There is a lot of noise and distractions around which metrics you should be focusing on as an ecommerce business owner. My goal for writing this is to boil it down to 5 KPIs that directly impact the growth of your business and why you should care about them. See below:
1) Customer Lifetime Value (CLTV)
- This metric directly measures the dollar amount that each customer is worth to your business over a set period of time.
- This allows you to set measurable goals for how much revenue you want to generate for your business, as well as how many customers it will require to hit your revenue goals – which is directly tied to the growth of your company.
2) Customer Acquisition Cost (CAC)
- This metric directly measures how much it will cost you as a business owner to earn or gain one client. You should aim to keep this as low as you can, without it impacting your ability to gain new business. We call this the Goldilocks Zone.
- This allows you insight on where and how to price your products to maintain a profit.
3) Conversion Rate
- This metric measures the percentage of leads that convert into customers through whatever marketing channel you decided on using (Facebook, Google Ads, etc)
- The implications of this metric are crucial. Increase this, and your revenue increases. Fail to maintain or increase this, and your revenue either stagnates or decreases. For eCommerce businesses, this is a vitally important metric.
4) Return On Ad Spend (ROAS)
- This metric measures the ratio of dollars vs revenue generated by your paid ads marketing. The more outsized returns you can keep this ratio, the more effective your marketing will be.
- The average ROAS for eCommerce businesses is 2.87 – meaning for every dollar spent on Ads, $2.87 is earned in revenue as a result.
5) Customer Retention Rate
- This measures what percentage of your customers return to make second, third, and so on purchases.
- Pro Tip: If you have a really good product, email marketing is your best friend here. Easiest way to get return customers.
There you go. Ecommerce, classified and simplified.
Feel free to reach out at the following email for any thoughts, questions, or concerns: james.aster-analytics@outlook.com
Thanks,
James Gregory