“What gets measured, gets managed”
Have you ever been on a late night long drive? You surely have noticed all the milestones while looking for how far you will have to go. It is the single measurement that pinpoints where you are, gives you the direction of where and how much you need to go. Similarly, KPI or Key Performance Indicator also works as a milestone for the road to the growth of your Business. It shows you where you are now, guides you to the direction you need to go, helps you to set the right strategy to grow your business.
In theory, KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives i.e. for an E-commerce - engagement, customer conversion, sales, retention etc. KPI plays a pivotal part in managing your business, taking decisions and setting goals. According to Investopedia’s definition, KPI determines how a company or industry gauge performance in terms of meeting their strategic and operational goals.
Why tracking KPIs are important
Ecommerce, labeled as a modern day trading, has a major distinction from traditional one. Unlike traditional trading, it involves showcasing products in a website or social media, marketing which is done online, tracking sales and inventory information which is stored in databases and delivering goods to customer’s doorstep within a reasonable time. As all of these processes are backed by technologies, E-commerce business owners are presented with a unique opportunity, that is to track and measure each and every aspect of their business with very little effort. And this little effort can be differentiating in growing the business and sustaining with competitions.
Usually, it is assumed if your business is generating revenue, you are doing just good enough. Well, good enough is neither better nor the best. Whatever is fine today might not be fine tomorrow. That is why you need to monitor the health of your business constantly and KPIs are the measures of this health.
Generally, we can say setting a KPI driven business process helps you to:
Define your vision of success
Whenever you are tracking a KPI you should set a target number for that KPI as well. For example, you are tracking the total number of visitors and orders, you should also set a target number for this Quarter and check regularly how much you have been able to achieve.
Keep the team on the same page on business goals
Each department in your business has different goals and targets. i.e. Marketing teams target is to find new users and attract idle customers to shop again with new offers. Delivery teams target is to deliver parcels within a reasonable time frame by minimizing false calls. Each of your teams should maintain a different set of KPI and everyone in the team should be on the same page by tracking them.
Help managing business by measuring
Success of a business is driven by a lot of factors. But it’s difficult to know which are most critical unless they are being tracked. So identifying key business drivers and tracking their progress is an essential part of managing your business.
People often has a tendency to think someone else is responsible when no one is truly responsible. Holding employees accountable for improving their KPI provides them a way to manage their performance. Additionally, managers or business owners can also see who are contributing most towards the goal.
Celebrate all your achievements
In Bangladesh, almost all E-commerce are startups. And for startups, it is very important to stay positive. A growing business should celebrate achieving the first thousand or ten thousand customers, reaching a certain monthly recurring revenue and so on. With a KPI dashboard, your team can focus on these small goals and celebrate every achievement which is essential for your team moral.
List of E-commerce KPIs
So far we have been introduced what KPI means and why they are important for your business. Now you might start considering to be KPI driven to manage your business. But, do you know how many types of KPIs are there to track? Probably a ton. It is very easy to get lost in between and trying to figure out which KPI is to track and use.
Fortunately, over the last couple of years, E-commerce sector has been developed significantly and there have been many experiments on its most important KPIs. To start, we have focused and categorized four segments of an E-commerce business and identified their most important KPIs which you can use to manage, build, grow and sustain. They are:
1. Traffic / Customer Acquisition:
Your website or E-commerce shop traffic is similar to real life customers who are visiting your store. The more people comes to your shop, the more chance you have to sell your product. The following metrics indicates how your customer acquisition is going:
Sessions (Website) / Page Visit (Facebook Store): The amount of time one spends on your website or Facebook Page. Track it using Google Analytics or Facebook Page Insights.
New vs Returning Visitor: The number of new visitor to your page or website vs the number of visitor that keep coming back. Check it from Audience overview report in Google Analytics.
Paid vs Organic Visitor: How many visitors are coming on their own (organic) and how many are via paid ad campaigns.
Bounce Rate: Bounce rate is the measure of how fast a visitor has got away from your site. A high bounce rate means they are not finding your content attractive or engaging.
