Learn the basics about ecommerce analytics and set your business up for success.
To grow your eCommerce business ahead of your competitors you need to rely on analytics.
Ecommerce analytics is the compass that replaces your gut feelings as you scale your e-shop to higher grounds and more online sales.
Ecommerce analytics is the set of practices, dashboards, and processes that use data to gain an overview of your sales performance, marketing activities, customer behavior, and shopping trends.
Roughly, we can divide eCommerce analytics into 6 different categories:
Each category comes with its own set of metrics that help you gauge if you are scaling your store in the right direction or could be driving it off the cliff.
The insights from eCommerce analytics bring several benefits to owners of eCommerce platforms:
To establish a successful eCommerce analytics ecosystem you have to sweat the details.
Choosing which metrics to track can make it or break it.
Let us look at an example.
Imagine you are running an email marketing campaign to re-activate your dormant buyers, aka shoppers that have stopped purchasing with you.
Your campaign goes through the following steps:
Looking at the overall funnel you might be inclined to calculate the success of this campaign by dividing the number of purchasers (12190) by the total number of dormant customers who entered the campaign (1542347).
If you did it, you’d realize the overall success was quite small: less than 1% converted in this campaign.
But this does not tell you anything about how to improve the campaign.
Instead, calculate the metrics as a conversion funnel - how users moved from one step of the campaign to the next:
If you also visualize the metrics, you get a sense of where the campaign failed:
That is correct!
The biggest drop-off happened at the “email click” step. Meaning, your users did not click on the link with the special offer in the email.
With this piece of insight, you can start correcting the funnel where it leaks the most - on the email clicking part.
Analyze the email and see what you could do to make the link click more appealing.
Maybe it was not clear they should click on it, so you need a redesign. Or maybe you should have offered a more appealing offer (“50% off in the next 30 minutes!”).
Knowing which metrics to track - in this case, conversion rate through the funnel - can help you run your e-shop more successfully.
Here we will look at 6 different analytic categories and explore what numbers you should follow to keep a finger on the pulse:
Performance metrics are all about those benjamins. Keeping an eye on transactions, revenue, and profits can help you gauge if you are running a financially healthy business.
All performance metrics are tracked within a time window. For example, you want to know what was the weekly number of orders, or monthly revenue, or yearly profits.
But unlike product metrics, which go into more details about the financial outcomes of selling certain products, performance metrics are useful to get a big picture of your financial operations.
Number of purchases
The metric number of purchases counts how many transactions have been completed in a period. These are also called customer orders, unique purchases, or sales.
No matter what your vendor calls them, they are easy to compute: simply count the number of distinct transaction ids in your sales tables (usually provided by your eCommerce vendor) by date (e.g. by week, month, quarter, or year).
The metric signals the volume of business you are doing.
As a rule of thumb, you want to see the number of orders increasing over time. If you see a decline, it is an alert to start digging deeper into what is causing the order number to drop.
The metric revenue - also called total revenue or total sales - puts a monetary value on your orders.
It measures the cumulative amount of money the customers paid for their transactions in a given time.
Profit and profit margin tells you what share of the revenue you can keep after paying for all the expenses. This includes the cost of goods sold (COGS), material expenses, logistic costs, advertising costs, and all running costs.
It is always important to keep an eye on profits since more orders or more revenue does not equal financial success. If you are selling products, which make a greater loss than profit (e.g., are too discounted), you might be running yourself out of business with every new order.
Average Order Value (AOV)
Average Order Value or basket size is an indication of how much was the average order worth in $.
Track this metric through time to see if you are increasing the average order amount. An increase - under the same customer acquisition costs - shows you are getting more profit per order. Also, if your shop is running a recommendation system, a higher AOV shows the recommender works well (and vice versa).
The four metrics (number of purchases, revenue, profit, AOV) are the minimal standards to understand if you are running a financially healthy business.
But there are other business aspects you want to keep an eye on. For example, how is your customer acquisition going?
Choose your marketing metrics based on the marketing strategy you are running.
It is best to think of marketing metrics as tightly coupled with the marketing channels you are using to attract your leads and customers.
Content is the new king.
Soon-to-be customers often learn about new brands and products via social media and blogs, where they stumble upon fresh content that picks their interests.
Measure the success of content as an acquisition channel via the following metrics:
Search Engine Optimization (SEO) is also a content strategy. But instead of building a community on social media, SEO uses content to engage users of search engines (Google, Yahoo, …).
