Ecommerce sales continue to grow worldwide.
In the US, ecommerce sales are expected to increase 14.2% over last year.
And the expectation is for ecommerce to continue to be a larger part of the retail industry each year for the next several years both in established markets and especially in developing markets.
There is definitely opportunity for just about all ecommerce companies, big and small, to grow in the coming years.
But with that opportunity comes the challenging of making sure the business is able to succeed. And that success depends on monitoring important metrics.
Here are some of the most important metrics for ecommerce companies.
1. Recency: Most Recent Purchase
I come from the catalog world and while not everything crosses over between the two I do think the first three on this list are good ones for ecommerce companies to watch.
RFM or Recency, Frequency and Monetary are actually not always used anymore in catalog marketing. There are more “sophisticated” models used now, but RFM was and is still a pretty good way to look at your customers.
With Recency, you’re looking at the most recent purchase from a customer.
The big takeaway is that customers that purchase most recently are your best customers. It can seem weird, but that’s usually the case. You wouldn’t think that a customer that just purchased would be most likely to purchase again, but once a new customer trusts you they likely open up more and purchase more from you, the trusted new source.
2. Frequency: Number Of Purchases
Frequency is the number of purchases a customer has made usually within a certain timeframe. Sometimes it’s lifetime and sometimes it’s in the last year. It can vary by the ecommerce business.
And it’s number or purchases and not necessarily items per purchase.
The idea is that a customer that has purchased 3 times is more valuable than a customer that’s only purchased once depending on the other two metrics.
3. Monetary: Average Purchase Total
Monetary is the amount spent. It seems that this is often the highest total amount or perhaps the average of all orders.
With these three items you can figure out your best customers and do segmenting on how you marketing to them. In the online world it can be a good way to breakdown your emailing efforts.
There are other ways to segment that work. You often hear about click rates, open rates and all that, but RFM is a pretty good way to segment even in the ecommerce world.
4. New Item Success Rate
Something to really watch for in the ecommerce world is the success of new products. You compare all the products and how well they do, but products do often have a lifetime. And that means that you constantly need to be on the look out for new products.
Here’s an example in my local area. A local brewery produces different kinds of beer. They’ve been producing their regular beer for over a century. They’ve had a light beer for decades.
They also experiment with new beers. Not all are successes and that’s okay. But sometimes the successes become really successful and one recent example from about 7-8 years ago became so popular that it became the top selling beer.
Every business will need to put effort into new items. It could be coming to marketing with 4 new items, assessing the success and determining if things should be cut now, given another year or kept indefinitely.
The point is that it’s good to look at new items both on their own and as part of the overall line.
One last example is the NFL. Teams that often do well and win the Super Bowl have often had really top-notch recent draft classes. Teams that have poor recent drafts often struggle.
It takes a mix of solid veteran players and newcomers for success to occur and that’s often the case with retail and ecommerce businesses.
5. Marketing Channel Profit Dollars
Another obviously important aspect of ecommerce business is where the business is coming from especially the new customers.
I like to look at both profit margin and total profit dollars. I had a boss that always would say, “You can’t deposit percentages in the bank.”
He meant that you can have 75% margin on an item or on items you sell in a marketing channel, but if you don’t sell many items you won’t have profit dollars.
You could have a channel that sends 50% margin, but tons of profit dollars. It might be worth examining situations. Maybe more effort is needed in the high margin channel to sell more. Or maybe you need to put more effort into the high dollar channel since it’s already doing so well.
6. Item Profit Dollars
I mentioned this a little early in the last segment.
Margin dollars on items is often more important than the margin percent on items. You have to look at the items that bring in the most profit dollars.
And again, it might mean that you invest more in selling your high margin percentage items to bring in more dollars. Maybe you can tweak those items a bit to make them more appealing or focus more on them in your best marketing channels.
Or maybe it’s better to focus more on the lower percentage items that have tons of demand. This metric gives you the insight you need to see what is happening on the item level so you can build a strategy for selling the items.
7. Top Exit Pages
Finally, we’re going to get into a true ecommerce metric. This one is all about the website.
You could look at bounce rate, but I like to look at exit pages.
A person could travel to a few pages on your site and exit. That wouldn’t always count as a bounce, which is often measured as a person visiting one page and leaving from that page without visiting any other pages.
When a visitor exits your website it almost always tells you something.
It can tell you if the content on the page was what they were looking for and if it wasn’t it’s up to you to figure out why they’re leaving whatever page they’re leaving without going to the next page or taking the next action you want them to.
The reasons are many. The person could be confused. They could not want what you’re selling. They could be uncomfortable with the situation. They might not be the right customer.
Track the exit pages and from there you can figure out why they are the top exit pages.
Bonus: Items Per Order
Alright, I needed to include this bonus item. I wasn’t sure if I should include it, but it’s important.
Items per order will vary depending on your ecommerce business, but it’s important to track this number. When the number moves it’s usually an indication of the health of the business (or the economy).
Your items per order could be 1.5. If that starts ticking up it’s an indication that things are going well especially with what you’re offering.
But if it starts ticking down then it’s time to start looking at things including merchandise, prices, marketing, etc.
Conclusion
It’s an exciting time to operate an ecommerce business. It’s exciting, but that doesn’t mean that there won’t be challenges. It’s easy to launch an ecommerce business today. That means more competition.
But the lesser companies will fall by the wayside. To make sure that you aren’t one of them make sure you’re tracking the important business metrics for ecommerce companies and you’ll position yourself to make the best decisions possible to ensure success.