2. Marketing (Ads, Content, Social Media & Email):
Inevitably Marketing is a prime part of your business which lets your target customer know about you, your value proposition, what you stand for. And even though, investing more and more to a marketing campaign is a generally perceived procedure, very little is discussed about the performances of these marketing programs despite its significance. These are the following metrics to determine:
Reach / Impression: How much of your content or ad is reaching to your target audience. Reach increases as your content gets popular or viral. Sponsoring the content using Adwords or in Social Media can increase it quickly.
Engagement: Refers how people are engaging with your content. i.e. Clicking on the content, read or see, like, comment or sharing.
Conversion Rate: The number of people turning into visitors. I.e. If your ad impression is 300,000 and your traffic is 12,500 then your conversion rate is (12500/300000) x 100 = 4.167%
Customer Acquisition Cost (CAC): One of the critical marketing metrics, informs you how much money you are paying to acquire customers on average. i.e. From the previous example, if you get 1000 orders from new customers and spend $500 for your ad campaign then your CAC is $500/1000 = $0.5.
Sales is crucial. It is what brings you Revenue. If there are no sales, all the efforts become valueless. More often than you can imagine, sales is what determine your business growth and performance. The most important KPIs for your E-commerce sales are:
Average Basket Size: Like a retail store, average basket size in your online business refers to the average value of items sold in a single purchase. Depending on your offered product, average basket size may vary.
Cart Abandonment Rate: According to Wikipedia “Cart abandonment rate is the ratio of the number of abandoned shopping carts to the number of initiated transactions or to the number of completed transactions” To put it more simplistic manner, Cart abandonment rate is the ratio between the number when customer completed a purchase and the number who added products to a cart but never committed to purchase. An interesting Fact: The typical shopping cart abandonment rate for online retailers varies between 60% and 80%, with an average of 67.91%.
Daily / Weekly / Monthly orders: Simply the number of orders you are getting in a day, a week and a month.
Category, Demographic and Area wise orders: Suppose, your online shop offers trendy clothing items. You have categorized your product based on Male, Female, Kids and sub-sectioned each of into several categories as such Formal, Casual, Sports etc. This metric shows you how many orders you are receiving in a given period based on category and area.
Returning Customers & Churn Rate: New vs Returning customer shows how much you are attracting new visitors to your website vs how much they are staying loyal to you. And churn rate refers to the number of customers who are disconnecting any further relationship with you Online Shop.
Customer Lifetime Value (CLV): Customer Lifetime Value or CLV is a marketing term which refers how much a user is paying your business on average. The simplest way to calculate CLV is ((Annual Profit / Customer) x the average number of years they remain a Customer) - Customer Acquisition Cost (CAC).
Delivered vs Returned vs Cancelled orders: Delivered orders are the order purchased which has been delivered successfully to your customer. Returned are the product which has come back to you due to change in customer preference or defectiveness of the product and Cancelled orders are the product ordered which is canceled before delivery.
One of the crucial aspects of booming E-Commerce is Delivery. Unlike traditional stores, your customer will prefer you more if you have an optimized Delivery procedure which can get your customer their desired product on time. A study conducted by MetaPack on “Flexible Delivery Options” stated that “Logistic experience is fundamental in the online buying process. No less than 49% of the consumers is willing to pay more for their purchases if they can select various delivery methods”. This research is conducted on 3000 online shoppers aged between 16-65. Here are the metrics you need to track for Delivery of product:
Average Delivery time by Delivery Partners: If you have delivery partners, this metric shows you the comparative efficiency of your delivery process.
Average Delivery time by Order Size: This metric tells you whether your delivery time gets affected when people purchases more items together.
Smart Ways to track KPI:
Peter Drucker, known as the father of KPI and also a writer, professor, management consultant and self-described “social ecologist”, once said “A strategy without metrics is just a wish. And metrics that are not aligned with strategic objectives are a waste of time.”
Since, we have already covered how significant KPI can be to your business and how it can help you to build and grow, let’s get deep into how you can track them smartly.
