Increasing the Conversion Rate: Critical Metrics for e-Commerce Sites
The mantra of a great web site team should be 'measure everything'. Understanding what and why you're tracking certain things will help you make sound design improvements to your web site. Not all data is useful, though. The analytics you should be paying attention to will vary by the type of web site that you run. Here's a quick classification of a few analytics:
Side Note: Relative importance of site metrics based on site type. Critical goals should be measured and improved. Trend indicators can tell you if your site is headed in the right direction. Good means that it's something to keep your eyes on but it's not a primary indicator. Don't waste your time with Not Important indicators.
Beyond these, there are certain internal numbers you may want to track, especially for a lead-generation site (which I will cover in a later post). For example, you may keep a log of web-leads after they go to the sales department. Wouldn't it be great to know if leads from a certain keyword or web site turn into deals more often than other types of leads? Integrating your web site with a good CRM (Customer Relationship Management) suite can show you these types of things. Examples of CRM include SalesForce.com, SugarCRM, and my personal favorite, ZohoCRM, which is free for the first few users.
Join me after the jump for critical metrics common to all sites, as well as an intensive breakdown of critical e-commerce website metrics.
Critical Metrics Common to All Sites
Regardless of how you do it, most commercial web sites have one very specific goal—increased revenue and profits. So, your metrics should reflect that goal.
Total Revenue (total intake):
Revenue, sales, cash or turnover—it's the key driver to a web site's success. You can use Google Analytics to set up revenue goals. For lead generation and ad-driven sites, you'll probably need to continue to track through to your internal reporting infrastructure using something like a CRM or ad-tracking software. Revenue is expressed in dollars: 'We had $50,000 in revenue from our web site in June'.
Total Profit (revenue - expenses):
Revenue is top-line; profit is bottom line—what's left over at the end after you fully process each order. This calculation may vary depending on your cost of fulfillment (800#, credit card fees, telephone operator salary, and so on) but it's ultimately why businesses deploy web sites. With lead generation and ad-driven sites, it may take months to have all the data you need to make this calculation, but it's well worth the effort. Total profit is expressed in dollars: 'We had $5,200 in profit from our web site in June'.
Critical e-Commerce Metrics
The e-commerce web sites have unique critical indicators that set them apart from other types of sites. They tend to be focused on making the sale now, getting the credit card, and shipping the product—the metrics reflect this. Examples of e-commerce web sites include ticket sales, books, CDs, videos, and even SAAS (software as a service) web sites. While the SAAS business model isn't exactly e-commerce, the web site certainly can be.
Profit per order (profit/orders):
Profit per order is an indicator of the average profit each web site sale generates. Many companies have a steady stream of high volume, low margin products—the bread and butter of their business; and a limited number of low-volume, high-margin products that create great one-off profitability events. If your site has a mixture of high-margin and low-margin products, it would make sense to measure them separately.
Gross Profit Margin (sales / cost of the items sold):
Depending on your accounting system, you may also need to subtract the cost of sales (which may include ad costs and any commissions paid). Typically, analytics packages aren't robust enough to track this level of detail so you'll need an accounting or reporting system to calculate these numbers for you. Integrating web site analytics into your internal accounting tools is a difficult process that usually requires an outside specialist. But, it can make or break an e-commerce site's profitability. Profit margin is expressed in a percentage: 'The average profit margin of our online sales was 26% in October, which increased to 32% during the Christmas buying season'.
The number of sales your site generates is a key metric from which several others can be derived. Ultimately, more sales are a good thing but it's a raw statistic that needs careful scrutiny. Everybody remembers the heady early days at Amazon.com where their sales were increasing by millions of orders per quarter—and they were losing money on every order. It wasn't until they started charging for shipping, and increasing their margin that they started turning huge profits. So, unless you've got money to burn, work to increase your conversions but not at the expense of good profit on each order. Conversions are simple numbers: 'We had 350 sales from our web site in May.'
Conversion Rate (number of conversions / the total number of visitors):
This metric measures two things: the value of the traffic that is coming to the site and the ability of the site to turn visitors into paying customers. If your conversion rate is low, is it because you're attracting the wrong visitors or is it because your web site isn't credible and easy to use?
Average Cost Per Conversion (cost of advertising / number of transactions):
This is similar to profit per order but it measures the cost of acquiring each order. This metric is often used in pay-per-click (PPC) campaigns. For SEO, it's quite high in the beginning but then steadily drops towards zero. The following screenshot shows average cost per conversion comparison between SEO and PPC:
As you can see from this chart, SEO can be very expensive in the beginning but over time (typically in about a year), it beats PPC in cost per conversion. That's because you're not paying for each click with SEO the way you are with Google Adwords and the other Paid Search providers. The high cost in the beginning is an investment in higher rankings. Once you're there, that cost goes away and is replaced by a minimal cost to maintain the high rankings. Many companies combine SEO and PPC to get the best (and worst) of both worlds—quick, short-term results with high ongoing cost of PPC and high initial expense but ultimately low cost per conversion with SEO.
Thanks For Reading!
Did you find this post entertaining, useful, or interesting? Please repost, retweet, or redistribute to any of the social sites of your choice, and please subscribe to our RSS feed for daily fodder. For every RSS subscription Volacci gets, a kitten earns its whiskers. You like kittens, don’t you? Do the right thing, then. Subscribe.
We also are very interested in what you have to say in response to this blog post. As always we are very grateful for you, our reader, and greatly value your input. Please start a conversation with a comment below.