A roadmap for decoding the data for online sellers
During the pandemic, ecommerce kept business moving. With brick-and-mortar stores shuttered, transitioning to online sales seemed effortless. As the world reopened, the challenges of selling home goods in a digital setting began to emerge. Online sellers who invested in learning the nuances of e-commerce metrics gained a strategic advantage.
Why are these metrics – and not just the sales – so important? Conversion rates, bounce rates, average order value and customer acquisition costs deliver important insights into your customers’ (and potential customers’) buying journeys. Analyzing this data helps identify behavioral trends and areas for improvement, whether it's refining product launch strategies or enhanced storytelling.
Ultimately, it comes down to understanding your customers' wants and needs to maximize the return on your investment. Which is just smart business, right?
A guide to the insights beyond the sales
Let's delve into each metric to uncover its significance and how it can move your e-commerce business forward. With training and testing, your digital marketing initiatives will begin to drive increased profitability and long-term success in the competitive world of online selling.
Bounce Rate
Your website’s bounce rate represents the percentage of visitors who navigate away from the site after viewing only one page. A higher bounce rate reflects potential low relevance to the referring page (consumer expectations) and engagement level of your website's landing pages.
Improving a low bounce begins with a comprehensive audit of key landing pages.
· Where is traffic originating from?
· Is the copy compelling and on-point with expectations?
· Do the images and videos help tell your product story?
· Can the path to purchase be simplified?
How to calculate bounce rate. Total number of single-page sessions / Total number of sessions * 100. For example, if your website has 500 single-page sessions out of 1,000 total sessions, your bounce rate would be 50%.
Conversion Rate
Conversion rate refers to the percentage of website visitors who complete a desired action, such as completing a purchase. For non-transactional sites, the point of conversion might be signing up for a newsletter or submitting a query for more information. Whether you’re selling online or tracking in-store traffic, a high conversion rate is a key success indicator and can be the result of compelling product copy, engaging images and a seamless path to purchase. Trouble is, a low conversion rate can signal a problem with any one of these or all three. Testing each component individually requires time and resources but it remains the only way to improve a low conversion rate.
How to calculate conversion rate. Total number of conversions / Total number of website visitors * 100. For example, if your website receives 1,000 visitors and 50 of them make a purchase, your conversion rate would be 5%.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost measures the average cost incurred to acquire a new customer. It encompasses all expenses associated with marketing and sales efforts aimed at attracting and converting leads into paying customers. Calculating CAC will provide clear insights into evaluating the effectiveness of your marketing campaigns and assess the return on investment (ROI) for each customer acquisition channel.
A low CAC indicates you’re efficiently acquiring customers at minimal cost, resulting in higher profit margins. Conversely, a high CAC may indicate inefficiencies in marketing strategies or excessive spending on customer acquisition.
How to calculate CAC. CAC = Total Cost of Acquiring Customers / Number of Customers Acquired
Divide the total cost of acquiring customers (including marketing and sales expenses) by the number of customers acquired during a specific period. If you spend $10,000 on marketing and sales efforts in a month and acquire 100 new customers during that same period, the CAC would be $100 per customer.
Return On Investment (ROI)
Return on Investment (ROI) is a financial metric used to evaluate the profitability and efficiency of an investment relative to its cost. It quantifies the ratio between the net profit generated by an investment and the initial investment. Essentially, ROI answers the question: "How much return am I getting for every dollar invested?"
A positive ROI indicates that the investment has generated a profit, while a negative ROI signifies a loss. It’s a versatile metric that allows you to make data-driven decisions on future marketing campaigns.
How to calculate ROI. ROI = (Net Profit / Cost of Investment) x 100%
Net profit is determined by subtracting the investment from the total revenue generated or the final value of the investment. The resulting percentage indicates the return achieved relative to the investment's cost.
Average Order Value (AOV)
As leads convert to sales, calculating the Average Order Value (AOV) becomes crucial in understanding purchasing trends. Each transaction serves as a key indicator of overall revenue generated, essential for evaluating marketing strategies, pricing tactics and upselling efforts.
How to calculate AOV. Divide the total revenue generated from sales by the number of orders received during a specific period. The formula for AOV is: AOV = Total Revenue / Number of Orders.
For instance, if a marketing campaign generates $10,000 in revenue from 100 orders in a month, the AOV would be calculated as follows: AOV = $10,000 / 100 = $100. This means that, on average, each order contributes $100 to the company's revenue. Monitoring AOV over time identifies trends, tracks the effectiveness of pricing strategies, which will help you implement tactics to enhance the value of each transaction.
Transitioning from traditional brick-and-mortar sales to e-commerce presents both challenges and opportunities for online sellers. By embracing and understanding e-commerce metrics you’ll gain valuable insights into customer behavior and purchasing trends. These metrics will serve as a roadmap for optimizing marketing strategies, refining pricing tactics and enhancing your customers’ experience. With continuous testing and refinement, you’ll increase profitability and foster sustainable growth.
Who the heck is Julia Rosien?
As a digital brand marketer, I’m passionate about technology and how it can help us do what we do – better. How we interact with technology – personally and professionally – is where the magic happens and it’s where smart marketers focus their energy. Experience and insights coupled with emerging digital tools leads to best in class brand marketing for today’s connected consumer. Connect with me on LinkedIn.