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Metrics that Matters in Ecommerce
23 Mar

Metrics that Matters in Ecommerce

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If you have an e-commerce website and knowing that analytics play a part in getting more sales, it is crucial to know how metric in data analytics works.

Whether you are running an eCommerce store or a website promoting your services, both are money-makers all the same. This means that for every visitor on your website that you do not convert into a paying customer, or helping them to buy more, you are essentially leaving money on the table.

It probably means that your money-making machine isn’t as efficient as it can be. Now imagine this scenario, would you be driving a car that is leaking petrol every time you drive it? Not only is it a safety hazard but you are throwing precious resources away.

By that same token, you wouldn’t want to waste traffic (your website’s petrol) on your site, especially when you are spending money on advertising to drive traffic to your website. 

It is an interesting thing how most people who own a car would send it for regular servicing in order to keep it running optimally, yet they do not think twice about optimizing their business website or eCommerce store.

Sometimes, it is not a matter of ignorance but a matter of not knowing what to measure. In the next few articles, we are going to show you the top few metrics you want to be most interested in, starting with metric #1; metrics that will help guarantees the success of your channel, whether it’s an eCommerce store or a website promoting services.

Who is this for:

  • Founder/CEO/Owner
  • Marketing director/manager
  • Individual who owns the business website or eCommerce channel in the company

Metric No 1: Conversion Rate

Some people may assume Revenue or the number of leads generated are the most important metrics. But in our opinion, measuring Conversion Rate is in fact most paramount.

Let us use some examples below to illustrate this:

Company A and B both sell the same goods. Company A earns $1000 revenue for every $200 spent on advertising. Company B earns $500 revenue for every $50 spent on advertising. Which is more efficient? Company A or B? 

In this case, does more revenue means better? It is clear that Company B is more efficient with their ad spent because their return is twice that of Company A, even the total revenue is lesser.

If Company B were to invest the same amount in advertising, they would see their revenue increase to $2,000, which will be twice the return as compared to Company A. 

While it is pretty straightforward to measure ROI or the Return in Ad Spent in this case, it doesn’t really tell you how efficient your website is.

You see, there are many touchpoints that take place between the first moment a shopper sees your ad, and the final moment he/she spends transacting on your website.

For example, a user could see an ad but does not click on it, but you could be paying for it based on the ad spent model (CPM).

Or a user could be sent an email but because he did not click on the email to visit your website, it is hard to tell if it’s the email that is ineffective or the website.

That is why the measure of website conversion rate is so important. This is because it helps you determine:

  • Total Visits: The total number of visits or visitors who are actually on your website as a result of your ad campaign, email campaign, social media campaign, etc.,
  • Total Transactions: versus the total number of transactions to shoppers who end up transacting at the end of their visits. 

 

Seeing it in a formula, Conversion Rate = (Total Transactions/Total Visits) %

 

It tells you how efficient your website is at delivering transactions from the visits on your website. It helps you determine if you have a leaky bucket situation or not. It tells you which of your marketing or advertising campaign is leaking traffic on your website, so you can address the issue and make them more efficient. Here’s an example:

If you are running two ad campaigns. Campaign A has a conversion rate of 40% while Campaign B has a conversion rate of 5%. In other words, it means Campaign A is converting 4 visitors into paying customers for every 10 visitors on your site and Campaign B is barely converting 1 customer with every 10 visitors. This is what we call a gold mine situation because it tells you very clearly that increasing the ad budget for Campaign A makes business sense due to its superior conversion rate.

But it also helps you understand that the reason Campaign B isn’t performing as well could be probably due to a poorer (less efficient) conversion funnel on your website.

Your ads on Campaign B may be effective, but it is not driving the right type of customers. It could also be due to poor website or landing page experience, or pages that do not resonate with those visitors.

For example, your ads on Campaign B may be promoting Product X, but somehow your visitors are seeing Product Y. That is why by measuring conversion rate, it helps you determine the efficacy of your channels, campaigns, and conversion funnel. It also helps you determine where the gaps are so you can start investigating further.

The Beauty of Google Analytics

With Google Analytics, you can now see Conversion Rates for every campaign, channels such as email and paid ads, SEO, etc. on the fly. It helps you see where you may want to invest more resources and budget, and where you want to start digging deeper to improve efficiency.

Remember, that total revenue, while it is interesting to see is actually not the most important since anyone can pump more resources and increase revenue. But at what cost? Is it efficient as it can be? That’s why measuring the conversion rate at this stage is far more important.

If you haven’t had a chance to set up Google Analytics or need help auditing your analytics implementation, let us know so we can assist. Many providers offer “Google Analytics” as part of building a website for you, but they do not implement it right or do not advise clients adequately and help them make the best use of it.

An audit is important because it makes sure your dashboard is reading the right numbers. Can you imagine a speedometer is out of sync? That can be a fatal prospect and it applies to business analytics too. You may be making costly decisions based on wrong data.

Written By : Edward Lim ( Principal Consultant for Data Analytics)

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