For any ecommerce business, understanding the effectiveness of marketing ideas is crucial for growth and long-term success. One of the best ways to achieve this understanding is by tracking the right marketing KPIs (Key Performance Indicators). These metrics offer clear insights into how well your marketing strategies are working, where you can make improvements, and which areas are worth investing in for the future. With so many different KPIs available, it’s essential to focus on those that provide the most value to your specific business model.
In this article, we will cover the top 7 marketing KPIs that every ecommerce business should track.
What Are Marketing KPIs?
Marketing KPIs are measurable values that businesses use to track the effectiveness of their marketing efforts. These KPIs provide insight into how well different parts of your marketing strategy are working. They allow you to assess campaign success, track trends over time, and make decisions based on data.
These indicators are important because they eliminate guesswork. Instead of relying on assumptions, you have clear data that shows areas needing improvement and areas where you’re excelling. When aiming to optimise advertising, improve customer retention, or increase sales, the right KPIs ensure you focus on the most relevant metrics.
Examples of marketing KPIs include Conversion Rate, Customer Lifetime Value (CLV), and Return on Investment (ROI). Tracking these KPIs helps you understand what’s working, identify areas for change, and allocate resources more effectively.
Why Are Marketing KPIs Important for Ecommerce?
Tracking and analysing marketing KPIs is key for ecommerce businesses to optimise their strategies. These metrics provide businesses with the data needed to make informed decisions on where to focus marketing efforts. The right KPIs help you understand which marketing channels drive revenue, which customer segments are most profitable, and where improvements are needed.
Key benefits of tracking KPIs:
- Optimisation: Understanding how well your campaigns are performing can make adjustments to improve results. For example, if you’re spending too much on ads and not converting visitors into sales, you may need to refine your targeting or ad creatives.
- Budget Allocation: KPIs provide the data needed to allocate your marketing budget wisely. Instead of spending on channels that aren’t delivering, you can shift funds to those that bring in the most profit.
- Customer Insights: KPIs like Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC) offer valuable insights into the lifetime worth of your customers and how much it costs to acquire them. This helps you determine whether your customer acquisition strategies are sustainable.
Tracking these KPIs can improve efficiency, maximise ROI, and ensure that your marketing strategies are aligned with your business goals. With the right metrics, you’ll have the clarity you need to grow your business and stay ahead of the competition.
Top 7 Essential Marketing KPIs Every Ecommerce Must Track
Now let’s dive into the top 7 marketing KPIs that every ecommerce business should be tracking. These are the metrics that will give you the most insight into your performance, helping you improve your marketing strategies and increase your revenue.
1. Customer Acquisition Cost (CAC)
What is it?
Customer Acquisition Cost (CAC) measures the total cost of acquiring a new customer. This includes all expenses related to marketing campaigns, advertisements, sales teams, and promotional efforts.
Why track it?
Tracking CAC is essential for understanding the cost-effectiveness of your customer acquisition strategies. If your CAC is too high, it means you are spending more to acquire customers than the revenue they bring in. This could be a sign that your marketing strategies or sales processes need to be revised to become more efficient.
A well-managed CAC ensures that you are not overspending on acquiring customers and can scale your efforts profitably. If your CAC is too high, it’s important to reassess your marketing strategies, targeting, and campaign efficiency.
How to calculate CAC:
The formula for calculating CAC is simple:
CAC = Total Marketing and Sales Expenses / New Customers Acquired
Example:
Let’s say you spent £8,000 on marketing over the course of a month and gained 200 new customers. Your CAC would be:
CAC = £8,000 / 200 = £40
This means it costs £40 to acquire each new customer.
2. Conversion Rate
What is it?
The conversion rate measures the percentage of visitors to your website who complete a desired action, such as making a purchase, filling out a contact form, or signing up for your email list.
Why track it?
A high conversion rate indicates that your website is effective in convincing visitors to take action. Improving your conversion rate is one of the best ways to increase sales and revenue without needing to increase traffic.
If your conversion rate is low, you may need to optimise your website’s design, user experience, or content. It’s important to regularly test and tweak your site to ensure that visitors are finding what they need and converting at a higher rate.