Traditionally, KPIs are reviewed weekly or monthly through business reports. Business managers export data from CRM (Customer Relationship Management system) and accounts log and calculate KPI using spreadsheet software like Microsoft Excel.
However, when the whole business is done online, it makes no sense in tracking the KPIs manually. There are services which you may set up to track different components for your business automatically and monitor the KPIs through an online dashboard. Here is a list of such services:
Google Analytics: It is the defacto standard for tracking web traffic. You can sign up for a tracking code simply from https://analytics.google.com/analytics/web and use it in your shop to track all of your user traffic and acquisition metrics. Additionally, Google Analytics also provides an Ecommerce module which can be configured to monitor metrics like conversions of cart abandonment rates.
Read this blog for a detailed guide: https://www.optimizesmart.com/e-commerce-tracking-works-google-analytics-ultimate-guide/
Integrated Dashboards with Marketing Services: Online marketing comes in various channels: Email, Social Media, Online Advertisements etc. All popular marketing services provide relevant analytics in their dashboard. i.e. Facebook Insights, MailChimp dashboard, Google Adwords dashboard etc.
Sales Dashboard: Designing sales dashboards are a bit tricky because people uses a wide variety of platforms to manage their E-commerce shops. For example some of the most popular store platforms are Magento, Shopify, WooCommerce etc. People also develop customized store sites as well. The above-mentioned platforms provide some basic reports and their plugin marketplace provides more options towards analytics but they are often not enough. People often develop customized dashboards to monitor their sales. Meghdut provides an analytics service where people can easily integrate their sales data to generate a configurable dashboard.
Aggregator Dashboard: Juggling through multiple dashboards can often be time-consuming and hectic. Hence there are services like Klipfolio and Geckoboard which can connect to multiple data sources and let you design a dashboard to show all your KPIs in one place.
Be Mobile: With the rapid growth of smartphones and smartwatches, analytics services now provide apps so that you can track and monitor your KPIs on the go. Download these apps today and watch your business from anywhere.
Tracking KPIs are not enough
Isn’t it what we say, “Every good thing is great until it is too much”? Same goes for tracking KPI. Your business can have various KPI, but identifying the required ones is a tough nut to crack. On top of that, tracking and measuring KPI is not enough to grow your Online Business. Of course, measurement is crucial for a construction worker to build a house, but there is a great difference between measuring a house and building one. Many businesses have gone through difficult times as they have failed to identify the required KPI based on their strategic and operational goals. But more often, it is seen, even though KPI is tracked, lack of essential action has lead a business through a hard time. Thereafter, tracking only KPIs are not enough. These are the reasons as follows:
Tracking too much KPIs might harm your focus
Your business can have different sort of KPI’s which can be tracked separately. But tracking all the KPI might lose your focus from your goal. A KPI should be identified based on your company’s goal kept in mind. For example: for the next six months your objective is to increase sales by 5% and only KPI you should track is Sales and factors affecting sales.
Set Goals before tracking KPI
As we have already covered: KPI is the milestone on the road to your growth. Now, before going on to a long ride, you need to know your destination. In business, You goal is the ultimate reference to your destination. Without knowing where you should go as in which goals to achieve, tracking KPI will be of no value. Amongst, numerous of Data, there is a high possibility, your decision will be clouded and end up going in the wrong direction.
Reiterate your goals and list of KPI
Simply put, Set Goals-Track KPI-Take Decisions (if Required)-Repeat. This is the simplest formula you can implement in your business.
To conclude, no one wants their business to drown. Every business owner wants to maximize the maturity stage of their business lifecycle and so to grow and sustain in such competitive market. Since E-commerce is one of the booming and fast moving sector in this economy, it is significantly important to understand all the variables which have the capability to impact your business. Like the milestone we referred in the beginning, KPI lets you measure your business, lets you know where you are, where you are heading and where you might be. This also indicates in which direction you need to turn in case of any unexpected occurrence. Tracking the KPI according to your pre-set goals, you can have the ability to make your business perform more efficiently and take decisions even faster, follow the changes in trend and convert more visitors into customers.
Define your KPI, track it smartly and grow your online business faster!