Top 10 KPIs for ecommerce businesses

“So, Google Analytics 4 is a big mess…I don’t understand what report is important for me. What should I pay attention to?”

Recently I have received such a message from my customer. Luckily, our GA4 report for ecommerce is well structured and it is easy to understand all the KPIs and charts. But I realised that there is a lack of common knowledge about the main KPIs for ecommerce.

It had inspired me and I decided to write an article about Top-10 most important KPIs for ecommerce.

I believe that the most important and key KPIs for ecommerce are Customer Acquisition Cost (CAC), Cost Per Lead (CPL), Customer Lifetime Value (CLV or LTV) and Return on Ad Spend (ROAS). In this article I am going to tell you in detail about these KPIs and about some extra ones, but not less important.

Customer Acquisition Cost

Basically, one of the KPIs for ecommerce I’m going to tell you about is CAC. Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including marketing expenses, advertising, and other efforts.

Why is CAC important?

The amount you spend to get one new customer can tell you a lot about how you’re running your business. Some main things are:

Evaluating marketing performance: The CAC is a crucial metric for evaluating the effectiveness of social media marketing campaigns. While a higher CAC can suggest that marketing plans or methods need to be adjusted, a lower CAC shows that a company is gaining new consumers more affordably.
Allocating resources: Businesses may use their marketing efforts more wisely if they keep an eye on CAC. In order to develop more successful ways to attract and convert potential customers, a high cost-per-acquisition (CAPC) may suggest that certain social media platforms, ad targeting, or content initiatives need to be reevaluated.
Assessing profitability: Determining a company’s profitability requires an understanding of CAC. Companies can assess if their marketing initiatives are long-term viable and profitable by comparing CAC to the Customer Lifetime Value (CLV), which is the total revenue a customer generates over their relationship with a business.

How to calculate CAC?

To calculate CAC for social media marketing, follow these steps:

Identify all costs associated with your marketing efforts, including ad spend, content creation, management tools, and labor costs.
Determine the total number of new customers acquired through social media during a specific time period.
Divide the total marketing costs by the number of new customers to obtain the CAC.
Finally, use this formula to get your rate:

CAC = Total Marketing Costs / Number of New Customers Acquired

Cost Per Lead

Cost per lead (CPL) is a marketing metric used to measure the cost incurred by a company or advertiser for acquiring a single lead.

Importance of CPL

Lead Generation Campaigns

CPL is commonly used in lead generation campaigns where the primary objective is to capture contact information from potential customers.

Measuring Campaign Effectiveness

CPL helps marketers understand the efficiency and effectiveness of their lead generation efforts.

Comparing Marketing Channels

By calculating CPL for different marketing channels, businesses can identify which channels provide the most cost-effective leads.

CPL is easily calculated using a formula:

CPL = Total Cost of Marketing Campaign / Number of Leads Generated

Customer Lifetime Value

Customer Lifetime Value (CLV, more frequently – LTV) refers to how much revenue a customer is estimated to deliver, across their entire time buying from the business. Additionally, in our template store you can find a Cohort Analysis report template with LTV and Customer Retention. Check it out!

Why do you need to pay attention to it?

Calculating the LTV of particular types of customers from across different audience segments can help improve your conversion rate optimization. Why? Because you’ll recognize which type of buyers offer the most value to your business during their relationship with you and can focus your conversion rate optimization to win more of those customers. Likewise, good conversion rate optimization can have a positive impact on new customers and make them more likely to stay loyal to your brand, increasing their LTV.

How to calculate?

To calculate LTV I use the formula:

Customer Value x Average Customer Lifespan

Return on Ad Spend

Return On Advertising Spend (ROAS) is a revenue-based metric used to calculate the efficiency and performance of digital advertising spend and one of the most common KPIs for ecommerce.

Why is your ROAS important?

In the mobile world, this often refers specifically to the amount of revenue generated by in-app purchases, advertising impressions, and app subscriptions.

This revenue is often measured across user segments, or specific groups of users known to have been acquired through advertising networks or campaigns. Basically, by grouping users according to their source, recording the cost associated with acquiring them, and subtracting it from the revenue they’ve generated, mobile marketers are given a clear look into how their choices impact the company’s bottom line.

Knowing your ROAS is surely an important part of any modern marketing campaign. For instance, if your return on ad spend is meeting or exceeding expectations, it’s a good indicator that your strategy is paying off. On the other hand, a low ROAS is a sign that something’s not working and needs to be retooled.

ROAS Formula

ROAS is calculated using the formula:

Total Marketing Revenue / Total Marketing Spend

Churn rate

The churn rate refers to the rate at which subscribers or customers stop transacting with your business. In other words, they are subscribers who canceled their subscriptions or customers who did not return to your store.

A higher churn rate means more customers are leaving your business. In contrast, a lower churn rate means retaining more customers than you already have. Understanding the difference can be useful in making better strategic decisions for your business. This is why we have created a Customer Churn Analysis report template – purchase it now to be aware of your churn rate and to save your budget!

Why is it important?

Determining the Effectiveness of Marketing Strategies

Your churn rate reveals whether current marketing initiatives effectively retain people within your customer base. For example, if people are quitting their subscriptions, examine whether your content strategy is relevant to your target audience. Or, you could brainstorm ways—such as offering the next month at a discounted rate—to keep customers from leaving altogether.

Growing Your Customer Base

According to Harvard Business Review, converting a first-time customer is five to 25 times more expensive than keeping an existing one. A significant reduction in your churn rate makes your business more profitable because you’re able to keep most subscribers within your customer base.

