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Being an online retailer is more complicated than ever before. Driving better customer experiences require companies to process more data and track more metrics to keep a pulse of their customers and their business. Fortunately, technology has made it easier to collect, analyze and take actions. Unfortunately, this forest of data and measurements makes it hard to know which metrics to pay attention to. We’ve broken down the following key metrics to help you know exactly how your business is performing and learn when and where growth opportunities are available. Understand why these metrics are critical and learn how to calculate them for your business.

Customer Acquisition Cost

Customer Acquisition Cost is the average expense of gaining a single customer. This metric includes marketing and sales expenses as well as salaries and overhead associated with attracting and converting a visitor to a customer. These costs can be tricky to balance as not all of the traffic you attract converts to customers. You’ll want to optimize your acquisition channels to pay for quality traffic that is more likely to convert.

 

How to Calculate Customer Acquisition Cost

($) Total sales and marketing expenses / (#) new customers acquired = ($) Customer Acquisition Cost

 

How to Reduce Customer Acquisition Cost

  1. Leverage referrals and word-of-mouth
    Successfully referred customers cost you nothing to acquire as all it takes is a satisfied customer to shop with you.
  2. Mix Paid Channels with Free Channels
    Leverage social media, PR and content marketing to reach potential customers completely free.
  3. Invest in Your Existing Customers
    When you invest in your existing customers satisfaction you increase the likelihood they’ll recommend your store to their friends as well as encourage them to make repeat purchases.

Sales Conversion Rate

Sales Conversion Rate is how many visitors convert to customers. When conversion rates are optimized you’ll be able to confidently send traffic to your site and expect a certain number of sales.

 

How to Calculate Sales Conversion Rate

(#) Sales / (#) Visitors = (#) Sales Conversion Rate

 

How to Improve Sales Conversion Rate

  1. Use High-Quality Photos
    Larger, high-quality photos show customers exactly what they should expect to receive and helps to improve sales.
  2. Use Trust Badges
    Trust badges let visitors know your site is legitimate and that purchases they make from you are authentic.
  3. Show Customer Reviews
    Reviews provide visitors confirmation that they’ve found what they are looking for and that the quality is as presented. It also is a free way to increase Customer Acquisition.

Average Order Value

Average Order Value is the average amount spent when customers buy from you. This metric helps you to understand your customers buying behavior.

 

How to Calculate Average Order Value

($) Total Revenue / (#) Orders Placed = ($) Average Order Value

 

How to Improve your Average Order Value

  1. Upsell
    In order to upsell a potential customer you need to either offer them additional items that complement their original purchase or even bundle items as part of a sale.
  2. Offer Free Shipping for a Higher Purchase
    Tempt customers to add more items in order to qualify for free shipping.
  3. Offer Discounts on Minimum Purchases
    Give customers a larger discount if they meet a minimum purchase amount.

Gross Profit Margin

Gross Profit Margin is the percent of revenue that is actually profit before adjusting for operating expenses.

 

How to Calculate your Gross Profit Margin

[($) Total Revenue – ($) Cost of Goods Sold] / ($) Total Revenue x 100 = (%) Gross Profit Margin

 

How to Increase your Gross Profit Margin

  1. Work with Your Customer
    If your customers are more quality-oriented then you’ll be able to offer higher quality products with higher prices.
  2. Work with Your Suppliers
    As demand for your product increases work with your suppliers to negotiate a lower cost of goods and earn more without your customers feeling the difference.

Shopping Cart Abandonment Rate

Shopping Cart Abandonment Rate is the percentage of shoppers who add items to their shopping cart but then abandon it before completing their purchase. This metric measures the rate of interested potential customers who leave before buying against the number of shopping carts created.

 

How to Calculate Shopping Cart Abandonment Rate

1 – [(#) Completed Purchases / (#) Shopping Carts Created] / 100 = (%) Shopping Cart Abandonment Rate

 

How to Reduce Shopping Cart Abandonment Rate

  1. Reduce Distractions on the Checkout Page
    Remove everything but the purchase details to let customers check out smoothly.
  2. Show Customers the Checkout Process
    Include a status bar to let them know the number of steps required to finish checking out.
  3. Use Remarketing Ads
    Use remarketing ads to get them back to their cart by reminding them of the items they left.
  4. Send Cart Abandonment Emails
    Send a quick reminder to customers to get them to come back and complete their purchase.

 

Percentage of Returning Customers

Percentage of Returning Customers is the ratio of customers who made an initial purchase to those customers who came back and made multiple purchases. It is cheaper and better to focus on your existing customers as studies have shown it costs 5 times as much to acquire a new customer than to keep an existing one.

 

How to Calculate Percentage of Returning Customers

(#) Returning Customers / (#) Total Customers x 100 = (%) Percent Returning Customers

 

How to Improve Customer Retention

  1. Go the extra mile
    Deliver extraordinary service to your customers and occasionally surprise them. It can be small like a gift certificate or even a handwritten note included in their order.
  2. Implement a Customer Loyalty System
    Reward your customers for being loyal and encourage them to come back to redeem rewards.
  3. Send Regular Newsletters
    Communicate with your customers often. Use your newsletter to inform them of upcoming sales, new items, and company updates.

 

In the rapid-fire world of eCommerce, it’s important that leaders focus on the most critical few metrics that can insure meaningful impact.  While the above list is not exhaustive we believe these represent the most important key performance indicators which businesses can narrow in on to execute their plans for growth and customer success.