This post will provide a framework for identifying, tracking and visualizing key performance indicators. This applies to all company sizes – large and small.
Start by creating the most important metrics for your business.
CPI for e-commerce
First, determine the reporting period. Every week? Monthly? The answer usually depends on who is monitoring.
The management is probably looking at the data once a month. Mid-level managers need it every week, usually. Marketing and operations personnel conducting campaigns may require the information daily or even per hour. The good news is that many business intelligence tools allow custom timeframes.
E-commerce business CPIs usually include:
- Revenue and profit. Choose whether you want to track revenue, profit or both. Then, well decided, keep it consistent in all reports. Income and profit are usually the broadest CPIs.
- Number of customers. How many unique consumers have bought from you?
- New customers. Understanding the proportion of new customers helps evaluate marketing results and growth opportunities.
- Customer lifetime. How much value does each customer represent? A quick calculation is to multiply a customer's average order size by the estimated number of lifetime purchases.
- Average order size, the whole company. Divide total revenue by the total number of customers. An increasing average order size may indicate success with products that sell or bundle.
- Frequency of purchases. Share the total number of transactions with the total number of customers. This gives a rough indication of repeat buyers. Choose the period that makes sense for your business – for example, six months, one year, five years. The period usually depends on the type of products. A merchant selling baby clothes would probably not track for more than two years. But a merchant who offers household cleaning can use ten years or more.
- On-site conversion. Divide the total number of customers by the number of visitors. This provides insights on how your marketing can identify potential customers. However, tracking total visitors can be helpful as it indicates brand awareness.
- Customer's acquisition cost. Divide your total marketing spend by the number of new customers. Ideally, your CAC will decrease over time with consistent advertising efforts.
Once you have established your KPIs, you set alerts and notifications for meaningful increases or decreases. Identifying problems quickly can prevent long-term damage. Drill down to the root cause, for example:
- Source. Did the customer come from a display ad or social media post? How can messages be improved or, for success, increased?
- Geography. Do certain regions – countries, states, cities – produce more or fewer customers?
- Marketing. Can more marketing get new customers?
- Basket Analysis. What products are purchased together? Do customers buy multiple items from the same category? Different categories?
Identifying the cause of a problem KPI is not always easy. Often, advanced analysis is required. For example, increasing customer acquisition costs may have several reasons, such as new competitors, competing products, and a change in consumer demand.
If the purchase rate does not increase, consider a segmentation analysis for marketing insights to specific consumer groups or for certain product categories.
Charts and charts can help interpret your KPIs. The type of visualization depends on the purpose.
- Bar or line diagram can show CPI trends over time for insights on seasonal and total increases and decreases.
- pie Chart can, for example, visualize new versus repeated customers or traffic sources per percent.
- Map View can quickly show where your customers live.
- Table View can produce comparisons compared to several indicators, for example seasonal by product and traffic source.
Other useful visualization tools in my experience include funnel (for multi-stage conversations), bubble charts (to understand high performance products of, say, three metrics), and waterfall charts (to show how different components affect a metric, such as profit).