3 KPIs that every online merchant should focus on
Keeping track of data is one of the most important parameters in any business. A gut feeling is not sufficient if you want to get ahead of your competitors and if you want to be one of the leading online shops in your area of business.
Your online shop holds data that represents your conversion rate, average order value, and customer lifetime value. These KPIs are essential and you should measure them continuously and let them guide your agenda.
With this data, you’ll be able to get an overview of how your online shop and business actually performs over a given time period. It will encourage you to improve your marketing, web-design, or the entire user experience.
In this post, I will explain how you can calculate and work with these key figures and how they can help boost your ROI.
What is a conversion rate?
Your conversion rate is the share of visitors that have completed a certain action. To define conversion in e-Commerce, the first thing to do is understanding the overall goal of your online shop. The classic example will be that a conversion equals a purchase in your store. However, it could also be the sale of a specific product or getting your visitors to fill out a contact form.
The average conversion rate for Danish online shops is 1-3%, but the percentage change depending on the given industry, the markets you target as well as your user experience on different devices, for example, desktop versus smartphone.
An online store selling flowers, or cleaning articles for that matter, can easily have a conversion rate of 7-8%, so it’s important always to look at your specific industry when comparing conversion rates.
Your conversion rate is one of the most important factors to investigate and improve since you most likely have a desire to convert visitors to paying customers.
Micro and macro conversions
Conversions can be separated into both micro and macro conversions:
- A macro conversion is the overall goal for your online shop and is based on number of sales. It can both be for certain products or for all products.
- A micro conversion measures the former actions in a customer’s purchasing process - before they make the final decision to buy a product from you. An example could be a sign-up for your newsletter.
How to calculate your conversion rate
This is the basic calculation of a conversion rate:
Take the total number of transactions for x period and divide it by the total number of visitors on your website for the same period. Then, multiply by 100 and you’ll have your conversion rate.
Example 1: (4 transactions / 100 visitors) x 100 = 4% conversion rate
Example 2: (1,000 transactions / 100,000 visitors ) x 100 = 1% conversion rate
How to improve your conversion rate
First of all, you need to understand how your visitors interact with your online shop - and why they act as they do. What is the first thing they click on? Are there any products they look at for a longer time before adding them to the basket? Where do they drop off? And why do they drop off? Most importantly, how many visitors actually become customers? What is, in fact, your conversion rate?
Raise a bunch of questions and hypotheses to understand your visitors’ behaviour. As an extra help, you can make heatmaps with tools like Hotjar. This will let you know how your visitors navigate and what they click on.
Another crucial factor is setting up your Google Analytics correctly so you can measure on real data and continuously work with conversion optimisation.
Tip 1: Should your customers pay for shipping?
For many online shop owners, it’s painful to see how many visitors abandons their cart without completing the purchase. Visitors can abort their purchase for several reasons, but a survey shows that 61% of carts are abandoned due to expensive shipping.
As a result, free shipping is seriously worth considering. If this is not possible for you, you should make your shipping prices very clear and visible on the front page. In this way, potential customers won’t get a bad surprise when they reach check-out.
Tip 2: Create a sense of security and comfort with a live-chat
For many consumers, calling customer service can seem like a hassle. We’ve seen a general increase in conversion since our customers have implementer live-chat in their shop.
Make sure the chat is not a distracting element on your site but will help people if they have any questions.
Know your average order size
The average order value (AOV) is another important parameter to pay attention to. AOV measures the average amount of the orders that your customers place (for any given period).
The average order size is useful when making decisions regarding marketing efforts, price strategies, and the structure of your online shop.
As an online shop owner or e-Commerce manager, you should work on increasing the average order value - here are some tips on how to do that.
Simple tips for increasing order size
1) Increase order size with free shipping
“Buy for € 60 and get free shipping”. This is a promotional deal offered by many online shops, but the icing on the cake is showing your visitors how much more they need to spend to secure the offer.
2) Upselling of related products can increase order size and bottom line
- If you sell printers, it would be super relevant to focus on upselling toner or paper
- If you sell shavers, you should try to upsell shaving foam, lotion, or extra blades
- If you sell flowers, you can offer a handwritten card for a bit extra
- If you sell shoes, you can sell shoe polish or shoelaces
- If you sell electric toothbrushes, you can also sell toothpaste
There are many examples of how to make an upsale and it isn’t rocket science. But if you do it right, it can have a huge effect on your bottom line.
Ever noticed how the cashiers at McDonald’s always ask if you want to upgrade to a large menu for a bit extra? It doesn’t cost McDonald’s much to make a big menu, so the upgrade positively affects their bottom line.
3) Loyalty programs
With loyalty programs, you encourage your customers to keep buying from your shop by letting them earn points that they can use to pay for a product. It can increase both AOV and CLV since the customer knows that the more he spends, the more points he earns.
Are your average order size and the growth satisfactory?
Like conversion rate, the AOV varies depending on industry, target audience and platforms. For example, an online shop selling classic design furniture will have a higher AOV than a florist.
Customer Lifetime Value (CLV)
Customer Lifetime Value indicates the value a customer adds to your business over the full lifetime of that customer. It’s the estimated number of purchases or the total amount of revenue generated by that customer over the course of his life.
You want to turn one-time customers into loyal customers, who keeps coming back. This is called customer retention. It will increase CLV and will yield better returns in the long run.
If a customer has a lifetime value of € 1,000 it makes sense to spend € 50 on getting the customer to visit the online shop. It’s all about comparing the lifetime value of a customer to the cost of acquiring this customer.
Why Customer Lifetime Value is important
It’s usually cheaper to make an existing customer make another purchase as compared to acquiring a completely new customer. It can even be up to 5 times more expensive getting a new customer. As a result, you should work out the right balance between increasing CLV and chasing new customers.
A survey from 2017 shows that if 40% of your customers are returning customers, you are likely to have a 50% better turnover than competitors who only have 10% returning customers.
Moreover, you can expect an increased order value from existing customers since they already know your brand, your website, your products and they will trust your business. Existing customers actually place orders of 65% higher value than those of new customers.
How to improve CLV
Online marketing is a great tool for improving CLV because it allows you to market yourself to existing customers.
Email marketing is highly efficient and by using tags you can easily segment your subscribers and target communication to those who have already purchased something from you. Such a process should be automated - you can either do that yourself or use a marketing bureau specialised in email marketing.
By giving the customers valuable information and making them feel special, you’ll get a top-of-mind placement. You can offer them VIP discounts, invite them to events, and share blog posts and general news about your company.
2) Unique benefits
Using the above-mentioned emails, you’ll be able to make special discounts and offers for your customers. You can offer free shipping, unique discounts, a free gift when they place an order, and much more - simply because they have purchased something from you before. You should let them know that it’s a unique deal and that they only get it because they previously have placed an order in your shop. Make them feel special and included.
You can also use the loyalty program we touched upon earlier since it boosts both CLV and AOV.
In this day and age, digital media is essential, and you can automate alarms, that tell you every time your brand or relevant keywords are mentioned online.
If you see a customer tagging your product on a picture on Instagram, you can ask them if you can use the picture on your social media. It will make the customer feel special and increase credibility. Just imagine the rush if Nike contacted you and asked if they could use your picture. You would definitely remember that.
User-generated content will also increase your credibility in the eyes of new, potential customers.
By understanding why these KPIs are important to your online business and how you can improve them, you’ll always have a finger on the pulse. And if your work is data-driven, you’ll be able to get miles ahead of your competitors.
You should measure your data every other month and continuously adjusting your marketing efforts and user experience. By being data-driven, you’ll learn to understand exactly what your shop should be focusing on to boost ROI.