Marketplaces are fascinating as they include every component of the modern economy. A multi-vendor marketplace lets you explore a plethora of products from various stores and offers you absolutely anything: be it a home appliance or an apartment on any spot of the globe. Top multi-vendor stores like eBay, Etsy, Uber, and Amazon make a marketplace appear simple. Potential buyers click on their desired products, and whosoever the vendor, the purchased product lands up at their doorstep and offers an amazing shopping experience all from a single site. Marketplaces are highly profitable, liquid, and scalable, and follow certain key metrics. To create a global-level marketplace, you must be aware of them and be able to measure them. Data monitoring, analytics systems, and profound knowledge of key indicators are at the core of the success of e-commerce giants like Airbnb, Uber, Etsy, and Amazon – and will be prime to your success story too. To take the perfect measure of your marketplace you have to know the key performance indicators (KPIs) which are multiple factors that help to determine webmasters, website owners, and marketing executives the success of their site and the revenue stream.
Keeping track of KPIs helps eCommerce managers to gauge progress with regard to marketing, sales as well as customer assistance objectives. You should select KPIs based on your business plans so that you can carry out informed and critical decisions.
KPIs Important For E-commerce Store And Their Growth
The five vital e-commerce KPIs that play a significant role in the expansion and growth of your online store and help to measure your success are as follows:
KPI # 1. Cost Per Acquisition And Lifetime Value
These two KPIs occupy the top list as it determines all selling and marketing efforts that you undertake. In fact, acquiring customers makes you invest money, be it acquiring them through social media lead magnets, marketing of content, or advertising via pay-per-click, on Snapchat, or also by the promotion of a new podcast, it does involve money and financing.
In the PPC (pay-per-click) realm, an “acquisition” occurs when any user who clicks on your ad carries out a purchase or works with you. Cost-per-acquisition (CPA) forms the gold standard in PPC measurement systems as it estimates the average cost of procuring a revenue-garnering customer.
You can still continue to bear costs while writing social media posts or informative pieces of content to engage organic visits. If you want to gain your stature, low-quality content for blogs will fail to make it on SERPs (search engine results pages).
Data reveals that a blog containing 2000 words ranks perfectly. This indicates that you have to pay for 12 hours or more by way of the cost of labor to obtain a single piece of content that is high-grade. Moreover, labor is not available cheap when it comes to hiring ace writers.
Every bit of it requires design, software advancement, and labor that contributes towards your cost of acquisition. To put it in simple words, cost per acquisition represents the average sum of money that your e-commerce outlet requires to spend to gain every customer. Cost per acquisition is essentially important because it tremendously influences your acquisition planning. CPA measures the total cost to gain a paying customer from distribution networks or campaigns.
Lifetime Value Also Gives You The Complete Picture
Customer lifetime value refers to the average sum of money that one customer spends on your e-commerce store throughout their lifetime. There exists a connection between these e-commerce KPIs.
For instance, if your cost per acquisition is $60 that amounts to sixty bucks per customer for carrying out business with him. But, all by itself this does not speak much. Now, suppose your lifetime value is $55.
Only, then you can draw some sense out of these e-commerce KPIs. From the above-given instance, your acquisition costs are pretty high, as they exceed the amount spent by the customer with you!
However, if your lifetime value is $600, a $60 cost per acquisition means nothing!
Therefore, while evaluating e-commerce KPIs, you need to begin from above with customer acquisition costs and lifetime value.
KPI # 2. Business Expansion Plus Profitability
To view the resourcefulness of your marketplace, begin by taking into account the volume of its trade flow. GMV or Gross Merchandise Volume represents the overall product value and services sold across a marketplace within a given period – and is a prime indicator with regard to retail-oriented online businesses.
Moreover, you should analyze the specific needs and peculiarities of your business framework. Like if your income generates from commission fees, you need to keep track of GTV (Gross Transaction Value) rather, because Gross Merchandise Volume (GMV) helps to measure the marketplace volume and is not able to inform you of the value that you the owner of a marketplace will be gaining from its activities.
In addition, it is essential to mention that in service marketplaces with clients buying services instead of products, it is recommended to differentiate between ‘real’ GMV and ‘contracted’ and bear in mind that both their figures can vary hugely. The canceled plus refunded purchases also require consideration while determining turnover.
GTV = total number of transactions * AOV (average order value) * Take Rate (% from every transaction)
GMV = total number of transactions * AOV
Another main indicator is Net Profit (NP) which has to be measured after counting all expenses
NP = TR (total revenue) – TC (total cost = (COGS) costs of goods sold + operating expenses
When net profit is equivalent to the total cost, you are not generating any profit in a real sense, but only covering
When net profit equals total cost, you’re at the point of covering your expenses – but not actually making any profit.
