customers.
- Number of repeat customers.
- Top customer locations.
- Number of new customer registrations.
- Total registered customers.
- Ratio of new customers to repeat customers.
- Number of items per order.
- Number of abandoned shopping cart sessions.
- Customer satisfaction.
2. Financial metrics:
- Total gross revenues.
- Gross & net profit.
- Average revenue per customer.
- Marketing spend.
- Gross margin by product type.
- Sales per visitor.
- Cost per visitor.
- Cost/profit per new customer.
- Value of returns.
- Cost & revenue per campaign.
- Revenue by product line.
- Revenue by product.
- Lost profit.
- Return on inventory.
3. Web metrics:
- Unique users.
- Page impressions.
- Pages per visits.
- Time on site.
- Top referral sites.
- Top exit destination sites.
- Site penetration ratio.
- Response rate (Click through rate).
- Customer conversion rate.
- Newsletter/ezine subscribers.
- Number of coupon codes redeemed.
- Number of discount codes redeemed.
- Campaign: number of landing page impressions.
- Campaign: number of times seen, impressions.
- Campaign: number of clicks and bounces.
- Campaign: number of people who stayed more than 10 pages.
- Campaign: number of orders.
- Campaign: average order value.
- Campaign: sales per thousand impressions.
5. Site usability & usage metrics:
- Clicks to buy (CTB).
- Top pages where sessions are abandoned.
- Number of featured products clicks on home page.
- Top product pages by views.
6. Operations metrics:
- Average order process time.
- Average shipping days to customer.
Here is another viewpoint on what’s crucial in website’s efficiency metrics:
At a very high level, you could focus on customer acquisition cost and lifetime value. Both have a number of subordinate metrics (e.g. CAC is a function of CTR, CPC and conversion rate, LTV a function of average order size, number of orders/customers in a period and gross margin etc).
Next level down you could look at these numbers by customer acquisition channel.
If you have CAC << LTV and a quick payback time on marketing spend, then you’ll have a good e-commerce business.
You should consider metrics only through the prism of your specific objectives, competitive position, brand / business strategy, and category. In other words, not every e-commerce site is looking to accomplish the same thing.
Here are some examples to illustrate the above:
Traditional retailers often look at their e-commerce operation as a lead generation tool for their physical locations. This is particularly true when it comes to high consideration purchases with a long lead time – think furniture, cars, and hard goods. Accordingly, they pay little attention to online sales and will work hard to connect the dots between online and offline.
Brand or manufacturer e-commerce sites are often doing double duty – working to create or continue a brand experience, while also closing transactions (though often not at the lowest price). In other words, these companies are likely most interested in brand based metrics first, traditional online retail commerce metrics second.
Just as with marketing in the real world, it’s important to consider metrics that address the short term (this day, week, month, quarter), and metrics that relate to the longer term. While you recognize what can be intense pressure to deliver sales, it’s also important for a marketer to think about what kind of business is getting created. If every dollar has to earn a return this quarter, you have to guard against creating a promotion-driven, churn and burn approach that ultimately leaves you with a low value, low margin company.
Finally, keep in mind that it’s nearly impossible to draw a straight line from a particular marketing input to an output. Usually, you need to identify interim metrics or micro-conversions that will help you understand if you’re moving in the right direction. Here they are:
- Conversion rate.
- Average order value.
- Days & visits to “purchase”.
- Visitor loyalty & visitor recency.
- Task completion rate.
- Share of search.
Apart from all of the main metrics to track that have been already mentioned here, there is still another question to answer. While it’s good to know the metrics you should be measuring, you also need to know how to measure them to get the most actionable results. Specifically for e-commerce, you’d better consider the following:
- Evaluate your acquisition channels with CLTV/CAC analysis.
- Go beyond funnels to paths (path analysis).
- Slice and segment your shoppers according to cohorts.
- Predict potential churn by identifying changes in purchase and retention patterns.
- Use actionable insights to react quickly to dynamic business scenarios.
- Unify data from social networks, blogs, ad networks, billing platforms, etc.
- Collect historical data.
On the bases of everything stated herein above, we can define top 3 efficiency indices:
- Flow of unique visitors.
- Conversion rate.
- Average order value.
A few biggies are:
- Average transaction revenue.
- Transaction conversion rate (visits/transactions).
- Average number of unique items in transaction.
- Visits to transaction (days since first visit till transaction occurs).
- Days to transaction.
- Goals conversion rate (several goals for sales, user interactions, sign-ups, time on site, and any other actions you would like visitors to take).
- Funnel abandonment rate for each goal (very important for check-out/shopping cart – e.g. do visitors feel comfortable giving you personal information?)
- Bounce rate (does your site give a positive first impression?)
- Time on page/site & visit depth (is your content engaging?)
- Value of visit (what is the traffic worth to you, how do different visitor types convert and which group should you focus more on).
