The Top 3 Most Overlooked KPIs for E-commerce

22.11.2017, 13m

Everyone talks about what data you should keep track of: conversion rates, bounce rates, cart abandonment rates, return on investment, etc. While those rates are extremely important, and yes, you should be tracking them, there are a few e-commerce key performance indicators that tend to be left in the dust.

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In fact, there are three major KPIs that are always forgotten, despite being integral to growing your e-commerce store:

  1. Customer Acquisition Cost

  2. Customer Retention Rate

  3. Average Order Value

These crucial e-commerce KPIs will not only give you key insights into how your store is really performing, they’ll also give you ideas on what opportunities you have for more growth.

Customer Acquisition Cost: How much are new customers costing you?

Business 101: It’s more expensive to acquire a new customer than to retain an old one. How much more expensive? 7 times more, in fact.

Why does it cost that much more?

Because it takes more of your overall resources to bring a customer from the beginning of your funnel to the end. Examining your funnel, think about the different ways a customer could happen across your site:

  • Search Engines

  • Social Media

  • Referral link

So think about the different campaigns you’ve set up for search, social, and referrals.

While it’s true that you can get traffic to your site via these three channels for free organically, chances are you’ve spent resources getting them set up or keeping them active (e.g. writing blogs for SEO strategy, making social media posts every day, and reaching out to influencers to test your products). Time = money.

If you’re like most, your channels are probably a bit more clear cut in terms of costs. Setting up paid social and search campaigns is one of the best ways to widen the top of your funnel and bring in more customers. While it’s true that paid social campaigns have 25% more conversions than organic, they also cost more than organic traffic.

There’s nothing wrong with that, but getting your paid campaigns as low as possible boosts your overall return on investment.

How do I track my customer acquisition costs?

Many of the social and search campaign metrics will show you your cost per click, which is great for engagement purposes. But let’s be honest- we’re in it for the conversions. The basic formula looks like this:

Total Marketing Cost / # of New Customers

Basically you take the total of what you spent during a certain period and divide it by how many new customers you acquired during that same period.

Doing it by channel can also be useful way to see which of your channels are bringing in the most new customers for the least amount of cost.

How to improve my CAC?

It’s simple: make better campaigns.

I’m only half-kidding. What you should be doing is trying to optimise your social and search campaigns so that you’re bringing in only those who are looking to purchase. If you cast a huge net, you’re bound to get clicks (which cost you) that won't result in purchase.

Try targeting down your audiences across these channels. For your social campaigns, take a look at who have already converted for you and try to build an ideal customer persona based on that. Target your efforts towards that persona and your retargeting efforts. It should be enough to cut down your costs, if even for a test.

For your search campaigns, keep the keywords that mean the most to your e-commerce site, but make sure that those keywords are bringing in those looking to buy. For example, if you have a high click-through rate for one keyword in particular that’s pricey to bid on, but it’s not converting, maybe lower your bid on it. Reallocate those previous bids to long-tail and more unusual keywords that others aren’t bidding so high on.

I’d also like to mention that having a high CAC isn’t necessarily a bad thing, as long as it’s bringing in a high enough ROI:

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For example, if you’re spending 217.27 € per month on Facebook Ads, and you’re getting 26 new orders from those ads, it ultimately means that you’re spending 8.35 € for each order. Considering that the total revenue from those 26 orders is 1988.54 €, you’re looking at an average of 76.48 € per order.

Factor in the cost, and you’re getting 68.13 € per order.

Whether that’s a good or a bad number completely depends on your site and your profit margins. If you have the budget to pay a bit more in ad campaigns so that you bring in more eyes to your site, go for it.

Just also be mindful of the fact that your margins go up as your cost goes down, even if the result is positive overall.

Customer Retention Rate: How often are my customers repurchasing from my e-commerce site?

Talking about customer acquisition without talking about customer retention is like mentioning the light side of the force without the dark. You can’t talk about one without talking about the other. These are two sides of the same coin- attracting new customers is well and good, but retaining them is oh so much more profitable.

Remember how I mentioned that customer acquisition is 7x more expensive?  It’s 7x more expensive than converting the customers you already have.

Why does Customer Retention cost less?

Even though e-commerce might not seem like traditional face to face sales, it really is. Think of your returning customers as your warm leads- they already know who you are, how you work, the quality of your products, and what your service is like.

