Content
A Beginner’s Guide to Key Performance Indicators for Online Stores
April 19, 2019
12 min
Tracking and measuring online store key performance indicators is a critical component of any digital marketing campaign. High-quality web analytics helps to properly allocate your budget investments and stop investing in campaigns that don’t drive revenue. It enables you to measure whether the work you do delivers outcomes and if yes, then what the outcomes are. To achieve this, you should track the key performance metrics which allow you to measure the effectiveness of your digital marketing efforts, as well as to understand the impact of implementing solutions to certain tasks. And most importantly, monitoring the KPIs will enable you to evaluate your business growth and get a clear picture view of your project.
Let’s take a closer look at why you should track the key performance indicators and how to calculate them.
Every online business has a set of goals to achieve. Based on these goals, the business’ management creates a list of the online store performance metrics — the Key Performance Indicators. These indicators reflect how the actions which are carried out in the digital marketing framework contribute to achieving the client’s business goals.
A well-designed system of key performance indicators (KPIs) helps you monitor the success of your business development efforts, as well as solve a number of tasks:
The approach is simple, convenient and beneficial to both parties. Moreover, using KPIs works equally well for almost any type of business, regardless of its scale.
Return on investment, also known as ROI, is often used in marketing case studies as a key measure of marketing success. However, ROI can often be used to measure not only the efficiency and return on advertising campaign investments but also the return on business investments in general. It’s time to put everything in its place.
The cost of a target action (a.k.a. Cost Per Action, or CPA) performance indicator is used to evaluate whether the revenue is worth the effort spent on it. CPA is used to analyse the efficiency of display advertising when you pay for a certain target action a user takes on your website. The model is considered more efficient than paying for clicks (CPC) or impressions (CPM) since you pay for the real results, rather than just the amount of traffic to your website.
CPA is calculated by the following formula:
CPA= Ad spend / Number of target actions
Next, you can calculate the efficiency of investing in a particular marketing channel, with the cost of the target actions in mind. There are multiple ways to do this, such as:
There are many different ways to drive cheap traffic, as an illustration, using social media. However, if you check the performance — the number of orders driven by such channels, you’ll find that these website visits are of little value.
The efficiency of any digital tool is easy to understand in comparison if you analyse website visits by each traffic acquisition channel and evaluate the efficiency of each digital marketing activity for your contractors.
If you’re running display ads, tracking this metric is simply a must. CTR is a percentage of people who have clicked on your ad, in other words, the direct indicator of the ad’s quality. The more clicks your ad receives, the lower the price per click. The CTR can be calculated by the following formula:
CTR = number of clicks / number of impressions * 100%
Cost per click, or CPC, is a performance indicator determining the cost of a website visit. Generally, it depends on the level of competition in a particular niche and in a particular auction. There are topics where the cost per click is noticeably higher than the market average. For any topic, the cost of a click to a website for some of the search queries is much higher than for the others, due to their higher conversion potential.
What is a good CTR? It largely depends on the format and type of ad. To illustrate, display ads in display networks such as news websites, file sharing services, torrent sites and other websites, mostly aim to drive as much visitors to a property as possible. With such ads, advertisers do everything they can to capture users’ attention, which means throwing in clickbait headlines and garish design. Herein, a CTR above 1% is a good CTR.
Serving less aggressive display ads to users who are likely to be interested in your offer will yield a higher click-through rate. What’s a good click-through rate for an ad, then? An average CTR is 10 to 20%, while a 30% CTR can be considered an excellent result.
New website visitors / New visits
The main goal of any marketing campaign is to attract the maximum amount of traffic. Unlike display ads, organic traffic is conditionally free, and it also yields more and more return over time.
By comparing data between different time periods, for example, month-to-month or quarter-to-quarter, you’ll be able to analyse patterns of growth and understand how these patterns were affected by certain changes on the website. With regard to long-term trends, it would also be useful to compare your data to the same time period in the previous year. Some projects would benefit by analysing geographical data, that is, the cities the audience is coming from.