- Direct vs. referral traffic (do you have loyal customers? Which other sites are sending you traffic?)
- Site search insights (what do visitors search for on your site?)
All the above should be segmented by visit type (e.g. paid vs. organic traffic, new vs. returning visitor, etc).
And don’t forget that you should show up for relevant search queries in search engines. If not, make sure your website is accessible to search engines and that you are offering unique and valuable content.
Classical parameters of customer metrics
Like most of things in this world, customer metrics have its classical parameters. Interested? Here they are:
RFM (Recency, Frequency, Monetary).
Basic metrics: cost of acquisition, life time value.
Plus keep an eye on the average order size and a percentage of repeat customers.
Actually, there are 8 main metrics:
- Set up goals and track conversions.
- Identify high value traffic sources.
- Identify high value keywords.
- Identify geographic hotspots.
- Optimize landing pages.
- Keep track of bounce rate.
- Page visit time.
- Behavior flow.
We could also add CTR (click-through-rate) to these as well.
Granted, some are not specific metrics per say, but they are the basics of what you should be measuring.
More smart recommendations:
5 reports listed below.
- Percentage of new visits.
- Pages per visit | average visit duration | bounce rate.
- Landing & exit pages.
- In-page analytics/event tracking.
- Multi-channel funnel marketing.
Here comes another four:
- Net profit from repeat customers over a span of time.
- Sourcing efficiency of the trading company (function of purchase price & time and commodity’s price trend).
- Customer’s time to checkout (from first scout to payment).
- Satisfaction index.
By the by, you already have been using Google adwords. If you haven’t, you should!
But that’s not all, the most important metric for optimization of your e-commerce campaigns are CPA, impression share and conversion value. You can optimize and maximize your Google adwords campaigns by using these metrics.
And now we’ll tell you how to use these metrics to optimize and maximize your campaigns.
The number one metric that we obsess over is profit margin.
After that it is traffic e-commerce rate for different sources/mediums to determine which is the quality traffic that drives that margin.
But there is one more thing we would like to add – the metric that you shortlist for tracking should tie-in to your goals and outcomes of the business – both macro as well as micro outcomes.
Also make sure that out of the metrics you shortlist for tracking which one could qualify to be a KPI – those metric that can help you measure the health of your business – and track only those.
Identifying your business objectives and goals would be the first step towards identifying the metrics for your business (from the list) and qualifying them as KPI’s. Ideally no more than 10 metrics as it would be easier to manage them as well.
Another important metric is cross-shop rate, which answers the question: “What percentage of my customers are shopping on a competitors’ site in the same session/day/month?”
Many consumers shop on a particular site to find the product they are looking for, and then determine which site offers that product at the lowest price.
Don’t get caught up in “vanity” metrics and make sure you’re focusing on actionable metrics that can actually inform your business strategy. A lot of the data social media sites offer is fluff (fans and likes for example). If you’re measuring for e-commerce, make sure you’re looking at metrics that can be tied to real actions.
For example, if you’re looking to measure customer engagement with your brand, we would recommend focusing on things like:
- Site visits: how many people are visiting your landing page?
- Quantity/frequency of reviews, comments, discussions, etc.
- Site affinity/likelihood to influence other friends.
Just to throw in another quick plug, we would advise you to track online social media referrals. Referrals have been proven to be one of the most effective methods of generating more revenue for online businesses, especially e-commerce companies. There are plenty of tools on the net that do this job instead of you.
And the last five metrics site owners use to measure their websites efficiency:
- Customer acquisition cost. In a highly competitive market with billions of investments happening in the sector, everyone is behind getting the customer, sometimes people get so mad that they forget to track this important metric. Seriously, if you can innovate and keep this considerably low than your competitors, you have 25% battle won.
- Repeat customers and visitors. This talks high of your service / product (where differentiation is generally low). If customers start loving you, another 50% battle is won.
- Referrals. This speaks higher of your service. It is so good that people are doing a WOM Marketing for you.
- Customer complaints rate (compared over a period of time). This is a test of how seriously you take feedback, complaints, and use them to serve better, every time. If you have a good number here another 25% battle is won.
- Customer value / life time value / value over a period of time. This metric helps you immensely in:
- Formulating a long term strategy.
- Presenting your business case.
If you read our blog post attentively, you might have noticed that there don’t exist a “one size fits all metric”. There are so many factors affecting the strategy you should choose. We don’t know what business you are involved into, that’s why just made a compilation of different approaches to website efficiency metrics. We wanted to give you the possibility to choose from the variety of methods other site owners consider effective. Some of them repeat, so we can arrive at the conclusion that they work for most of businesses and you can try them either at first turn.
If you are ready to share your own great strategy of website efficiency measuring, please leave these precious notes at the comment section. And don’t forget to write your feedback on the compilation in general. Which metrics do you use yourself? Which of them are you going to try after reading the entry? Even if you have negative experience with some of the metrics, we would be happy to hear from you.
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