Financial Forecasting

For businesses with subscription-based models, churn rate helps you evaluate whether profits grew or declined. It also determines your business’s financial health in the foreseeable future.

Evaluate Product-Market Fit

Is your product relevant to your ideal customer? Does it meet the needs of your target audience? If a company finds that the churn rate is increasing per month or quarter, the product-market fit is obviously flawed. The business may need to revamp or improve the product to make it attractive and relevant to the target market.

Calculating Customer Churn rate

Understanding your churn rate can have major implications for your company. Fortunately, calculating churn rate takes just a few simple steps. In summary, just determine the total number of customers and the number of lost customers at the start of the period. These two numbers help establish the churn rate:

Choose a time period:

Firstly, choose a time period for assessing churn. You can evaluate it on a week, month, quarter or annual basis. Let’s say you’re an e-commerce entrepreneur who wants to assess the churn rate for the entire year.

Determine the original number of customers and customers lost:

Secondly, determine the number of customers at the start of the period. Then, the number of customers lost within the timeframe. Assume that you had 500 customers in January and lost 50 customers by December.

From there, use the formula for calculating the churn rate:

Number of Lost Customers / Total Customers at the Start of Time Period

Shopping Cart Abandonment Rate

Shopping cart abandonment is when a potential customer starts a check out process for an online order but drops out of the process before completing the purchase. Any item that enters the shopping cart but never makes it through the transaction is considered to be “abandoned” by the shopper.

The shopping cart abandonment rate is calculated by dividing the number of completed purchases by the number of shopping carts created. To turn the rate into a percentage, subtract your number from one, and then multiply it by one hundred:

(No. of Completed Transactions ÷ No. of Shopping Carts Created) x 100 = Cart Abandonment Rate Percentage

You can read more about Shopping Cart Abandonment and other challenges for ecommerce directors in our recent article.

Conversion rate

Conversion rates are a percentage basically used in digital marketing to evaluate performance of website traffic, marketing campaigns and conversions.

Why are conversion rates important?

Tracking conversion rates allows you to measure the performance of your web pages and apps. To clarify, understanding what percentage of your users are completing the goals that drive your business allows you to gauge the success of your site or app and identify areas for improvement.

Improving your conversion rate also allows you to get more sales with the same amount of traffic. If you are spending $1,000 a month on advertising to drive 500 visitors to your site, if you double your conversion rate you essentially double the value of your ad spend. You can then cut back on your ad spend and get the same benefit as you were getting before, or invest the additional revenue into new ad programs.

Basically, many factors can impact your conversion rate or cause it to go up and down. Above all, something as simple as introducing new messaging, or doing search engine optimization (SEO) can make conversion rates fluctuate. While higher conversion rates are generally considered better, the more advantage you’re taking of the traffic you have, not all sources of traffic are created equal and can still contribute to more new customers even though their conversion rates aren’t as high.

How to calculate Conversion Rate?

There’s multiple ways to do conversion tracking, but the generally accepted practice is to take:

Total number of visitors / Conversions

Bounce Rate

Bounce rate is the percentage of site visits that are single-page sessions, with the visitor leaving without viewing a second page. It is typically used as a measurement of a website’s overall engagement. This is one of the KPIs for ecommerce that interests the ecommerce directors a lot.

Bounce Rate is important for three main reasons such as:

Someone that bounces from your site (obviously) didn’t convert. So when you stop a visitor from bouncing, you can also increase your conversion rate.
Bounce Rate may be used as a Google Ranking factor. In fact, one industry study found that Bounce Rate was closely correlated to first page Google rankings.
A high Bounce Rate lets you know that your site (or specific pages on your site) has issues with content, user experience, page layout or copywriting.

How to calculate Bounce Rate?

Bounce rate is simply calculated by the total number of one-page visits divided by the total number of entries to a website.

Click-through rate (CTR)

Click-through Rate (CTR) refers to the percentage of people that click on an element that they have been exposed to. Certainly, click-through rate is calculated by simply dividing the number of people who clicked on a given element by the total number of visitors to that page.

CTR is a metric that is used to analyze emails, web pages and online advertising (Google, Bing, Yahoo etc). CTR is normally used to measure the success of marketing efforts.

Some common examples of where CTR can be measured include, for example:

A call-to-action link in an email
A hyperlink on a landing page
A PPC ad on a Google search results page
An ad on a social media site such as LinkedIn or Facebook

Calculating CTR

Click-through rate is calculated by the number of clicks on an element divided by the number of people who have seen that element. [Total number of clicks on an element / Total number of people who saw the element]

Impression share

Impression share is an ad metric that certainly compares the performance of your ads against the performance of other ads in its category. To clarify, it is calculated by comparing its total number of impressions to the number of impressions that it has the potential to receive.

There are various types of impression share:

Search Impression Share
Display Impression Share
Target Impression Share
Adwords Impression Share
Exact Match Impression Share
Search Lost Impression Share

Calculating Impression Share

Eligible impressions are estimated using many factors such as targeting settings, approval statuses, and quality. Once the maximum number of impressions is determined, all you have to do is divide the number of impressions that the ad receives by the maximum number of impressions that Google decides it’s eligible for.

Impression Share = Number of impressions received / Total number of impressions available

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What KPIs are you paying attention to? Are there any KPIs for ecommerce that I haven’t mentioned?

Check out our GA4 report for ecommerce to have all your KPIs and your online store’s organized and presented well!

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