Thinking about ecommerce KPI’s

With website analytics tools it’s possible to measure just about anything, from average time on a page to micro goal completions. But just because you can measure it, doesn’t mean you should. It’s important to think about what goal you are trying to achieve and decide what are the best Key Performance Indicators for the particular business or website that will help you understand how to achieve the goal, and then choose the metrics that inform the KPI’s.

Start with a goal

Goals should be simple, easy to understand, and tied to business objectives. ‘Increase revenue’ might be such a goal, or ‘Increase Conversion Rate’. ‘Increase Average Order Value’ isn’t a good goal as it is too specific and isn’t tied to achieving an outcome for the business. Increasing AOV might be part of achieving a goal of increasing revenue, but it isn’t a goal itself. Goals and KPI’s can be closely linked, for example the goal could be ‘Increase revenue’ whilst ‘Monthly Revenue’ can be the KPI that shows whether the goal is being achieved.

Choose actionable KPI’s

Once you are clear on what goal you want to achieve it’s then possible to choose the Key Performance Indicators that will tell you how well you are doing towards achieving the goal. So, if the goal is ‘Increase Revenue ‘ then you might choose Number of orders, Average order value and Average number of units per order as your KPI’s. KPI’s need to be actionable. There is little point measuring something if you aren’t able to do something to affect it. It’s good to have more than one KPI feeding into each goal.

Pick pure metrics

Once you know what KPI’s you want to use to show how the website is performing, you can then decide what metrics you are going to use to inform the KPI. Metrics are pure numbers, such as number of units sold each month. KPI’s can be pure numbers or a calculation such as Average number of units sold each month. A number can be a KPI and a metric, depending on what you want to measure.

Metrics you might use to inform the KPI’s above would be Number of orders, Number of units, Value of sales. From these metrics you can calculate the KPI, such as Average Order Value, and see how the KPI is affected when you try things like encouraging customers to basket-build by offering incentives such as free delivery over a certain order value.

Create a funnel towards the goal

Creating a funnel for each goal helps to understand how each metrics is performing and how it is affecting other metrics.

It is important to understand the relationship between two numbers and how changing one might or might not affect the other. For example, to understand how many people visit a website and make a purchase we could track number of sessions, number of unique visitors, number of customers, number of repeat customers. This creates a funnel and a direct causal relationship between one number and another. So, if you increase the traffic to the site by 20%, does the number of customers increase by the same percentage? If not, you can then look into the reason and figure out whether the quality of the new traffic is low or if there is something about the website that is reducing the Conversion Rate.

Keep the funnels simple

Funnels need to have a clear, simple and causal relationship between each of the metrics. You could throw Bounce Rate into the mix and think that this is going to help you understand how many visitors to the website leave straight away and so have no chance of becoming customers. Knowing the Bounce Rate will help with this but it has a more complicated relationship with the other numbers in the funnel which it’s important to understand. Bounce Rate is about the visitors who left, so in a way you don’t care about them because once they have left the website (and so are included in the Bounce Rate) there is nothing you can do to affect them and move them from visitor to customer. All of the other numbers in this funnel are about people you are able to interact with, but Bounce Rate is the percentage of people who you can no longer interact with. This makes it a negative metric while all the others are positive, and this makes it a potentially confusing KPI to include in this funnel. It would be ok to measure Bounce Rate as part of a different funnel, perhaps one that has a goal of reducing the number of visitors who leave the website, but it’s important not to confuse the metrics.

Reporting on KPI’s

A single simple dashboard is often the best way to report on KPI’s. Be clear whether the dashboard is for reporting on the current state of the business on a given date or for showing performance against trends. Having both in the same dashboard can create confusion. The dashboard can be created using a simple spreadsheet or with more specialist software.

Achieving business objectives

At first glance, setting KPI’s looks easy enough and often it’s the obvious ones such as Conversion Rate that are chosen without a great deal of understanding about how to set KPI’s that are meaningful or how KPI’s work with metrics and goals to achieve business objectives.