To measure the success of SEO on your marketing performance, check the following metrics:
Whether you are advertising with Google Ads, Facebook Ads, Linkedin Ads, or some other PPC (pay-per-click) provider, the same metrics will give you a good estimate of paid advertising performance:
CPA is very intuitive because it measures the cost per one average customer doing one average activity (e.g. buying from you).
Let’s take a look at other customer-focused metrics, which tell you a story with simple numbers.
You have to obsess over your customers if you want to be successful.
Customer metrics allow you to understand unit economics from the perspective of customers instead of the e-shop as a whole.
Number of new customers
The number of new customers (per week/month/quarter) shows how well you are acquiring new purchasers.
It is an excellent metric to evaluate your revenue growth (new customers => new money) as well as your general eCommerce growth. As you expand and grow your eCommerce, the number of new customers should grow alongside.
Number of returning customers
The number of returning customers (per week/month/quarter) is an indicator of how well your upsell, cross-sell and activation campaigns are working.
It is always healthy to keep a steady number of returning purchasers in your arsenal since existing customers are 5x cheaper to sell to than acquiring new customers.
Customer Acquisition Cost (CAC)
CAC tells you what you spent on average to acquire a new customer.
The formula is simple:
CAC gives you a single number to estimate how much money (on average) had to be poured into the overall machinery called YourAwesomeWebShop to get a new customer.
Use it with Average Order Value (AOV) to understand if you are making a profit on the first purchase (AOV > CAC) or whether you need to upsell customers a couple of times before the customer acquisition runs a profit (CAC > AOV).
Customer Lifetime Value (CLV)
As you saw in the example above, sometimes Customer Acquisition Cost can be greater than the Average Order Value.
You spent $100 to get a new customer, but then they ordered $20 worth of items. That is $80 lost on that customer. Yikes.
However, this does not mean you should close shop. Customers often purchase small orders, but they repurchase, and through their lifetime their overall revenue pays off.
Customer Lifetime Value measures just that - how much money did a customer bring through all of their purchases put together.
In the example above, if the customer repurchases 6-times, their CLV will be (6 * $20 = ) $120. Which is $20 more than their CAC. Ka-ching!
LV is therefore a measure of long-term retention.
Most eCommerce vendors offer a product performance report by default that allows you to analyze the most relevant product metrics for each product item (SKU):
Conversion optimization is the art and science of improving funnels. A funnel is any sequence of steps a user takes from the beginning to the desired action.
No funnel is perfect. At each step, a percentage of users leak out. The goal of conversion specialists is to improve the conversion rate from one step to another.
The metric for any funnel is conversion rate. Conversion specialists build up analytics like the one we saw above with the email marketing example, and then run experiments to change the conversion rate and push more users through the funnel.
An informative example is Google Analytics’ Checkout Behavior Analysis, which is offered under the Enhanced Ecommerce extension:
The analysis shows the dropout behavior (cart abandonment) at each step of the checkout. The percentage of dropout helps you prioritize which aspect of the checkout process you should optimize first - the higher the dropout, the higher the priority to fix that leaky funnel.
User Experience (UX) measures the subjective quality of how users interact with your e-commerce and content.
The set of metrics surrounding UX are more qualitative, but they try to find general truths about shoppers’ behaviors and how to improve them.
Most commonly UXers determine metrics to optimize via UX interviews or recordings of shoppers’ behaviors on your e-commerce shop.
For example, they might analyze which buttons are receiving the most clicks, and using that information they adjust the UI and UX of your shop to help shoppers complete their actions with more ease.
UXers refer to this area of eCommerce analytics as “friction analysis”. They measure where people get stuck via behavioral observation: moving the mouse cursor aimlessly, looking around the screen with no action, repetitive clicks on the website element without changes, etc. Once they determine the set of “friction” activities, they count them.
The number of repeated behaviors without an outcome is one of the main “friction metrics” for UXers. The goal is to remove any friction and ease shoppers along the funnel.
We presented metrics across multiple analytic categories:
So which ones should you track?
All of them.
Each metric category gives you valuable information about a different aspect of your business.
This might seem intimidating, but it is actually rather easy to implement if you follow the best practices for implementing eCommerce analytics.
Set yourself for success by following the best practices of implementing eCommerce analytics:
Should you pick Google Analytics, Hotjar, Mixpanel, Keboola, Segment or develop an in-house solution?
With so many analytic tools out there the question can be quite daunting.
Luckily we prepared a devoted analysis of the best tools for your eCommerce. It takes you step-by-step through the best-in-class tools and helps you evaluate which tool will work best for your eCommerce. Check it out here.