Key performance indicators for emerging e-commerce businesses
When you think of key performance indicators, your mind probably goes straight to massive international companies that deal in finance, mining, or real estate.
But it’s not just multinational juggernauts who should be focusing on setting and reaching KPIs.
As an e-commerce business, setting the right KPIs allows you to create targeted goals to work towards, which enable you to steer your business in the right direction.
In this article, we’ll discuss what KPIs actually are, why they’re important for your business, and give you some examples of KPIs that e-commerce businesses should be aiming towards.
What is a key performance indicator?
A key performance indicator, or KPI is a specific measurement against which your critical business performance is tracked. It’s a quantifiable measurement used to gauge your business’ progress—the figures that must be met to achieve success with your business.
For e-commerce businesses this may be in terms of units sold, income earned, customer numbers, customer satisfaction scores, web traffic, or similar.
This is where KPIs can get misunderstood. It’s not just about tracking sales figures, the volume of stock moved,or even goals like improving customer retention. KPIs are all about setting clear targets to hit, that if you don’t hit them, it’s an indicator of areas that need to be improved in your business.
Why are key performance indicators important?
KPIs help your business set clear, measurable targets that can be used as goals against which to track your business’ progress and measure its performance. They’re used as a way to track, monitor, and measure your business’ success over time.
Every business is different, so these KPIs should be selected based on your business’ unique goals. So to set clear KPIs, you need to determine the goals that are going to move your business forward.
Broad, vague phrases like ‘increase sales’ or ‘boost customer retention’ aren’t KPIs—they’re goals, or outcomes to achieve. Necessary goals, yes, but these don’t quite have the business-critical aspect that true KPIs should possess.
KPIs help analyse your business
When set correctly, your KPIs can provide good data that you can use to monitor your business’ progress. Success against your KPIs allows you to refine them over time, and develop strategies to better hit those KPIs for the future.
Important KPIs for e-commerce businesses
The options for setting KPIs for e-commerce businesses are practically endless, so there’s plenty of scope to build solid business targets. The most important thing is to pick markers that make sense for your business.
We’ve pulled together a broad list of important KPIs that you can consider for your e-commerce business, split across the areas of Marketing, Sales, and Customer Service.
Key Performance Indicators for Marketing
While marketing isn’t an end goal, it’s an important tool that helps get customers onto your site in the first place and buying your products.
Website traffic: Measures how many potential customers arrive at your online store. Web traffic is a good measurement to check how effective your marketing channel mix is, and a channel breakdown is the best way to see what is working, or what isn’t.
Bounce rate: The number of users that leave your site after not taking any action or viewing any other pages. This is critical as it can identify issues in load speed, content quality or targeting effectiveness.
Traffic source: Determine where your customers are coming from. This metric tells you about your customer journey and enables you to see which of your marketing channels are most effective.
Pages per session: The average number of pages your customers visit while on your site. A high pages per session is an indicator of engagement and means your audience is engaging well with your site.
Average time on site: The average length of time users spend on your site. This can indicate your customers are finding your site really engaging, or, alternatively, are having difficulty finding what they’re after. Combine this with other metrics like bounce rate to paint a clearer picture.
Key Performance Indicators for Sales
As an e-commerce business, your success is built on your sales, so it’s important to work towards the right goals.
Sales: A measurement of your total sales. This can be broken up by product, or for particular time frames like days, months, quarters, of for the entire year.
Contribution margin: Determine the average profit margin of your products to reach a percentage figure that demonstrates how profitable your products are. Your profit margin is the difference between your revenue, and the total costs of the products you sell.
Cost of goods sold: The amount of money you’re spending per product that you sell.
Shopping cart abandonment rate. As consumers, we’ve all been there. You’re shopping online, but the order doesn’t go further than your cart. Cart abandonment can happen for any number of reasons, but it’s a crucial one to keep track of, as it can indicate a big problem in your customer journey.
Customer acquisition cost. How much you spend on acquiring new customers, typically involving marketing expenses. To work this out, divide the total cost you spend on acquiring new customers by the number of customers you acquire.
Customer lifetime value. Recurring customers are usually more valuable to businesses than acquiring new ones. Customer lifetime value refers to the monetary value these customers deliver throughout their relationship with your business.
Improving sales margins KPIs with Airwallex
Opening an Airwallex account allows you to transact fee-free, so you’re able to reduce your cost of goods sold by driving down unnecessary overheads like transaction fees. Our Global Accounts let you transact in 11 different currencies, so you save money on foreign transfer costs when paying suppliers and overseas staff. And, with competitive FX rates up to 90% cheaper than the big banks, you also save any time you exchange currency.
All these little wins add up to big savings, and help you improve your profit margins for the long term.
Key Performance Indicators for Customer Service
While sales are a big part of your business, it’s important to track your business’ progress against customer service goals. After all, loyal customers help build your business through repeat sales and becoming advocates of your brand.
Net promoter score (NPS): NPS is a world-recognised metric that measures the loyalty of a customer to your business in easy-to-understand terms. Your customers rate your business on a scale of 0 to 10, where 0 means they’re actively detracting from your business, and 10 indicates they’re actively promoting your business to friends and family
Average first response time: The average time it takes you to respond to a customer’s first query from your business. To be seen as a responsive business, it’s good to keep this figure as low as possible.
Average time to resolution: The average time it takes from the moment the customer contacted you, to the instant their query is resolved.
Third-party reviews/star rating: Reviews, whether as testimonials or in a star-format, act as social proof that people value your business and your products. These work to demonstrate customer loyalty, measure customer satisfaction, and are also useful for marketing and SEO purposes.
Set your business on the right course, with the right KPIs
This is by no means an exhaustive list, but it will give you a good idea of what to plan for when developing your own KPIs and e-commerce business strategies.
Remember, setting the right KPIs gives your business meaningful goals and targets to reach—so be sure to create KPIs that are steering your business in the right direction.