Similarly, in ecommerce – and in business, more generally – KPIs, or key performance indicators, are your grades. They provide a grade on how your store is doing with regard to a few different areas of importance. t But, if you’ve ever looked at a metrics dashboard, it can be a bit overwhelming if you don’t know which ones are particularly useful or important for your ecommerce business.
For any ecommerce business, conversion rate is an important metric to watch.. This KPI tells you how many of the shoppers that visit your site are converting to customers. CPM, or cost per mille, is critical when measuring revenue generated from advertising. CPM measures the advertising cost of every 1,000 impressions on your website.
And clicks, as you well know, are simply the number of clicks your ads are getting. Tracking these can give you a better idea of how well your ads are performing as well as which ads perform the best
In this article, we’ll get into the nitty gritty on these and other important KPIs that you should be tracking.
What is a KPI?
This means that you decide what’s important to your business, and, therefore, what you track.
There are innumerable types of KPIs out there, and each falls under one of five broad categories: revenue growth, revenue-per-customer, profit margins, customer retention, and customer satisfaction.
In ecommerce marketing, we’re concerned with closely tracking all five of them in one way or another.
Staying on top of your KPIs can help you to identify opportunities in your growth strategy, and, ultimately, increase your store’s traffic and close more business.
Which marketing KPIs should your ecommerce store track?
In this section, we’ll review in detail each of the KPIs for marketing you should be keeping an eye on, like CPC, CPA, ROAS, and CTRs, to name a few.
1. Conversion Rate (a.k.a. Win Rate)
Conversion rate is an important metric regardless of whether you sell physical products or services. This KPI tells you what percentage of your users or visitors are taking action as a result of their visit. For example, if your ecommerce store sells t-shirts, you’ll ideally want your website visitors to buy t-shirts. The desired action here is a completed t-shirt purchase. Shoppers who have taken this action are considered conversions and become part of your conversion rate.
Now, you might be wondering what a good conversion rate is. In a perfect world, 100% conversion is the goal, however we know that isn’t realistic. According to SmartInsights, a good conversion rate is somewhere between 1 and 5%. This means that if your store’s website has 1,000 monthly visitors and 40 of them actually make a purchase, you can go ahead and give yourself a pat on the back since you have seen a 4% conversion rate.
If you have to choose one thing to track, be sure that it’s conversion rate. This is a must for all ecommerce stores.
2. Cost Per Click (CPC)
Cost-per-click, or CPC, is the amount that you pay for each click on one of your advertisements.
As an advertiser, you want this number to be as low as possible. Conversely, if you’re someone who hosts paid ads on your website, then you’ll want this number to be as high as possible.
Most ecommerce stores will fall into the first category - those businesses advertising online. CPC is directly related to pay-per-click advertising, and means you only pay when someone clicks on your ad. Understanding and tracking this important KPI is critical to properly managing your marketing budget.
What’s the difference between a click and an impression?
This is a question that has confused online advertisers since the internet was invented.
But just because it’s confusing, doesn’t mean you should ignore it, because impressions are important.
Impressions tell you how many times your ad has been shown by Google or a similar ads network - it’s also been referred to as “the number of eyes” your ad has been shown to. Impressions simply mean a prospective customer has seen your ad without having necessarily interacted with it.
Impressions are important from a financial standpoint. There’s a unique KPI involving impressions that’s called CPM, or Cost per Mille, which we’ll review in more detail next. This metric indicates the cost for every 1,000 impressions an advertisement receives.
4. Cost per Mille (CPM)
“Mille,” meaning one thousand in Latin, has been adopted by digital marketers as a fancy way to say cost per 1,000 views.
As we mentioned above, impressions, or views, are important, but are less valuable than clicks which are direct engagements with your ads. For this reason, impressions are bundled by the thousand.
If you’re someone who runs ads online, you’ll encounter CPM frequently when reviewing your reports. CPM is easy to calculate quickly by using this basic formula:
CPM = (Impressions / 1,000) / Cost
This formula allows you to easily understand how much you’ll be charged for every 1,000 views your ad gets.
5. Click-Through Rate (CTR)
Click-through rate tells you how many times one of your ads is clicked on versus how many times it’s been shown.
The simple formula for CTR is as follows:
CTR = # of clicks / # of impressions
Of course, you’ll always have vastly more impressions than clicks. Even well-established companies have a small fraction of clicks when compared to their total number of impressions. The question then becomes, how do you know if your ads have a good click-through rate?
The average click-through rate globally for search ads between 2018 and 2020 was between 1.7 and 2.8%. If yours are performing in this range or better, then you’re doing great!
Is your CTR lagging? Here are some ways to increase your organic click-through rate.
6. Cost per Action (CPA)
7. Return on Advertising Spend (ROAS)
Return on Ad Spend, or ROAS, is critical if you’re paying for any type of advertising.
This KPI calculates the revenue that you’ve earned as a result of your total advertising spend. Basically, it tells you whether or not your ads are worth the cost.
ROAS can be calculated using this simple formula:
ROAS = Revenue from Ads / Cost of Ads
As you can see from the formula, your revenue needs to be greater than the cost of your ads in order for you to make a positive return on your spend.
Michael is a freelancer from New York City. When he isn’t writing about how Kliken unleashes the marketing, you can find him reading, writing for pleasure, or traveling the globe.
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