If they’re happy enough to come back, congratulations on a job well done.

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Take a look at these numbers for a second. Pay special attention to Return vs. New Order and the Average Order Value. Notice that your returning customers almost always spend more on your site.

Why? Because you’ve already won their trust. You have already responded to their expectations, and they’re back for more.

Nurturing your current customers is one of the best ways to boost your conversion rate, because they don’t require many resources. You already did the hard part when you got them to purchase from you in the first place.

But what do you do if your new customers never come back?

How do I improve my Customer Retention Rate?

There are tons of ways to get your customers back- and now you have access to tools that you didn’t when you acquired them in the first place. Like their email addresses, for example.

The Magic of emails

Customer retention emails can be super effective: 80% of brands say that they rely on emails for customer retention. There are a few different kinds of emails that you can send to make your customers feel special and keep them coming back:

Welcome/Onboarding emails: Show your customer you care

When your customer first signs up or purchases from you, a welcome email shows your customer that you appreciate their visit and that you value them. This is also a great way to:

  • Welcome the customer by name

  • Provide useful information like customer service, account information, etc.

  • Provide a call-to-action that shows your customer what the next step is

A fantastic welcome/on-boarding email will show your customer what they can expect from you. Add in some personalisation (like the products they looked at while on your site) or even a special time-sensitive offer for added punch.

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Cart recovery emails: You forgot something!

Cart recovery emails are useful for bringing back a customer who added an item to their carts but didn’t complete the purchase. Cart recovery emails bring back 12-15% of consumers, and personalisation boosts the likelihood of that happening by 6 times.

Cart recovery emails should always:

  • Greet the customer by name

  • Be sent in a series (don’t just send one, and don’t send them all in the same day)

  • Show the product that the customer left behind

  • Show products related to the one that was abandoned

  • Offer help completing the order/offer to answer questions

  • Show a clear CTA to come back and complete purchase

Don’t send a coupon immediately; discounts should be your last resort as you can probably win them back without discounting your margin.

Loyalty emails: Reward your customer

One of the best ways to show your customer that you value them is to offer a special gift or discount. You can personalise the emails based on what your customer has looked at or ordered in the past and offer anything from a small discount to free shipping to double loyalty points if you have a loyalty program in place.

It’s also a great way to keep your customer up to date on their account status if you do have a rewards program. Go the extra mile and show your customer the benefits of what they could get with their points! If you have a referral program in place, send your customer a special code they can give to their circle for even more savings.

After-purchase emails: Keep your customer in the loop

One of the best ways to keep your customer is by keeping them informed. Send emails to let your customer know:

  • Their order is confirmed with their order number (bonus if you show a description of what they ordered and returns/refunds policy)

  • Their order tracking number with the carrier that’s delivering their order

  • When their order should be delivered

  • Related products that might be interesting based on what they’ve recently purchased

After-purchase emails are also fantastic to get customer reviews for your products, ultimately bringing your customer back to your site.

Loyalty and Referral Programs

Loyalty programs give your customer a real reason to keep ordering from you, and only you. If you offer a points system, for example, that discounts the next order or that they can save up in order to get products for free, your customers will pay more if they switch to the competitor.

This also gives you the opportunity to send your customer loyalty emails to let them know they’re about to jump up to the next level (if your loyalty program is set up that way) which will incite purchase. You can also give your customer incentive to sign into their account by showing them discounted prices on your site with their loyalty points.

Referral programs not only boost customer retention, but can bring in new customers for practically nothing. By offering a code to your customers to pass on to their friends, you transform your customers into your best marketers.

83% of consumers trust recommendations from friends and family over traditional advertising, so the fact that these codes are coming from them means their social circles are even more likely to also become your customers.

You can base your loyalty and referral programs on a plethora of criteria. For example, you can even boost social shares by offering points for shares, or if you’re more of a performance-based marketer, give them points each time someone orders with their code.

There should also be “just-because” rewards. This shows your customer that you really value who they are and you want to keep them. For example, points, coupons, or gifts for their birthdays, the holidays, etc. Giving these gifts for no reason at all is a sweet surprise in your customer’s inbox, and more or less guarantees that they’ll never not open an email from you ever again.

Loyalty programs, referral programs, and old-fashioned email marketing are just a few ways you can boost your customer retention rates, and as I’ve mentioned, many of them cost absolutely nothing to put into place.

