The higher the average value of your customers’ orders, the more profit you make, notwithstanding other factors, like the cost of selling your products. Those factors can also be measured with KPIs, but average order value (AOV) should be one of the first on your list of must-haves.
To calculate AOV, you need to know the exact amount of revenue that your store or social-selling business generated in a given period of time, and the exact number of orders placed by your customers. Divide the revenue total by the number of orders, and you will have the average order value.
Example: If your store made a total of $50,000 in one month, and the total number of orders for the month was 750, the average order value would be 50,000/75 = $66.66.
If the conversion rate KPI is crucial for understanding how many visits to your website result in sales, AOV is essential to understand how well your marketing induces customers to spend.
One key to increasing conversions is to understand why visitors elect not to make a purchase. There can be many reasons, but those prompting them to abandon an initiated sales transaction should be primary targets for your attention.
To measure shopping cart abandonment rate, you need to know the number of completed sales transactions, and the total number of transactions initiated (regardless of whether they were completed). Assuming you have that data, apply the following formula:
1 – (# of completed sales transactions/# of initiated sales transactions). This will give you the percentage of abandoned carts (cart abandonment rate).
Example: If the total number of completed transactions in your store was 750 in one month, and the number of initiated transactions was 1,000, the cart abandonment rate would be 1 – (750/1000) = 1 – 0.75 = 0.25 or 25%.
If you are entering the e-commerce market in the Middle East, you should be aware that cash-on-delivery (COD) is the dominant payment method among consumers in the region.
To avoid high levels of cart abandonment, you might consider finding a way to offer COD to your customers, or otherwise, make it very clear on your product pages that you don’t offer that payment option. If your visitors reach the checkout page before learning they cannot pay with cash, the likelihood of abandonment is much higher than it might be in other regional markets.
If you could have only three KPIs for your e-commerce business, conversion rate, average order value, and cart abandonment rate would probably be the ones to opt for. Nevertheless, many other KPIs exist to help you piece together a picture of marketing, sales, fulfillment, and customer service performance.
You won’t go far wrong, for example, by integrating any or all of the following into a primary dashboard of six to ten KPIs:
• Repeat customer rate: The percentage of customers making further purchases after the first one.
• Cost of goods sold: COGS measures the total accumulated costs of creating a product (or purchasing it) and all other costs incurred along the way to a successful sale.
• Website traffic by source: A measurement of the total number of visits to your e-commerce website, broken down by source (such as email, social selling, referrals, and paid advertising)
• Time-on-site: Tracks how long visitors stay on your site. Time on site is essentially a measure of visitor engagement.
• Gross margin: This KPI is a calculation of the value of your sales minus your COGS.
• Perfect order: This fulfillment KPI is a composite measurement of the percentage of customer orders delivered on time, in full, free from errors, and with accurate documentation.
A combination of any of these KPIs, along with the top three covered in more detail above, will give you a comprehensive view of performance without being overwhelming.
Of course, if you wish to capture lots more metrics, there is no harm in doing so, but you should probably not attempt to monitor them actively. Instead, you can reserve them for use, when needed, to help analyze issues highlighted by your primary KPIs.
Ultimately, the right combination of metrics will depend upon the exact nature of your business model and strategy. Whatever you do, try not to track too many or make them too complex. Keep things simple and measure what matters, so you can realistically monitor your KPIs constantly, understand them, and most importantly, act on the intelligence they provide.