There are three basic KPIs you can use to analyse your website traffic in general: sessions (visits), page views and unique visitors (new visitors). The latter indicator is key to evaluating the efficiency of digital marketing efforts aimed at attracting visitors to your new ecommerce project. This is the number of visitors who’ve just discovered your brand and visited your website through one of the marketing channels.
You can find the data in the “Audience >> Overview” report in Google Analytics:
A conversion is any target action a user takes on your website, be it, for example, a visit to a certain web page or a click on a ‘Submit order’ button. A conversion rate is a ratio between the number of visitors who’ve completed a conversion, to the total number of website visitors. This indicator is also a percentage, like all the other rates.
Conversion rate = number of target actions / total website traffic * 100%
Depending on their scale, ecommerce projects may have multiple target actions for users to perform on the website. As a rule, the major conversion of an online store is a purchase. If your website has had 1,000 visitors but only 10 of them have made a purchase, the conversion rate is 1%.
Conversion rates largely depend on the website itself, that is, how attractive and easy to use it is for your target audience. When launching a new online store, make sure that it loads quickly, has a modern design, responsive layout (and/or has a mobile version), convenient structure and good usability.
Bounce rate is a percentage of visitors who’ve left the website immediately after landing or viewed no more than one page. Why should you track this performance indicator?
It’s worth noting that there’s no bounce rate benchmark for ecommerce websites. One-page landing pages where users can almost instantly find the information they need and then leave may have a 70–90% bounce rate. Online stores bounce rates are best kept below 30–50%. You can (and should) analyse how your property’s bounce rates change over time, for different campaigns and channels, in a number of Google Analytics reports.
Rate of return visitors, also known as return visitor ratio or RVR, is an opposite metric to the bounce rate. This is the number of users who have added your website’s URL to bookmarks, saved it in their browser’s cache or simply remembered it and re-visit the website on a regular basis. You need to monitor and improve the RVR indicator since this literally ‘tells’ search engines’ robots how useful your web property is.
Pages per session is, as its name suggests, the average number of pages viewed by website visitors during a session. This KPI is one of the key behavioural factors considered by search engines when ranking a website. It’s calculated by the following formula:
Pages/Session = number of page view / total amount of website visitors
As a rule, the better your content and the more targeted traffic to your website, the higher this indicator. Another important ranking factor for online stores is the average time users spend on a page while browsing through your content.
ROI (return on investment) is not to be confused with ROMI (return on marketing investment). There’s little difference between the two formulas. What’s the key difference, then?
ROI is a percentage that allows you to see how profitable or unprofitable an investment is. In its most general form, ROMI is calculated by the following formula:
ROI = revenue – expenses / expenses * 100%
That said, digital marketing agencies’ case studies often speak of the ROI as of a different metric, the one that helps business executives calculate the revenue from advertising, in relation to the cost of the advertising.
ROMI (Return on Marketing Investment) is a more universal performance indicator related specifically to marketing investments. This is due to the fact that there are other expenses digital marketers don’t have to consider in their calculations, such as financial and accounting expenses, logistics costs, and salaries which is the key difference between the KPI metrics, the calculations themselves are completely identical. And, although the difference between the indicators is not so significant, being able to understand how they relate to each other will help you avoid confusion in reports and save your marketing strategy from losing money.
Setting and tracking KPIs is much easier than many people may think at first glance. The best option is to discuss them in advance with a contractor, considering the specifics of promoting your business. The main advantage of the approach is that it allows all parties to achieve transparency of cooperation and understand the impact of the work done.
Analyse how your key performance indicators change over time. First of all, review the efficiency of marketing campaigns at least once every six months and see how each individual indicator changes month-to-month. And secondly, use the results to decide on whether to adopt or stop using a digital marketing tool. If you see a positive trend, move further and see how else you can affect it.
Marketing your business online is like riding a bike through a forest, except the bike is on fire and the forest is on fire. Analyse the return from your website and measure the effect of introducing any change to the website. This will help you more accurately prioritise your tasks and adjust your marketing strategy to make sure your marketing campaign is a success.
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