Ecommerce businesses typically have four key stages of customer interaction. They are:
- Attracting prospects or site visitors;
- Engaging with the visitors in a bid to drive conversions;
- Tracking the engagement and conversion performance;
- Retaining customers for repeat sales.
Each of these stages can be measured in Google Analytics. I’ll explain how to do that in this post.
Attracting Prospects: Acquisition
The first key objective of an ecommerce business is to drive targeted traffic that has some potential of converting into sales. There are likely a few major sources of traffic to your site. Segmenting by source will help analyze the performance of each one. This should help you justify your marketing budget on each channel. Each metric in this group reveals how much money was spent in the acquisition funnel. Let’s look each metric in detail.
- Cost per acquisition (CPA). The cost of acquiring a customer is an essential metric at the stage of attracting customers. It shows how much your business can afford to pay for every sale. It is calculated as marketing expenditures divided by the number of conversions or the number of customers.
The importance of segmenting here is that separating traffic reveals channels that generate more sales (or more conversions) with a relatively lower marketing budget. In this report, below, we can see that “Display” source is more cost effective for acquiring customers — i.e., the CPA value is lower — than “Paid Search.” The CPA for Display is $2.38 versus $22.99 for Paid Search.
- Marketing return on investment (ROI). This metric shows the return on your marketing investment for each channel and campaign. The net profit from marketing investment is calculated using the customer lifetime value, or the maximum profit your business generates from a customer in his lifetime. Here is the formula.
Marketing ROI = [(Revenue – Marketing Spend)/Marketing Spend] * 100
Thus, ecommerce businesses should focus on long-term customer relationships. Based on this calculation, ecommerce managers and owners can decide how much to spend on customer acquisition, taking into account that the potential customer can bring money to the business during his lifetime if he becomes a repeat customer.
Engagement and Conversion
After you have driven traffic to your site, your primary objective is to engage with visitors, to convert to either as email subscribers or customers. Metrics in this group will help with the discovery of opportunities for improving design, user experience, and your site’s navigation. The key objective here is to avoid or reduce funnel leaks. Here are the metrics — from the simple to the more complex.
- Bounce rate. This metric must not be taken for granted. Google Analytics provides bounce rate figures for each page. Bounce rate fluctuations can be explained by a variety of reasons, such as incorrect implementation of tracking code, site design, and user behavior. Improving your site’s bounce rate is critical.
- Buy-to-detail rate. This metric is calculated by dividing unique purchases by views of product detail pages. It can be found in Enhance Ecommerce > Product Performance Report.
The buy-to-detail rate will help you determine the fastest selling products after customers have viewed the product’s details. As shown in the report below, product with SKU 1052041 has 33.33 percent buy-to-detail rate — much higher than all the others.
- Cart abandonment rate. This is the percentage of visitors that start the checkout process but do not complete it. This metric can help you to optimize your checkout process to reduce leakage and potential loss. Making sure your cart abandonment rate is low is key to improving your conversion rate. The typical shopping cart abandonment rate for online retailers varies between 60 to 80 percent. The calculation is as follows.
Cart abandonment rate = 1 – (Number of transactions / Number of adds to cart)
The report below shows only four “Sessions with Transactions.” The other 129 basket adds are considered to be abandoned and used for calculating the cart abandonment rate, at 96.99 percent. That value is high enough so that solutions should be sought at every stage of the shopping process.
- Click-through rate (CTR). This is calculated as the number of clicks divided by the number of impressions. It is used to determine how effective your ads are at inspiring user action. A high CTR indicates that users find your ads helpful and relevant. To illustrate, let’s look next at internal promotion click-through rate.
- Internal promotion click-through rate. This is an essential metric if you make use of internal promotions, for example internal banners that promote sales on other parts of your site. You can track:
- Most viewed promotions;
- Most clicked promotions;
- Internal promotion CTR is calculated as the number of clicks that your internal ad receives divided by the number of times your ad is shown expressed as a percentage.
This set of metrics is located in: Conversions > Ecommerce > Marketing > Internal Promotion (only in Enhanced Ecommerce).
- Conversion rate. Conversion rate is the percentage of visitors that end up buying from your store. A lot of attention is paid to conversion rate because it directly affects your business’s bottom line. Regardless of how much effort is spent in driving traffic to your site, if your prospects do not become customers, or do not end up buying, these efforts are futile. Checking conversion rate in combination with advanced segments enables you to monitor sources of traffic, landing pages, and devices that convert.
- Product adds to cart. This metric shows the number of times a product has been added to the shopping cart by shoppers. It’s useful to compare this metric to product checkout completions to determine the rate at which products that have been added to cart have not completed the checkout process. Having this comparison provides the ability to analyze why products have low conversion rates and if there are some other leakages in the shopping process.
This data is available in: Enhanced Ecommerce at Ecommerce > Shopping Analysis > Product List Performance. It can also be tracked by setting up event tracking associated with users’ clicks on “Add-to-cart” buttons.
- Product checkouts. Similar to product adds to cart, product checkouts show the number of times the product was included in the checkout process. Firstly, some visitors may have added products to cart but did not proceed to checkout. Secondly, some productslikely have not been purchased and it’s worth looking at their conversion rates. These products should be monitored to find opportunities to reduce shopping funnel leaks.
Set up product checkouts by using Enhanced Ecommerce or the event tracking of the clicks on “proceed to checkout” button.