Chances are, even the highest discounts you give on your products will cost less than acquiring a new customer in your paid social and search ads.

Average Order Value (AOV): How do I get my customers to spend more?

Average Order Value tends to get swept aside when people talk about boosting conversion or reducing bounce and checkout abandonment rates. Your average order value is the total revenue divided by the number of orders in a given time period.

Let’s take this logically. Say you have 1,000 customer orders over one month and your customers have spent a total of $55,000 this month.  Your average order value in this case is $55.

Now let’s say that you increase your average order value by just $5. This could be an accessory, an add on, or maybe just a premium version of a product they already love (or even gift wrapping for the holidays, it is that time of year). That’s an extra $5,000 in your pocket.

These are really basic numbers, but it’s to illustrate how much more you make by just bumping up your AOV. It’s also a lot simpler than trying to boost conversion rates from zero.

Why? Because these customers already intend to purchase from you. They’ve already decided how much they’re comfortable spending, and they’re willing to wiggle.

How do I Increase my Average Order Value?

There are tons of things you can do to increase your AOV- once a customer has decided to buy, getting the extra couple of bucks isn’t all that hard if your incentivise it.

Offer a Free Shipping Threshold:

This is the best of both worlds. Choose a threshold where it’s profitable for you to offer free shipping, and make sure that amount is a bit above your average order value. Make sure the threshold is attainable though. No customer is going to jump from $50 to $150 just for free shipping. $75 though? That’s doable.

Recommend “frequently purchased together” products:

What do your customers often purchase together? If it works for one customer, it might work for another, so show the products others have purchased in tandem.

Amazon_Pokemon.pngAmazon is literally the king of doing this.

Notice how you can easily add all of the products to a list or directly to your cart. There’s even the total amount that the customer can see before they add it all. By bundling your products, you can discount the overall total cost from what it would normally be if the customer purchased them separately.

You can also do this for utilitarian purposes. Selling a toy? Propose batteries with it. Customer is buying a winter coat? Offer a scarf and mittens to go with it. It’s a relatively simple way to boost the overall cart purchase.

Offer a discount or a coupon with a spending threshold:

Like free shipping, customers are willing to go the extra mile for a handy discount. For example let’s say that your customer has $70 of items in your cart, and each item, on average, costs about 25 dollars. Offer a coupon with a threshold of $90 to get the customer to pick up just one more item.

If your discount is 10-15% off, your customer won't mind spending about $10-$15 more for an item that was originally worth $25 (especially if they were already on the fence about that item).

The idea is to create this around your goal for your AOV: like with free shipping, you want it to be attainable, but the little extra boost will significantly boost your overall conversion. You can also apply this to freebies, or products that you just can’t get rid of, and use them as your free gifts.

Loyalty programs are back again:

Remember how I said loyalty programs were great for retention? They’re also excellent at boosting your AOV. If you have your program set up at thresholds, for example “Spend over X amount and get X points” your customer will be incentivised to spend a little more to make that threshold, especially if they’re already pretty close.

Upsell where you can:

Let’s say you sell many lines or models of a product where there can be a better, newer, or faster version. You should always be driving customers towards the more expensive model when you can (a.k.a. upselling).

For example, say you sell mobile phones, and your customer is looking at model X. Model Z is $75 more expensive, but it’s also faster and it has more memory. Showing a comparison (or offering the ability to compare models on your site) is a great way to get the customer to go with the more expensive model.

The idea is to justify the extra spend with reasons why Model Z is better. This will make the customer at ease at parting with an extra $75 (and drives up your AOV to boost).

Most importantly, if a customer is purchasing a product of higher quality, chances are they’re going to have a better overall experience with it. This will also increase customer loyalty because you offered a great quality product, and you allowed your customer to make an informed decision.

Conclusion

When you need to boost your e-commerce store, of course you should always track and follow conversion, bounce and cart abandonment rates. However, those numbers shouldn’t dominate the conversation.

In a lot of ways, those rates depend on customer acquisition rates, customer retention rates, and average order values. Being able to track these three KPIs in particular will not only show you where you need to grow, it can help you lower your costs and improve your conversions.

By adopting a strategy where you put the customer first, you can increase how much they spend, how often they come back, and whether they bring new customers into the fold. In the end, your data will always show you how your customers really feel about your e-commerce store.

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