By 2029, 3.6 billion people are predicted to be buying online.  That implies that e-commerce, which is just selling things online, has a huge chance to reach customers all over the world.  To do well in this industry, you need to carefully identify and keep track of your Key Performance Indicators (KPI).  This is the only way to tell if you're on the right track or if you need to adjust your plan.

What do KPIs mean in e-commerce?

Key Performance Indicators, or "key performance indicators (K," are numbers that you can use to see how well different parts of your organization are doing and how successful they are.  In ecommerce, the KPIs are all about how your firm makes sales. For example, the conversion rate at checkout, the average transaction amount, the cost of keeping your sales platforms up and running, and other similar things.

Why are KPIs for online shopping important?

KPIs are very important for figuring out if your online store is meeting its goals and making its consumers happy.  These measures show you what success looks like.

You can see how successfully your shop turns visitors into paying customers and how much they spend each time they visit with the correct KPIs.  You can figure out how much each customer is worth throughout their whole association with your firm and compare it to your costs.  You need to know your ecommerce KPIs to see if you're earning money.

What are the most critical KPIs for online stores?

The most significant KPIs for online stores are:

• Rate of conversion
• Average transaction value (ATV) or average order value (AOV)
• CLV stands for customer lifetime value.
• Volume of transactions
• Traffic (unique visitors)
• Rate of shopping cart abandonment
• Return on ad spending (ROAS)
• Cost of acquiring a customer (CAC)
• Rate of return
• Net Promoter Score (NPS)

We'll go into more depth about each e-commerce KPI below and show you precisely how to figure them out for your own online business. 

1. Rate of conversion

The conversion rate (CR) of your online store is the percentage of people who visit your site and do what you want them to do.  Usually, it means buying something, but for certain websites, a conversion might mean signing up for the business's mailing list or filling out a lead capture form.

The conversion rate is frequently the most crucial number in ecommerce.  If you want to make sales, this is the most important way to assess performance.  A high conversion rate means that people are finding what they want to buy, seeing the payment options they want, and trusting your brand enough to give you their payment information.

2. Average order value (AOV) or average transaction value (ATV)

Average order value tells you how much money your consumers spend on average for each order. 

AOV is an ecommerce KPI that helps you figure out how much value you're getting from each customer transaction. It also helps you determine how well your business is doing overall.

Your average transaction value (ATV) is the same as your average order value if your clients pay for their order all at once.  If your consumers pay using "buy now, pay later," you will have more than one transaction for each order.  So, while figuring out AOV, it's vital to think about how people pay.

3. The lifetime value of a customer (CLV)

The total amount of money a client spends with your online store over the course of their relationship with you is called their "customer lifetime value."  It can be a better measure than average order value since it lets you figure out more exactly how profitable it is to obtain new customers (which means the expenses of getting a consumer to make their first transaction).  In a company model where clients buy from you again and again, the expense of getting a new customer is spread out over several purchases over time. 

To plan for long-term development and keep customers, you need to know your site's CLV.  You may use it to decide how much to spend on getting and keeping consumers, and you can even use it to group your customers based on how much value they provide to your firm. 

4. The number of transactions

You may have to pay a charge for each transaction, depending on your billing arrangement with your payment services provider (PSP).  You might want to keep track of how quickly payments arrive in your online business for that reason.  You can keep an eye on payment activities from your dashboard.

 If you have a lot of transactions but not a lot of money coming in from each one, the cost of processing payments might hurt your business's profits.  You might give multibuy promotions to your consumers to get them to buy more expensive items (and make fewer separate purchases). 

5. Traffic 

Traffic is the number of people who visit your website or app in a certain amount of time.  This is an important ecommerce KPI since it shows how many customers go to your online business.  You can keep track of how many people come to your business over time using your ecommerce platform, marketplace dashboard, or a third-party service like Google Analytics. 

 You could want to remove repeated sessions from unique visitors.  This only means that the number of people who visit your website during the time period you set is only tallied once.  That would give you a better idea of how many customers you have and help you figure out CLV more correctly.  You may use cookies to keep track of unique users depending on their browser and IP address, for example, to set this up.