- Product removes from cart. The metric shows the number of times a product has been removed from the shopping cart. It can be measured either via Enhanced Ecommerce or by setting up an event that tracks product removals from shopping carts. Monitor the number of products that have been added and then removed from the cart more often than others. It indicates that product features are not satisfactory for customers or there are other alternative products in your store with similar features.
- Product refunds. This metric is available in Google Analytics dashboards with Enhanced Ecommerce tracking enabled. It shows the number of times refunds have been issued to each product or SKU. Special attention should be paid to products with high refund-to-purchase rate — i.e., product refunds amount divided by product revenue. Corresponding metrics for the calculation can be found in the Product Performance report.
After visitors have converted into customers, it is time to measure the impact of these conversions to your business. This group of metrics (a) enables us to determine how different products and brands contribute to the bottom line, (b) helps us to monitor operations, and (c) informs us on how well our core business activities perform.
- Net revenue. Revenue is the first outcome of conversions. It’s the lifeblood of your business. It should be tracked daily, weekly, monthly, and annually. Net revenue shows revenue after returns, discounts, and other allowances. Although net revenue cannot be directly tracked, it can be calculated using the formulas below.
Net revenue = Total revenue – (Product refunds + allowances + discounts)
Total revenue = Total product revenue + Total tax + Total shipping
There are three options for tracking “discounts”: (a) product prices and transaction total after discounts — per item, (b) track additional items with negative values, and label them as “discounts,” or (c) track with an event to indicate a promotional code, transaction ID, and integer value.
- Gross profit. Gross Profit is the net revenue less cost of goods sold. Gross profit is a fundamental key performance indicator of any business that sells products. It measures profit generated from each product you sell. It can be calculated only by having access to all accounting data.
Gross profit = Net revenue – Cost of goods sold
The second method to calculate gross profit is using the “gross margin percentage.” The GMP can be used alongside the metrics from Google Analytics to calculate the total gross profit for the campaign, from which costs can be deducted to arrive at your net profit.
- Average order value. AOV is the average size of an order in your ecommerce site. It is calculated by dividing revenue by the number of transactions. Monitor how much money each order brings to project on how much revenue can be generated, potentially. Average order value is a key metric because it shows the average value generated from all transactions. Increasing it by up-selling or increasing basket size is a way of increasing revenues with the same purchase volume.
- Average order size. Average order size is the amount of products sold divided by the number of orders-transactions for a given period. Similar to revenue, you should always keep track of daily, weekly, monthly, and yearly orders. Tracking average order size will enable you to understand where and how to improve and increase revenue.
- Product revenue. Product revenue is the total revenue generated from a product or a set of products. It is tracked directly in Google Analytics and is displayed in Product Performance Report.
- Unique purchases. Unique purchases is the number of times a product or a set of products have been part of a transaction. The total unique purchases of a product are not necessarily equal to the total number of units sold for a product in a single transaction. This metric is displayed directly in the Product Performance Report.
These are the most vital ecommerce conversion metrics that should be tracked in Google Analytics. View in Product Performance Report, Sales Performance Report, and Transactions Report. They serve as a base for calculating other rates and indexes.
The fourth stage of interaction is managing relationships with customers and retaining them, and thereby sustaining business. The key goal of this stage is to understand the needs of your customers and their behavior in order to increase the number of repeat purchases.
- Customer lifetime value. CLV is projected revenue that a customer is likely to generate over her lifetime. Customer lifetime value represents the net present value of a single customer.
CLV enables you optimize your marketing and traffic generation, by giving you an upper spending level for acquisition, reactivation, and customer service overheads. CLV is not readily available in any Google Analytics report. But it can be viewed by creating an advanced segment that shows users that have made more than one purchase in your store over a specific period.
Twelve months is typically a good period to base CLV. But it can vary from business to business. The time period for return customers in a furniture business could be in double-digit months, if not years. It would differ from a consumer electronics or online grocery business that might have customers shop more regularly.
As soon as you spot a high potential customer segment, focus on giving it special treatment; inquire further into source acquisition channels and the products or product those customer groups purchased, to spot any trends.
- Ratio of new customers to repeat customers. This ratio reveals the share of revenue coming from repeat customers, and the potential of converting new visitors to repeat customers. View these figures in the context of absolute values, as ratios might fluctuate both due to an increased customer acquisitions, or repeat purchase drops. From the Audience Report below we can see:
- Percentage of sessions from new and returning visitors;
- Percentage of transactions;
- Revenue and ecommerce conversion rate for each group.
More than 60 percent of revenue in the example below has been generated by returning customers; their importance cannot be underestimated.
- Repeat purchase rate. Repeat purchase rate shows how repeat business develops, when and which of your customers stop buying, as well as the right time to communicate with them. The metric is calculated as purchases from repeat customers divided by all purchases on a site over a given date range.
This set of metrics is not exhaustive, but reflects the four main stages of interaction with customers. For better decisions and to increase the performance of your ecommerce store, focus only on specific metrics. For example, if you want to increase revenue by 10 percent over the next quarter, you should decide the best way to do it, such as:
- Increase traffic by 10 percent — i.e., increase marketing spend;
- Increase conversion by 10 percent by eliminating conversion barriers;
- Increase average order value by 10 percent or raise prices by 10 percent.
To translate a metric into actionable data, identify the strengths of your site and find opportunities to develop these key drivers to increase performance.