Having your own business on the Internet, you need to understand how much is invested in advertising and in the development of the online store itself. Having the main business indicators, you can use them for your own purposes – to optimize all processes and understand which of the indicators is capital-forming. In this article we will tell you what KPI is and how to use it in your business.
What is KPI?
KPIs are performance indicators that are needed to see where and at what speed you are moving. Also, these indicators allow you to identify problems and achieve your goals. You can track all actions at any time: what is worth spending effort on and what is not; where the money goes and what brings profit, etc.
Key indicators influence something. Actually, that’s why they are key. For example, attendance is a weak indicator and it should not be taken into account, or rather rely on it. It would seem why? The fact is that you can have a lot of visitors, and the average check is minimal. When discussing the topic of KPIs, it is important to separate performance indicators that relate specifically to sales, and indicators that are important for your abstract site.
In order to work with KPI you need to have goals. Performance indicators depend on them. You should choose what is important to your business.
Consider the main KPIs for an online store. If you want your business to really work, use them.
Number of orders
This is the total number of orders through your website for a certain period of time. It can be easily calculated using a standard CRM or analytics system. In fact, this basic metric is not very indicative, but it is used to calculate other indicators. For example, when calculating the increase in conversion.
Total amount of orders
This indicator determines how much goods were purchased for the selected period of time. It can be calculated by a simple formula: number of orders * average check. If you are not satisfied with the result, there are two ways to improve it:
- Increase the number of orders through promotional mailings, remarketing, etc.
- Increase the average check by offering users promotions, discounts or some interesting offers (for example, from the amount of 50$ delivery is free).
This metric is used in the calculation of other important indicators – conversion. To calculate it you need: number of goods sold * price. To improve the indicator – increase traffic and conversion rate.
Profit from sales
Of course, there is no need to talk about what profit is. And everyone knows how it is calculated. But we still remind you: income – expenses. It is this indicator that determines the success of the business. To increase profits, you need to increase traffic and conversion rate.
Return of marketing investments (ROI)
ROMI = (revenue – marketing costs) / marketing costs.
It is expressed as a percentage. If this figure is above zero, then marketing pays off. If you need to increase this indicator, you need to devote time not only to advertising, but also to work out the content of all landing pages.
Cost of attracting a new customer, CAC (Customer acquisition cost)
CAC = MCC / CA
where MCC is the cost of all marketing costs to attract customers, CA is the total number of attracted customers.
This indicator allows you to determine how much you need to spend to attract one customer. Thus, you can understand whether your advertising is effective.
This metric is considered in conjunction with LTV (total profit of the buyer for its life cycle). And here the following rule applies: the lower the CAC relative to LTV, the more profitable your costs are.
For analysis, divide all channels into three groups: neutral, positive, negative. Here is the last option you need to disable and focus your attention on neutral channels.
CPC (Cost Per Click)
advertising costs / number of clicks
This indicator shows the cost per click. That is, the amount that the advertiser pays for one user who came to the site through an advertisement. CPC is taken into account when planning advertising campaigns. But the result obtained is taken as a basis and compared with subsequent ones.
CTR (Click Through Rate)
(amount of clicks on ads / number of impressions) * 100.
The metric helps to determine the effectiveness of a particular advertising platform. The indicator is used to determine the effectiveness of the ad. That is, they reacted to your ad and performed the targeted action. CTR shows how effective your advertising is, but it does not show information about sales.
CPA (Cost Per Action)
the amount of advertising costs / number of actions
Initially, this metric is calculated based on the number of real orders. At the next levels of development, the indicator is calculated in more detail.
For example, not the entire cost of an advertising campaign is analyzed, but its individual channels. This allows you to evaluate their effectiveness and optimize if necessary.
CPC and CPA indicators play an important role in improving conversion. The smaller the difference between these two indicators, the more users went to the site to perform the target action, and the advertising paid off.
Cost Per Order (CPO)
amount spent on advertising / number of actions
CPO demonstrates the cost of attracting one order. Here you can count targeted user actions. In e-commerce, this indicator plays a key role, as it helps to determine the cost of an order on different channels. That is, SRO is a demonstration of advertising performance. The lower this indicator, the higher the profitability.
Average check (AOV, Average Order Value)
The average check shows the total volume of all purchases for a certain period of time. Accordingly, it is calculated by the following formula:
AOV = Total revenue / Number of orders
It is measured in monetary terms. The indicator estimates what your average check is. You will be able to understand exactly how much each order brings. If something goes wrong, you can adjust the store development strategy. Methods of increasing the average check:
- Free delivery
- Discounts when buying several copies of the product
The metric determines which part of visitors made a purchase and the higher this indicator, the better for your business. The indicator is segmented by the following criteria:
- traffic source;
- types of devices;
- new and old visitors.
The conversion rate is also affected by the quality of the online store itself.
For example, if your website is not optimized for a mobile device, it will take a long time to load. Consequently, users will leave the resource. The conversion rate will be small. You can calculate the CR rate using a simple formula:
(number of orders on the site / number of sessions) * 100
Average revenue per user (ARPU)
ARPU = total revenue / number of visitors
This indicator allows you to estimate how much money one visitor brings for a selected period of time. Based on this, you can calculate what the planned traffic should be.
Average revenue per paying user (ARPPU)
This metric shows the average revenue per paying user for a certain period of time. The indicator is used for remarketing. To calculate this indicator, it is enough to divide the total revenue by the number of customers.
Percentage of abandoned baskets, CAR (Cart Abandonment Rate)
Abandoned cart, purchase abandonment is when a user started to place an order, but something went wrong. He did not complete the action, there are many reasons for this: he was distracted, moved to a more profitable seller, etc.
Statistics show that about 70% of carts remain unpaid, but this issue can also be solved. After receiving the Cart Abandonment Rate metric data, supplement the cart with the necessary content and functions.
((number of users who added a product – number of users who placed an order) / number of attracted customers) * 100.
Customer lifetime value (LTV)
Demonstrates the profit that a customer can bring over his lifetime. The ideal ratio of CAC: LTV 1: 3. It is expressed in monetary terms. If CAS is more than LTV, then your marketing is unprofitable. If you need to increase LTV, then try the following:
- introduce a loyalty program
- increase the average check
- motivate the customer to make additional purchases.
Fulfillment of orders
This indicator is calculated by the ratio of the number of orders made on the site to the number of completed orders. The metric allows you to find out what problems of the site exist: availability of goods, quality of service, etc.