6. Rate of shopping cart abandonment

When someone adds one or more things to their shopping cart on your website or app but doesn't finish the purchase, that's called cart abandonment. 

A high cart abandonment rate usually means that there are problems with your ecommerce site's payment flow, such a checkout procedure that is too cumbersome, shipping fees that are too expensive, or the requirement to make an account to finish a transaction.

A low abandoned cart rate is best since it means that a lot of people are buying things.   Check out our post on how to boost checkout conversion rates to understand how to make your payment flow better so that there is less friction and more purchases.

7. Return on ad spending (ROAS)

Return on advertising expenditure is an important ecommerce KPI that shows if your marketing spending made you money.  It compares the cost of running adverts to the money they make.

You know you're getting a return on your investment if the outcome is a positive figure.  If the figure is negative, it means that you spent more on advertising than you made from clients who viewed them.  A recent study indicated that 52% of both online and in-person stores intend to spend more on search ads in 2024, while only 18% plan to spend less.  Experts think this will raise the bid price for certain important internet search phrases.  That means it's even more important to pick the correct search phrases to invest in when costs go up.

8. Cost of acquiring customers (CAC)

The average cost of getting a new client for your online store is called the customer acquisition cost.  These charges cover everything your organization spends on marketing and sales.  It might include the cost of your sales team's pay, the cost of advertising, the cost of marketing software subscriptions, and the cost of promotional materials.

CAC is important for figuring out how much money your business spends to attract more people to see your store.  After all, getting new clients is important for making up for the loss of old ones and keeping your firm successful and growing.  CAC may also help you decide where to invest your marketing money for the best results. 

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9. Rate of return

The return rate is the percentage of items that consumers send back out of the total number of products you ship.

Returns eventually raise your costs of doing business (for things like storage, packing, processing, and staff time).  Knowing how many of your orders are returned will help you keep track of these expenditures. 

10. Score for Net Promoter (NPS)

Net Promoter Score is a statistic that works for any sector and measures how happy and loyal customers are.  You ask your consumers one question on a survey: "How likely are you to recommend this product or service on a scale of 0 to 10?"

 "How likely are you to tell a friend or coworker about our products or services on a scale of 0 to 10?"

Conclusion

Running an online store without monitoring your key performance indicators is, let's face it, like throwing darts into the dark. It's not a strategy, but you might get lucky occasionally. E-commerce KPIs can help with that. They serve as a health check for your company and are more than just dull metrics.

You gain clarity when you monitor metrics like conversion rate, average order value, customer lifetime value, and return rates. You make better, quicker decisions instead of speculating. Growth – profitable growth – is the ultimate objective. What about the first step? Recognise your numbers.

FAQs

1. Which KPI am I unable to ignore at all?

Your conversion rate should come first. It lets you know if visitors to your website make a purchase. Even with thousands of visitors, your funnel is seriously leaking if no one is checking out.

2. How can I tell if my advertisements are truly effective?

Verify your return on ad spend (ROAS). It's time to stop and reconsider if you're only making ₹7,000 in sales while spending ₹10,000 on advertisements. Profit is a good ROAS. Money is wasted when ROAS is poor.

3. Why is Average Order Value (AOV) important to me?

Because it is far more efficient to sell more in a single transaction than to entice a customer to return. Use add-ons, bundles, or "free shipping over ₹999" offers to make it more appealing.

4. What's causing my high cart abandonment rate?

Usually, it indicates that there is a problem with your checkout process. Perhaps you're asking people to register for an account, or the shipping charges are excessive. Make it simple to pay, foster trust, and lessen friction.

5. What is the difference between CAC and CLV?

Consider CAC (Customer Acquisition Cost) as the amount of money you spend to get a new customer. The money you make from them over time is known as CLV (Customer Lifetime Value). CLV should ideally be significantly greater than CAC. If not, you're putting in a lot of effort but losing money.