In a modern vibrant retail environment with nonstop digital disruptions, the business imperative to embrace digital, data, and analytics is widely understood. While business and technology leaders might report good progress on digital initiatives, simply adopting technologies and getting projects up and running doesn’t guarantee that organization will increase revenue, profitability, market share, efficiency, or competitiveness. Management thinker Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” Drucker means that you can’t know if you are doing things right unless the result is tracked and measured.
Retailers today have more access to metrics than those in the past. With clearly established metrics for success, retailers can quantify progress and adjust processes to produce the desired outcome. However, choosing the right indicators to track and measure success isn’t easy. The choice will depend on the individual strategies and goals. There is no one-size-fits-all solution, but there are some top e-Commerce metrics that prove useful for most digital businesses.
Conversion Rate (CR)
Conversion rate tells you what the percentage of visitors to the website or mobile app that complete a desired goal (a conversion) out of the total number of visitors is. In other words, conversion rate indicates how good your digital retail platform is at turning lookers into buyers. You can track how many people subscribe to your newsletter, create an account, sign up for your loyalty program, purchase a product or service, etc. The conversion rate can be tweaked to monitor what matters most to you. A healthy conversion rate means you have a highly engaged customer base and is a sign of growth and success. If it is low, look to user journey mapping to see which events prevent users from converting into prospects and customers.
Formula: Total number of conversions / Total number of analysis-relevant interactions * 100
Customer Lifetime Value (CLV)
This indicator shows how much money, on average, a customer is expected to spend in your business over the course of their relationship with your company. Customer lifetime value is an important figure to know because it helps you make decisions about how much money to invest in acquiring new customers and retaining existing ones. Customer lifetime value is an indicator of the profit associated with a particular customer relationship, which will indicate how much you should invest to maintain that relationship. For example, if the lifetime value of your customer is 150 euros, it means you do not need to spend more than that to keep the relationship as it just will not be profitable for you.
Formula: Average value of a purchase * Number of times the customer will buy each year * Average length of the customer relationship (in years)
Customer Retention (CR)
The metric refers to how good the company is at turning random customers into repeat buyers and prevent them from switching to a competitor. Customer retention indicates whether the quality of your service and products is good enough to make your existing customers return. It’s important to note that retaining customers is more than just financial transactions – it’s essentially relationships. Therefore, the key focus when building retaining strategies should be on relationships with your existing customers. These clients will continue selecting your brand among the other options even in highly competitive markets. With loyal customers, your business will more likely overcome turbulent times.
Formula: ((Total distinct customers at end of period) – (Total new distinct customers acquired during period)) / (Total distinct customers at start of period) * 100
Shopping Cart Abandonment Rate (SCAR)
In 2021, cart abandonment continues to be a major challenge for e-Commerce stores. This metric is an essential e-Commerce indicator to keep an eye on, as a large number of shoppers don’t actually finish the most crucial part of the journey – buying. This e-Commerce metric can show you how intuitive, easy, and trustworthy a checkout process on your website or mobile app is. Cart abandonment rate is an alarm that customers may be unhappy with the shipping fees, payment issues, annoying checkout process, or e-Commerce experience in general. If your cart abandonment rate is high, it might be time to overhaul this area of your site or app.
If you observe a high percentage of shoppers leaving shopping carts without finishing the purchase, you may need to offer a trusted payment service provider, offer free or discounted shipping, update shipping costs in real-time, optimize your website experience by making the checkout process more streamlined and convenient to encourage consumers to convert.
Formula: Number of sales/Number of carts created * 100.
Year over Year Growth (YOY)
This metric will show if your business is growing and how better off you are compared to the previous years in business. Continuous growth is a goal you need to strive for, and the best way to see the progress is to measure your current results against the previous period. This will help you track how your business is doing so you can react accordingly. If, however, after measuring YOY you find out that your growth has stalled, then drill down on the reason behind it. Is it the market? Are you failing to keep up with the latest trends? Is a competitor eating up market share? Regardless of the case, figure out the reason and then take the necessary steps to improve.
Formula: (Current period revenue – Prior period revenue) / Prior period revenue * 100
Final Thoughts
There are countless other indicators for e-Commerce, here we deep-dived into five essential metrics we consider relevant to track growth in the digital retail business. Regardless of the metrics you are to use, be careful when making those indicators management tools for your company. Once decided, however, figure out how to efficiently measure these metrics on a regular basis. Clarifying expectations, defining goals, measuring results, and adjusting the next steps are the right practices to creating winning strategy. Implement these habits and your business will improve.