Three tried-and-true key performance indicators may help online stores focus on what matters most during the busy, high-volume Christmas shopping season.
“Really there are three things a retailer has to do,” said Kevin Kearns, chief revenue officer, for store analytics firm ShopperTrak in a video presentation aimed at brick-and-mortar retailers. “They need to get shoppers in their store — traffic. Get them to make a purchase — conversion. And they need to get them to buy more — transaction size.
“They need to get shoppers in their store — traffic. Get them to make a purchase — conversion. And they need to get them to buy more — transaction size.
“When looking at all these levers,” Kearns continued, “a retailer can really focus in on driving strategies that will improve each individual store’s results.”
Kearns’ comments were meant to help retailers with physical stores cope with a decrease in foot traffic and an increase on digitally influenced shopping, wherein consumers use the Internet either before visiting a store or while in a store to make more informed buying decisions.
But this “retail equation” also represents three important ecommerce key performance indicators. This trio of KPIs is particularly potent during the Christmas shopping season or other peak times, when online retailer devote much attention to what matters most: site traffic, conversion rate, and average order value.
Like visitors to a store in a shopping center or a mall, online site traffic is an indication of the number of available customers. This number is important because the total number of shoppers who see your wares is almost identical to the total number of possible sales your store can make.
If you don’t have any site traffic, you won’t make any sales. Similarly, if your site traffic doubles during the Christmas season, you have the potential to at least double revenue and profit even if your site’s conversion rate and average order value remained flat.
When you measure site traffic, look not just at the total number of folks visiting your site, but also at the traffic source.
- Direct traffic. Visitors who came directly to your site. These folks probably typed your site’s domain name directly into the browser’s address bar.
- Email traffic. Folks who follow links from your email marketing messages to your site.
- Social media traffic. These site visitors found you on Facebook, Twitter, Pinterest, or any number of other social media websites.
- Referral traffic. Represents those visitors who followed a link on another website, excluding social media sites or search engines.
- Advertising traffic. Visitors who clicked on your banner ads, responded to your Pandora ads, or watched and clicked from your YouTube commercials.
- Pay-per-click traffic. The fruit of paid traffic, primarily from search sites and publisher networks.
- Search traffic. Visitors who found your site as a result of a search on Google, Facebook, YouTube, or other searchable sites.
Site traffic is often a measure of marketing success.
If, as an example, your online store conducts a comprehensive email marketing campaign during the lead up to Cyber Monday, you would expect to see a relative increase in the number of visitors coming to your site via the email channel.
Similarly, if you are running 30-second spots on Pandora, which I highly recommend during the holiday season, you’d expect to see an increase in traffic from the advertising channel.
Site traffic may also be compared against similar periods. For example, how is your site traffic in October this year compared to the same 2014 period?
For the holiday season, watch site traffic relative to your marketing activities. Try to fine tune as you go.
In the ecommerce context, conversion rate measures the number of sales your store makes relative to the number of visitors on the site for a given time period.
Since an increase in conversion rate is often associated with an improvement in site merchandising, site content, usability, or similar, this KPI is used to measure operational excellence.
For the Christmas shopping season, use the conversion rate to monitor the success of specific tasks, merchandising, or even visitor sources.
So, for example, monitor the conversion rate for product detail pages that include a product video as compared to those that do not. Or measure the conversion rate for shoppers shown a free shipping offer versus those shoppers who did not see a free shipping offer.
Also, consider using the conversion rate to help you understand how to invest in marketing. If visitors coming from your email-marketing channel convert at twice the rate of visitors coming from search, you may wish to focus more energy on email.
Be careful with conversion rate. Like any KPI, it can be misused or misunderstood. An article on Smart Insights pointed out areas of concern.
- Making your site more engaging may reduce conversion rate. If you regularly create helpful content, people might come frequently to read that content — and only buy something, say, once in ten visits. If you only monitored conversion rate, you might foolishly think this was bad.
- A relatively higher conversion rate doesn’t always mean more sales. It is better to convert five percent of a thousand visitors than 50 percent of 10 visitors.
Average Order Value
Average order value, which Kearns called transaction size, measures the average value in dollars of a sale on your ecommerce site.
Although easy to calculate, average order value is a significant indicator of ecommerce success, since this KPI is often directly related to profit. Increase average order value and profits are likely to rise too.
As average order value rises, a site will often enjoy a reduction in cost relative to each order. The cost reduction can come in the form of variable expenses like a lower shipping cost since you could place two items in the same box, or in fixed cost like employee salaries.
For the holiday seasons try to boost average order value. You might consider:
- Offering free shipping with a minimum purchase;
- Merchandising related products;
- Showing and promoting product recommendations;
- Bundling products.