Every business should be tracking their key performance indicator (KPI) metrics in order to measure their success. You should consider a range of KPIs together to get a complete picture of your business performance, as looking at one KPI in isolation won’t give you the full context you need to understand your business’s health. This is key to identifying areas that need improvement, measuring business ROI, and optimising business performance. But with so many metrics available, it can be difficult to know which ones are the important ones that will give you a clear, reliable idea of your business performance. After all, most eCommerce businesses are tracking the wrong KPIs, or even worse, none at all.
So let’s look at what the most important eCommerce KPIs are and how to calculate them.
The Best eCommerce KPIs
Contribution Margin
Calculating your contribution margin tells you how much money you have left from your sales price after your variable costs have been removed. This includes things like the cost per acquisition (CPA), cost of goods sold (COGS), and freight costs. Although this can be calculated on a company-wide scale, it is also worth doing at a channel and individual product level in order to determine channel and product profitability.
I recommend working out the contribution margin in both dollars and as a percentage. Analysing this metric in both formats provides a clearer picture, allowing you to see which products generate the highest contribution in absolute dollars and in terms of ratio. This approach can also help identify products that may be losing money or those that need operational improvements to boost their contribution margin.
Here’s the formula to calculate your contribution margin:
The higher the contribution margin the better. To increase your contribution margin, you’ll need to either reduce your variable costs or increase your revenue. I recommend reducing your variable costs by negotiating better terms with your suppliers. Go through each line item you’re wanting to reduce your contribution margin for individually with your suppliers and see if you can negotiate better prices. If better prices aren’t possible, try negotiating more volume discounts and/or payment terms to aid your cash flow.
Learn more about contribution margins here.
New Customer Acquisition Cost (nCAC)
New customer acquisition cost (nCAC) is the cost of acquiring a new customer. It measures the sales and marketing costs required to attract a new customer.
Here’s the formula to calculate your nCAC:
Monitoring this metric can tell you if your nCAC is too high, meaning you’re spending too much on your sales and marketing efforts to acquire new customers. Once you’re aware of this, you can then work towards decreasing your nCAC by improving your marketing strategies, optimising your website, and targeting the right audience.
Although similar to cost per acquisition (CPA), it’s important to track nCAC as a separate metric. CPA includes both returning customers and new customers, which can skew the data. By focusing on nCAC, you can more accurately assess the costs of acquiring new customers and avoid overpaying for returning customers instead of just new customers.
One of the best ways to gather nCAC data for platforms like Meta is to use tools such as UpStackified. Integrating UpStackified will show your nCAC data in Facebook Ads Manager (as seen in the screenshot below), making it easier for you to optimise your nCAC.
Customer Lifetime Value (LTV)
Customer lifetime value (LTV) is the total amount of money a customer is predicted to spend on your website over the course of their relationship with your business based on historical actual spend data. Ideally, you should calculate LTV over different time periods, such as 3 months and 12 months. Not all businesses will have an LTV lift if their products are one-time purchases, but having at least one product with recurring or repeat purchases can significantly increase your revenue potential and stability.
LTV data is important because it helps businesses identify their most valuable cohorts of customers, create targeted marketing campaigns, and foster long-term customer loyalty. This allows you to allocate your marketing budget more effectively, focusing your retention efforts on customers who will contribute the most to your bottom line.
For example, if you ran three offers – 3 for 2, buy one get one free, and 25% off the first order – the groups of customers for each offer would have different total LTVs. To maximise revenue and make the best decisions for your brand, you need to understand that LTV varies from product to product. Using this LTV data, you can forecast future revenue more accurately.
Here’s the formula to calculate your LTV:
There are a number of great tools available (like Lifetimely) to help with LTV data analysis. A high LTV indicates that customers are loyal and likely to make repeat purchases, so maximising your LTV is crucial. Here’s a screenshot showing LTV data through Lifetimely.
To increase LTV, you could look into your coupon discounts and returns from a cohort analysis and LTV perspective as this data can help identify opportunities for optimisation.
