Tuesday, January 15, 2013

5 KPI's for an E-Commerce Website



Key performance indicators, KPIs, reflect a company’s ability to monitor specific goals and objectives by analyzing consumer behaviors while on their websites. A company will choose KPIs that best represent the factors that measure their website’s utility and profitability, such as: content, userabilty, visits, sales goals, ad campaigns, and practically any variable they choose that will correspond with the information they feel will benefit their objectives.
E-commerce Websites use very specific KPI’s that measure their ultimate goal: to increase sales. I have chosen 5 out of an infinite number of KPI possibilities that would a great starting point for a novice web analyst to utilize. Another reason I chose to talk about these 5 KPIs is their direct relationship and importance in brick-and-mortar retail stores. They correspond perfectly with the KPIs used on a daily basis to measure sales goals and set expectations for the sales team. Though the names are different they provide the same type of information that managers use create strategy and business plans.
 I will describe what the KPI measures, and the formula used to calculate each of the KPIs for a conceptual understanding. Though they are very basic they will serve as the foundation of analysis and will serve in many aspects of business.

1)   Cost per Transaction (CPT): This measurement reflects the amount of money spent on ad campaigns, such as banners, Adwords, e-mails, and then divides that by the number of transactions over a given period. This is helpful when deciding the advertising budget, and in identifying which type of promotional efforts drive the most people to your site; as a successful campaign would increase site visits, and in turn increase sales transaction.
Ex: $50,000 in promotions/100,000 transactions= .50 cost per transaction.

2)   Click through rate: (CTR): In essence the CTR is the number of clicks on an advertisement divided by the impressions, which are the number of times an advertisement was shown.  In essence the CTR is representing the effectiveness of the email campaigns, ad placement, and other advertisement decisions.  The CTR works in congruence with the cost per transaction. If you increase the CTR the CPT will inherently go down.
EX: CTR = 66 click-throughs /  80 Impressions = 82% CTR

3)   Average transaction value (ATV): This value represents the average that each customer is spending at time. It is an important KPI because it reflects the overall effectiveness of a website: promotions that are currently running, availability of the items the customer is looking for, ease of navigating the site, and so forth.  A low average transaction value could reveal where the website is lacking and efforts to improve those areas could be set into action. The ATV would then reflect if the appropriate things were fixed and/or affective.
Ex: $60,500 in sales/ 345 transactions = 175.36 ATV.

4)   Average items in basket (AIB): This is used in conjunction with the AVT, but reflects how many units are purchased at a time per transaction. This is useful information because it can indicate whether or not your site is suggesting items that go along with the item purchased or showing the items that other customers bought at the same time. Think Amazon; they are fantastic at increasing the average items in a basket by suggesting additional items, though at a slight discount, they are still increasing their sales volume by adding on to the buyer.
EX: Basket 1= 3 items; Basket 2= 1 item; Basket 3= 6 items
AIB= 10 items/ 3 transactions= 3.33 items per transaction.

5)   Checkout abandonment rate (CAR): This is the percentage of people that start to checkout and then, for some reason, have second thoughts and leave the site. It is important to figure out at which step this is happening, assess the possible reasons and then fix it. It is such a shame to lose out on a sale when the customer has come that far! 
EX: 233 people hit check out; 155 people completed their transaction.
78 abandons / 233 initiated checkouts = 33% abandonment rate.

With these 5 KPIs a company of any size can start analyzing the effectiveness of their website and start reaching their goals.  All it takes is very basic knowledge of key performance indicators, web analytics, and Google Analytics to get you going.

References:

Kaushik, A. (December 12, 2011). Occam's Razor. In Best Web Metrics / KPIs for a  Small, Medium or Large Sized Business. Retrieved January 15,2012, from  http://www.kaushik.net/avinash/best-web-metrics-kpis-small-medium-large-business/.
Kaushik, A. (September 16, 2008). Occam's Razor. In Six Web Metrics / Key   Performance Indicators To Die For. Retrieved January 15,2012, from http://www.kaushik.net/avinash/ruleschoosing-web-analytics-key-performance-indicators/.
Kaushik, A. (April 19, 2010). Occam's Razor. In Web Analytics 101: Definitions: Goals,  Metrics, KPIs, Dimensions, Targets. Retrieved January 15,2012, from           http://www.kaushik.net/avinash/web-analytics-101-definitions-goals-metrics-kpis-dimensions-targets/#kpi.
Zotos, D. (October 11, 2011). Webseo. In 20 KPIs You Should Monitor in Google         Analytics. Retrieved January 15,2012, from http://www.webseoanalytics.com/blog/20-kpis-you-should-monitor-in-google-analytics/.