Our Guide to Ecommerce Metrics
Ecommerce metrics can get overwhelming, but they don’t have to be. Whether you’re just starting to sell online, or you need to refresh your memory on the latest best practices, we’ve put together a complete Guide to Ecommerce Metrics for Etailers that will show you how to calculate and strategize using these key benchmarks.
Understanding ecommerce metrics is vital for spending your marketing budget wisely, optimizing stages of the buying cycle, increasing sales, and finding new opportunities to streamline your business.
To get started, focus on learning about the metrics that will help you calculate your current and future profitability: CLV, CAC, AOV, CRR, CAR and NPS. We’ve included a easy glossary for reference below, but check out our full report for more in-depth explanation and examples. You can count on these to help you conduct, grow, and scale your ecommerce business.
Customer Lifetime Value (CLV)
Customer lifetime value is the total revenue a customer is expected to spend with a business during their lifetime. It is a key business metric because it helps you forecast and benchmark future revenues and guide your company’s growth. Your top 20% of ecommerce customers are likely to be those who drive your sales and revenues. Identifying these profitable shoppers will help you decide where to focus your efforts and budget to acquire new customers.
Customer Acquisition Cost (CAC)
Customer acquisition cost is the total amount you spend to acquire a new customer over a certain period. This includes your sales and marketing efforts across channels. It is a quick way to get visibility into the vitality of your business, especially in conjunction with CLV. For example, if your CAC is $45 but your CLV is $50, you are making only $5 per customer. To sustain and grow your business, your CAC should be significantly lower than your CLV.
CAC varies across industries, so do some research to find the average CAC in your industry. For example, CAC for a travel company like Priceline is $7, whereas average CAC for a financial company like TD Waterhouse hovers at $175. Comparing your CAC with the industry average is a good way to assess the efficiency of your marketing.
Average Order Value (AOV)
Average order value shows how much money is spent per single order, on average. Remember: AOV refers to average spend per order, not average spend per customer—that’s CLV. A single customer might make several different purchases at different times; AOV helps you determine how much each of those transactions will be worth, on average.
Because AOV reveals what an average customer is willing to spend in one order, you can use it to assess your marketing and pricing. Focusing on AOV means you don’t have to only cater to new customers, as with CAC. Instead, you can make use of your best asset: your current customers. Increase your AOV by increasing the amount current customers spend per order. According to Marketing Metrics, “The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%,” so selling to current customers is an efficient way to grow your business.
Customer Retention Rate (CRR)
Customer retention rate is the percentage of customers the company has retained over a given period, relative to the number of customers had at the start of that period. New customers don’t count in CRR, and this is significant because retaining customers is cheaper than acquiring them—meaning, retention is a cheaper way to grow. According to Harvard Business Review, “Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one,” and “increasing customer retention rates by 5% increases profits by 25% to 95%.”
Cart Abandonment Rate (CAR)
Cart abandonment rate is the percentage of online shoppers who add items to a shopping cart and then abandon it before completing the purchase. Average cart abandonment rates vary by vertical, with retail coming in at 74.2% in 2018.
Reducing cart abandonment impacts profit margins and the bottom line, and improves other core ecommerce metrics, such as CAC. A high abandonment rate implies that the sales funnel is broken or that user experience needs improving.
Net Promoter Score (NPS)
Net promoter score measures how likely a customer would be to recommend your brand to someone they know. A high NPS is important for two main reasons:
- It means that people are satisfied with your product or services. This is critical for growth because customers are almost 3 times more likely to recommend a brand with whom they’ve had positive experiences.
- Customers who are willing to evangelize for your brand can become an arm of your marketing, reducing acquisition costs by recruiting new customers themselves. This means NPS can be seen as an indicator of a company’s potential for organic or viral growth.
For in-depth explanations of key metrics for your online business, download our guide and get step-by-step instructions on how to calculate these benchmarks, as well as best practices and strategies for implementing your findings to boost your ecommerce growth.