Conversion Rate
Conversion rate measures the percentage of website visitors who complete a desired action, such as making a purchase, filling out a form, or subscribing to a newsletter. It’s important to not use this metric in isolation, but rather use it as a baseline to be improved in conjunction with other metrics.
Here’s the formula to calculate your conversion rate:
Usually, a high conversion rate indicates your website is effectively converting visitors to customers, while a low conversion rate could indicate a problem with your website or checkout process. To try to improve your conversion rate, consider optimising your website design, improving the checkout process, ensuring your site is user-friendly (both on desktop and mobile), and driving only relevant traffic to your site. However, bear in mind that it’s not always physically possible to get a higher conversion rate.
To accurately assess your performance, evaluate your conversion rate in relation to your sales channel, average order value (AOV), and industry benchmarks. To find your industry benchmarks, try using a tool like Varos, a database containing data for a variety of businesses from a range of platforms including Meta, Google, and your store.
Conversion rate is a relative figure so can’t be compared to the conversion rate of other products or businesses. Conversion rates also can’t be compared between channels as your Amazon product listing or dedicated landing page might have a higher conversion rate then your relative website product page. Set realistic expectations for your conversion rate, considering that high-ticket items typically have longer conversion cycles and therefore lower conversion rates compared to lower-priced, impulse-buy products.
Returning Customer Rate
The returning customer rate measures how many existing customers have made at least one repeat purchase within a given timeframe. This metric is very valuable for eCommerce businesses. It’s more actionable than metrics like customer churn rate and customer retention rate, and it offers better monitoring of retention changes compared to purchase frequency because it can be measured over shorter periods.
Here’s the formula to calculate your returning customer rate:
To improve your returning customer rate, you can implement and optimise email marketing strategies and subscription programmes, all with the goal of driving customers back to your site and through checkout.
Revenue Per Visitor (RPV)
Revenue per visitor (RPV) measures the amount of money generated each time a customer visits your website. This metric helps evaluate the effectiveness of visitor acquisition efforts and identify which strategies are working.
Here’s the formula to calculate your RPV:
A low RPV may indicate issues with your website or challenges in attracting the right visitors. To increase RPV, focus on improving the conversion rate as well as boosting the average order value (as optimising your conversion rate alone may not have a big impact on RPV). Make it easier to buy, build trust with social proof, and use compelling calls-to-action to improve conversion rates. For higher average order values, consider offering higher-priced products, bulk purchase deals, and upsell options during the sales process. Look to run pricing and CRO tests to see if you can statistically improve your RPV using tools like Convert or Intelligems.
In this image, you can see a CRO test conducted within Convert, in which there was a 6.95% increase in RPV in the new test compared to the original concept.
Break-Even ROAS
Break-even ROAS (Return on Ad Spend) helps determine the point at which your advertising investment generates enough revenue to cover its costs. While it can sometimes be skewed, it’s a valuable reference point to help you achieve healthy unit economics.
Here’s the formula to calculate your break-even ROAS:
Once you have your break-even ROAS for a particular product or campaign, you can determine whether or not you’re profiting from the campaign. When your AOV divided by your CAC equals zero, you’ve achieved a break-even ROAS. If your ROAS is higher than the break-even point, your campaign is generating profit. Conversely, if it’s lower, you’re incurring a loss.
This metric allows you to adjust your marketing strategies, optimise your budget allocation, and make informed decisions to improve your profitability. By continuously monitoring and optimising based on break-even ROAS, you can ensure that your marketing efforts are having a positive effect on your bottom line.
In this spreadsheet you can see an example of the break-even ROAS on the bottom row.
Summary
In conclusion, ecommerce KPIs are essential for measuring the success of your ecommerce business. Key KPIs to track include conversion rate, new customer acquisition cost, customer lifetime value, contribution margin, returning customer rate, revenue per visitor, and break-even ROAS. It’s important to measure these metrics separately for each channel, such as Google Ads and social media, as well as calculating an overall average to reveal hidden insights. By tracking these KPIs, you can identify areas for improvement, make data-driven decisions, and optimise business performance, ultimately taking your eCommerce business to the next level.