When NP > TC, your marketplace is making a profit as is gaining more than its spending. Likewise, NP = TC indicates a marketplace that is not generating profit but is at a broken-even point. You are losing money if your Net Profit is less than your total cost.
KPI#3. Return on Investment (ROI)- Key Performance Indicators
A financial indicator ROI informs you about what you are receiving out of money paid towards advertising and promotion of your marketplace More particularly, return on investment lets you know about the possible generation of income when you focus your resources towards a specific marketing channel.
ROI is measured by dividing the rise of sales produced by a certain marketing effort by the cost incurred from it and multiplying the number that results by 100%. In case, the resultant number is 100 or more, then your investment is worthwhile and profitable.
It is essential to note that at the start of your venture, your ROI figures may be on the negative side. But, still, you need not worry if you have intelligently set up and planned your marketplace, as soon they are likely to lean on the positive side after some months.
You should know that quantitative metrics such as ROI, do form a critical component of your KPI combination, but they only inform you when things move on the right track and when it does not, but fail to present any instant solution with regard to the proper path to be followed.
In fact, to ensure the long-term expansion of your marketplace, you have to invest and clearly identify the efforts that are indeed paying off.
KPI#4. Average Order Value (AOV)- Key Performance Indicators
An e-commerce KPI, Average order value reveals the volume of an average order on your site. This indicates the average amount of each order made on your site within a specific time period. AOV informs you of the number of people who prefer to purchase from you and its quantity.
To put it simply, AOV refers to the total revenue or sum total of your orders divided by the total number of orders you have during that time or period. Your understanding of AOV helps in knowing the lifetime value of your consumer as well as planning and aligning your marketing strategies for optimal growth. You come to know about your present selling strategy through AOV.
After all, it’s different to receive 1,500 new orders in your retail store for $5 in comparison to $750 orders for $100. The amount of revenue generated varies hugely. Many people are drawn towards acquiring more orders. But, in most cases, the quickest method to raise total revenue is not by having more customers.
This is because you are paying for acquiring more customers, and it is likely that they may not spend hugely on your products. Generally, repeat buyers spend the maximum on a business. In such an event, you do not require huge orders but only a huge average order value. Therefore, as an owner of e-commerce or a specialist in digital marketing, your goal should be to maximize the AOV prior to the total volume of orders.
AOV is a helpful metric for monitoring how properly you are selling to present, new, and loyal consumers and also fulfilling the shipping choices of your customers as it helps to define the limits for free shipping. You can raise your AOV by providing shipping value through a strategy of free shipping for all orders that are above $30.
Also Read: Best WordPress Affiliate Plugins
KPI#5. Rate Of Cart Abandonment
This rate denotes the percentage of potential consumers who abandon their cart after placing your products in the shopping cart without finishing the checkout procedure which is a negative indicator for your store.
This small worrisome e-commerce KPI suggests a lot with regard to your present store and site. Cart abandonment lets you know whether your website is driving people out in masses and is a disturbing metric to view on a dashboard. But, overall it is a useful and telling metric to evaluate and reduce friction and pain points.
For instance, if you find a low shopping cart rate of abandonment you can improve friction by discarding the “buy later” button which can be annoying during the completion of the checkout process. The lower the rate of cart abandonment, the better the success of your online store.
This rate refers to the number of potential customers who are adding your products to the shopping cart but are not completing the checkout process which is not a good sign for your store. The lower this rate the better for your store. If you have a low Shopping cart abandonment rate you can optimize friction, for example, you can omit the “buy later” button which is distracting while completing the checkout process.
Average eCommerce outlets suffer from such cart abandonment due to common reasons like expensive shipping, lengthy checkout process, lack of free shipping, defective site UI, and research. Fortunately, due to Amazon, shipping has emerged as a value point exclusively as it delivers within two days or on the same day. Amazon is a winner in the shipping game not due to their two-day shipping duration, but even because they have clarity regarding your expectations of shipping prior to your order of the product.
Conclusion on Key Performance Indicators
There are endless e-commerce KPIs, and the above-mentioned ones are some of the significant ones around. However, you should apply these metrics to create a dedicated customer base, conduct powerful marketing campaigns, and essentially draw higher sales. Optimize these KPIs for a better outcome, ensure success in your marketplace, make informed strategies with regard to your WooCommerce outlets, and measure revenue gains.