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A CEO’s Guide to e-Commerce Metrics

High Level Metrics

This is the first in a series of CEO Guides designed to give simple, clear explanations of Digital Marketing and Commerce to the CEO.

Are you frustrated trying to get straight answers from your e-Commerce folks as to why sales numbers are not going up. Or do you want to know why they are going up so you can invest further in it? You are not alone. Here is a simple formula to base your strategy on.

The Formula

Traffic X Conversions X AOS=R with R being Revenue

 

There are three things that drive e-Commerce success:

  1. Traffic
  2. Conversions
  3. Average Order Size

Moving the needle

Any of the above metrics can move your e-Commerce business forward. Let’s look at each in a little detail.

  1. Driving more traffic – Easy The easiest of the three metrics to move is traffic. Either you increase your efforts in Search Engine Optimization or you use Pay Per Click advertising. Either way will get more traffic but you will need to be sure the cost of the customer does not exceed the sales.
  2. Increasing Conversions – Difficult Every website can stand a close look at their page flow and shopping cart to see how they can improve conversions. The conversion that matters is hitting the “complete order button” but also look to see what your shopping cart abandonment rate is.  Increasing conversions will be a discussion for a future post.
  3. Average Order SizeDifficult Increasing your Average Order Size is easier said than done. However if you have a product line that enables you to cross-sell or up-sell, this could be a very good option for increasing your e-Commerce bottom line at a low cost.

Take a look at the table below showing a baseline of online sales vs. 3 ways to increase revenue.

Traffic Conversion AOS Revenue
Baseline 1,000 0.50% $100 $500
Increase Traffic 2,000 0.50% $100 $1,000
Increase AOS 1,000 0.50% $150 $750
Increase Conversion 1,000 0.75% $100 $750

At first glance it appears that increasing traffic is the best option. This would be true if the cost of the PPC program to increase traffic, the efforts to increase Average Order Size and the site changes to increase conversion where all of equal cost. Knowing your Cost Per Conversion is key.

Which Site Metric Should You Look to Increase?

In general, I prefer the following. First, increase conversions by working on your site usability, then work on AOS, then work on increasing traffic. As discussed increasing traffic is relatively easy but can be costly. Plus increasing traffic before you have made at least several rounds of increasing your conversion rate and AOS, you’ll be leaving money on the table. Next work on increasing your AOS. Show complementary products in the cart with an add-to-cart button along with other options to increase your Average Order Size. Now that you’re running on all cylinders it’s time to pump up the traffic.

Know Your Metrics

Make sure to have a weekly review with your e-Commerce team to discuss which of the metrics they are working on to increase revenue. Once you understand the cost behind each, as well as the potential growth, you can help them find the best mix for your company.

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