KPIs in E-Commerce

E-Commerce can be challenging…and this is an understatement.  I’m lucky enough to have ended up in search engine marketing, a move that happened at the beginning of my career by chance, and I firmly believe that the skills one learns as a search engine marketer help build the strongest foundation for an e-commerce expert.  Why? It’s all about the data!  Fun stuff, ehhh?

 

It was probably after I heard the acronym KPI about 5 times before I mustered up the courage to ask what it stood for.   A key performance indicator is a metric that you should pay close attention to because it greatly impacts other things like revenue and potentially profit (also known as the top and bottom line.)  While I was at Resolution Media managing Fortune 100 brands, (it’s amazing they let me do this so early on in my career!) I remember staring at pivot tables without any idea of what I should do with the data and how some metrics affected others.  It was only when I was truly in charge of all e-commerce for FansEdge.com that I started to understand what the data meant and what levers I could push and pull to affect them.

 

The 3 most important metrics in e-commerce are…. (Drumroll please):

         1. Traffic

         2. Conversion rate

         3. Average Order Value (AOV) or some may say lifetime value of the customer (LTV)

 

Why, you ask?  Because when you multiply these metrics together they equal revenue. Obviously things like costs of goods sold and margins come into play but in the interest of simplifying this stuff let’s stick to these three.

 

So let’s assume I’m selling custom buttons online like on BusyBeaverButtons.com. My site gets 100 visits on Monday.  My conversion rate is static at 5%.  100x.05=5.  That means I have 5 button sales.  And now let’s assume the average value of these orders is $100.  5x$100=$500.  That means on Monday my site generated $500 in revenue.

 

Why is this important?   Because a 10% increase in conversion rate has the same impact as a 10% increase in traffic or a 10% increase in AOV.   And imagine if you were able to get a 10% increase in all 3.  Revenue would grow exponentially.

 

When we founded Perfect Search our emphasis was on traffic - our team is very good at this.   But increasing traffic forever can be difficult.  So this year we began implementing A/B onsite testing in an effort to impact conversion rate while still increasing traffic.   My dream scenario is to help our clients with all 3 metrics (imagine the value in that!) but impacting AOV can be difficult because of all the business implications that are tied into pricing and so scaling this can be a challenge. We’re excited to see what 2015 can bring!