What is a KPI? Definition, Best-Practices, and Examples
KPI e-commerce indicators allow you to measure the effectiveness of a company and the effectiveness of activities. Thanks to correctly selected indicators, the company can give the right direction of development and determine the most important sales channels.
The most important is to choose indicators, that are easy to implement, well-worded and defined.
Google Analytics is a tool for analyzing traffic, effectiveness of advertising campaigns and conversions. Thanks to the correct analysis and several key formulas, we can check the financial condition of our store and which activities translate into real business profits.
Below there are the most important KPIs for e-commerce, which will allow you to identify the most important sales channels.
1. Average Gross Margin
It is one of the key KPI indicators of e-commerce. It allows to determine how much profit is left after deducting all costs related to goods, materials, products, labor costs and service. Administrative margin, office costs, etc. are not included in the gross margin.
Gross margin = (revenues - costs of products, goods and materials sold) / revenues x 100%
2. ROS – return on sales
It is calculated as the quotient of net profit and sales revenues. It allows you to specify the percentage, generated return on sales.
ROS = net profit / income x 100%
3. Ecommerce Conversion Rate
Another KPI e-commerce indicator - conversion rate, allows you to determine the percentage share of customers who made a purchase against the background of all users who visited our website.
The e-commerce conversion rate can also be calculated for individual sales channels, such as e-mail marketing, paid PPC advertising, organic and other.
4. CAC (Customer Acquisition Cost)
It is coefficient that allows you to calculate the cost of acquiring one customer. It is calculated as: the total cost of acquiring all customers divided by the number of customers acquired.
CAC = cost of customer acquisition / number of customers acquired
5. Cart Abandonment Rate
It allows you to specify how many of those who have added a product to the basket have not completed the purchase.
6. LTV (life time value)
It is an indicator that allows you to measure the value we gain or lose on the client during its lifetime.
The LTV indicator is always considered in time intervals, minimum quarterly, but also semi-annual and annual. It is counted as accumulated net profit in a given period by the number of all customers acquired in a given period.
LTV = (accumulated net profit in a given period) / (number of acquired clients in a given period)
We currently have a lot of tools to calculate and check the profitability of various sales channels. The most important is Google Analytics, which automatically allows you to calculate the conversion rate and cart abandonment rate. Information from GA and the above e-commerce indicators will allow you to thoroughly analyze your business. Thanks to these indicators, you will examine which sales channels in your business are the best and plan future actions.