How to calculate Conversion Rate:
The formula to calculate conversion rate is:
Conversion Rate = Total Conversions / Total Visitors × 100
Example:
If your website had 15,000 visitors in a month and 500 of them made a purchase, your conversion rate would be:
Conversion Rate = 500 / 15,000 × 100 = 3.33%
This means 3.33% of your website visitors completed a purchase.
3. Average Order Value (AOV)
What is it?
Average Order Value (AOV) is the average amount customers spend per order. This metric gives you a clear view of how much revenue each order is generating for your business.
Why track it?
Increasing AOV is a great way to boost your revenue without having to attract more visitors to your site. If you can encourage customers to spend more per order, you’ll increase your overall sales. AOV can be increased through strategies like upselling, cross-selling, or offering discounts for larger purchases.
How to calculate AOV:
To calculate AOV, divide total revenue by the number of orders:
AOV = Total Revenue / Number of Orders
Example:
If your store generated £25,000 from 1,250 orders, your AOV would be:
AOV = £25,000 / 1,250 = £20
This means the average customer spends £20 per order.
4. Customer Lifetime Value (CLV)
What is it?
Customer Lifetime Value (CLV) estimates how much revenue a customer will generate over their entire relationship with your business.
Why track it?
CLV is one of the most important metrics because it helps you understand how much you can afford to spend on acquiring new customers. If you know the lifetime value of a customer, you can make more informed decisions about how much to invest in marketing and customer retention.
Focusing on CLV can help you prioritise long-term customer relationships and retention, which often result in higher profits over time.
How to calculate CLV:
Use this formula to calculate CLV:
CLV = AOV × Purchase Frequency × Customer Lifespan
Example:
If your AOV is £30, customers purchase 3 times per year, and the average customer stays with your business for 5 years, the CLV would be:
CLV = £30 × 3 × 5 = £450
This means each customer is worth £450 over the course of their relationship with your business.
5. Return on Investment (ROI)
What is it?
Return on Investment (ROI) is a measure of the profitability of your marketing campaigns. It shows how much revenue you earn for every pound you spend.
Why track it?
Tracking ROI helps you see whether your marketing investments are paying off. If you’re not seeing a high enough return, it’s a sign that you may need to rethink your campaigns or focus on more profitable channels.
How to calculate ROI:
To calculate ROI, use this formula:
ROI = Revenue − Cost / Cost×100
Example:
If you spent £10,000 on a campaign and made £50,000 in sales, your ROI would be:
ROI = £50,000 − £10,000 / £10,000 × 100 = 400%
This means you earned £4 for every £1 spent on marketing.
6. Cart Abandonment Rate
What is it?
Cart abandonment rate measures the percentage of shoppers who add items to their cart but leave without completing the purchase.
Why track it?
A high cart abandonment rate can indicate problems with your checkout process, such as complicated steps, unexpected costs, or payment issues. Reducing cart abandonment can significantly increase your sales without needing to attract more traffic.
How to calculate Cart Abandonment Rate:
The formula for cart abandonment rate is:
Cart Abandonment Rate = Carts Created − Completed Purchases / Carts Created × 100
Example:
If 1,000 customers added items to their cart but only 400 completed the purchase, your abandonment rate would be:
Cart Abandonment Rate = 1,000 − 400 / 1,000 × 100 = 60%
7. Traffic Sources
What is it?
Traffic sources track where your website visitors are coming from, such as paid ads, organic search, social media, or email campaigns.
Why track it?
Knowing where your traffic is coming from helps you identify which channels are driving the most valuable visitors to your site. This allows you to focus your marketing efforts and budget on the most profitable sources.
How to track Traffic Sources:
You can easily track your traffic sources using Google Analytics, which provides a detailed breakdown of where your visitors come from.
Example:
If 50% of your traffic comes from organic search, 30% from paid ads, and 20% from social media, you can adjust your marketing strategy to prioritise the most effective channels.
Conclusion: Maximising Your Marketing KPIs
Tracking the right marketing KPIs is essential for ecommerce businesses to improve performance and drive growth. Key metrics like Customer Acquisition Cost (CAC), Conversion Rate, Average Order Value (AOV), and Return on Investment (ROI) provide insights that help optimise strategies, allocate resources efficiently, and boost sales. Regularly reviewing these KPIs allows businesses to make informed decisions and continuously improve marketing efforts.
Start tracking these KPIs today to ensure you’re always on the right path to growth and success.