Now that you understand why it's important to use analytics to measure the success of
an e-commerce store,
we're going to cover some of the most important metrics to monitor for
growth and revenue.
I should mention that some of these metrics might be called by different names
depending on the analytics tool you're using or the company you're working for.
Knowing which metrics to focus on is important.
In this video, we'll concentrate on a few key metrics that make the biggest
difference for most types of e-commerce businesses.
Ready to get started?
Let's cover some of the key metrics an e-commerce store might want to monitor.
Imagine you're working for an e-commerce store that sells leather phone cases.
The company has been working hard to grow their sales and revenue,
but they want to find out how they can make better marketing and
sales decisions based on the data they've accumulated.
Where do they start?
Which metrics are important for them to monitor?
First, the company might focus on the store's overall traffic and
revenue by comparing the results of the previous time period,
such as quarter-over-quarter or year-over-year.
Traffic is especially important to a new e-commerce store because if there are few
visitors, there will be even fewer sales.
The company will want to monitor the total number of visitors, and
determine which sources deliver the most qualified traffic, or
traffic made up of visitors who are likely to become customers.
Some traffic sources will deliver more qualified traffic than others.
The majority of the company's advertising and
marketing budget should be focused on increasing traffic from those sources.
Total revenue is also an important metric for the success of an e-commerce store.
Besides tracking the overall revenue, it's helpful to break out the revenue
by traffic source, such as social, organic search, paid search, and referral.
Which traffic sources produce the most revenue?
Also, are there any trends for when customers choose to buy?
For example, is a certain day of the week busier than others?
Companies can use information to plan the timing of their marketing and
advertising campaigns.
When analyzing traffic,
the company might also explore the demographics of their users.
Companies can use this demographic information to create customer personas,
which you learned about in a previous course.
Another important metric to track is the conversion rate.
As a reminder, the conversion rate is the percentage of users who complete a desired
action, such as making a purchase.
An e-commerce company might track the conversion rate for a number of different
actions that users take, such as adding a product to their shopping cart,
entering the checkout process, and completing a purchase.
Monitoring conversion rates is important because it demonstrates whether users
are taking actions that contribute to the success of a business.
The cart abandonment rate is also a key metric to track.
The cart abandonment rate is the percentage of customers who add a product
to their shopping cart and leave the store without completing their purchase.
If the company is able to capture an email address before these customers leave,
they can try to recover lost sales by sending out email reminders to customers
who abandon their cart.
Another significant metric for e-commerce is the average order value, which tracks
the average amount of money a customer spends each time they complete an order.
By increasing the average order value, a store can increase their revenue,
regardless of whether they are able to acquire new customers or
improve conversion rates.
It's also important for
e-commerce stores to understand how much it costs to gain a potential customer.
This is where tracking the cost per acquisition comes in.
The cost per acquisition is the average cost of acquiring a potential customer.
The customer lifetime value needs to be greater than the cost per acquisition.
Otherwise, the company is losing money to gain customers.
The company should also track the customer acquisition cost,
which is the average cost of acquiring a paying customer.
If the cost of acquiring a paying customer is higher than the average order value,
this means that the amount a company is spending to get customers is greater than
the amount of money they're receiving in return.
In most cases, that's not good news for the business.
In some cases, however, it could be an acceptable trade-off, as long as
the customer lifetime value is high enough to make up for
the cost of acquiring customers.
For example, let's say the company that sells leather phone cases spends $75 to
acquire a paying customer.
However, the customer only spends $60 on their first purchase.
Not so good, right?
The company spent more than they received in return.
But let's say the customer loves the product so much that they come back
a few months later to buy another $60 phone case as a gift.
The customer lifetime value is now $120.
Then a couple of years later, the customer spends $70 on a phone case for
their brand new phone.
Now, the customer lifetime value is $190, which is more than enough to make up for
the $75 the company initially spent to acquire the customer.
As you learned in a previous course, the customer lifetime value is the average
revenue generated by customers over a certain period of time.
It's an important metric to track because it helps companies measure customer
loyalty to their brand.
Loyal customers are a significant source of revenue for
many companies, especially ones that sell subscription-based products or services.
Customer retention rate is another metric that helps companies measure loyalty.
The customer retention rate is the percentage of customers that a company
retains over a certain period of time.
It gives companies an idea of how satisfied their customers are with
the brand.
If the retention rate is low or begins to decrease, the company needs to evaluate
the customer experience and find ways to make improvements.
An e-commerce store will also want to track their NPS scores,
which you learned about earlier.
Tracking NPS scores help companies go beyond customer loyalty to measure
brand advocacy.
Customers who are passionate about a brand will naturally spread
the word to other people they know.
They're one of the company's greatest assets.
Great work. You've learned a lot about the most important metrics used to monitor
growth and revenue for an e-commerce store.
Later, you'll learn how to apply the knowledge gained from this data to
improve an e-commerce store's performance.
Meet you again soon.