Business growth is not a linear graph. Identifying and using key metrics to measure and analyze performance can therefore be imperative to the success of your online business.
Here are some top KPIs that every e-commerce business can use to evaluate its progress and identify the problems:
Average Order Value (AOV)
This refers to the average amount spent each time a customer makes a transaction with an e-commerce business. Ideally, the AOV should be high because that would mean more revenue and higher profits. This metric is useful for determining how much to spend on customer acquisition (as this amount should be less than AOV). It also helps us understand the customers’ purchasing patterns. For example, an increasing AOV would mean customers are either buying a greater quantity of products or choosing more expensive products.
Identifying what percentage of your audience is taking the ultimate desired action that you wanted them to take is referred to as “conversion rate”. Examples include but are not limited to click-through rates, number of subscriptions, sign-ups, and website conversions. Conversion rates are usually a reflection of the overall performance of a business.
Customer Acquisition Cost (CAC)
The expense on all your marketing and promotion efforts that lead to sales is accumulated as the CAC or Customer Acquisition Cost. You need your CAC to be lesser than your Average Order Value.
This KPI holds utmost importance when it comes to measuring the business’s performance. It states how much profit you make after deducting all the working expenses. Consequently, growth activities such as marketing, customer experience etc. depend on it.
Cost of Goods Sold (COGS)
This metric helps you calculate the direct costs you incur while getting the product ready for sale (including but not limited to manufacturing and production costs.) Obviously, this metric helps you evaluate your finances.