Did you ever see the movie or read the book Moneyball? <\/p>\n\n\n\n
It\u2019s about how the Oakland Athletics revolutionized professional baseball by focusing on statistics that were traditionally overlooked.<\/p>\n\n\n\n
Instead of only caring about things like home runs, runs batted in, and batting average, they focused on less sexy metrics, like on-base percentage.<\/p>\n\n\n\n
Doing this allowed them to identify undervalued players who could still make a meaningful contribution to the team and increase their total wins. This analytical approach gave them a significant competitive advantage for several years and took them to multiple playoff appearances.<\/p>\n\n\n\n
The moral of the story? It\u2019s not just enough to evaluate metrics and KPIs. You need to evaluate the right ones.<\/p>\n\n\n\n
It\u2019s no secret that constantly monitoring and managing your metrics is a critical factor in ecommerce success. The most successful ecommerce brands are driven by data. Every decision they make is justified by verifiable statistics, not gut instinct or flashes of inspiration.<\/p>\n\n\n\n
But it\u2019s not enough to simply install an analytics plugin and assume that you have everything you need. Just like in baseball, you need to know which analytics and KPIs matter the most. Is it total website visitors? Overall revenue? Conversion rate? Bounce rate? Customer acquisition cost?<\/p>\n\n\n\n
An abundance of data leads to an abundance of questions. We\u2019re going to answer those questions for you.<\/p>\n\n\n\n
In this white paper, we\u2019ll highlight the key levers of growth for your ecommerce business, and how you can make a positive impact on them. We want to help you set the right KPIs and track and measure the relevant corresponding metrics.<\/p>\n\n\n\n
It\u2019s true that you can\u2019t manage what you don\u2019t measure, but it\u2019s also true that measuring the wrong things will lead to mismanagement. Let\u2019s make sure you\u2019re measuring and managing the right things.<\/p>\n\n\n\n
First, a few distinctions.<\/p>\n\n\n\n
A metric is a statistical measurement of an activity in your business, while KPIs are specific metrics that your business has identified as indicators or predictors of overall growth. KPIs are typically more strategic, while metrics are more tactical.<\/p>\n\n\n\n
In essence, KPIs are the metrics that have been deemed as most important when evaluating overall performance.<\/p>\n\n\n\n
Returning to the Moneyball anecdote, the Oakland Athletics believed that on-base percentage was a KPI because those who got on base the most tended to score the most runs. A player was successful if he had a high on-base percentage. Other statistics, like fielding percentage, were not KPIs for the Athletics.<\/p>\n\n\n\n
Consistently measuring, evaluating, and then responding to your KPIs allows you to stay on track and ensure consistent growth. KPIs and metrics work in tandem. As Kayla Grigg puts it<\/a>:<\/p>\n\n\n\n \u201cLet\u2019s say inbound leads is one of your KPIs, and that number suddenly takes a nosedive. While the KPI tells you there\u2019s a problem, your other metrics will help you to understand what happened. Maybe it\u2019s because there are broken links on your website, or an error blocked leads from pushing to your CRM, or Facebook changed their algorithm and killed your most highly-converting ads. To identify the root cause, you\u2019ll have to look at metrics such as site conversions, CRM data, ad impressions, and clicks, etc.\u201d<\/p>\n\n\n\n Of course, all this raises the question: what ecommerce metrics should be KPIs?<\/strong><\/p>\n\n\n\n There are hundreds of metrics that you can measure within your ecommerce business. However, out of those hundreds of metrics, there are seven that are clear indicators of the growth and performance of your business.<\/p>\n\n\n\n ROAS is the amount of money you\u2019re getting back in revenue for every dollar you spend on advertising to drive new revenue. This one is absolutely critical. If you don\u2019t know how much you\u2019re spending to drive new revenue, you can easily spend more than you\u2019re making\u2014 which is a recipe for disaster. How do you calculate ROAS? It\u2019s simple.<\/p>\n\n\n\n ROAS = Revenue From Advertising \/ Cost of Advertising<\/strong><\/p>\n\n\n\n For example, let\u2019s say you spend $3,000 on a PPC campaign. You determine that the campaign generates $12,000 in revenue.<\/p>\n\n\n\n $12,000\/$3,000 = 4<\/strong><\/p>\n\n\n\n For every dollar you spend on advertising, you\u2019re generating $4.00 in revenue. When running ad campaigns, it can be easy to get caught up in Cost Per Click (CPC), conversion rate, lead generation, and more. And while these metrics are important, what matters is the bottom line. If you\u2019re only looking at CPC or conversion rate, you may misjudge how much revenue your advertising is actually generating, and which campaigns are successful. As\u00a0Jacob Baadsgaard<\/a> says:<\/p>\n\n\n\n \u201cClick and conversion data can help you identify problem areas in your marketing, ad or keyword campaigns. But if a campaign is not producing a good ROAS, something needs to change.\u201d<\/p>\n\n\n\n By regularly\u00a0tracking your ROAS<\/a>, you can evaluate the effectiveness of your advertising and predict how much revenue future advertising will generate.\u00a0BENCHMARK:\u00a0Your ROAS should be at least 3:1<\/a>. This ensures that you\u2019re covering the cost of doing business plus making a significant profit.<\/strong>\u00a0How can you improve your ROAS?<\/p>\n\n\n\n Improving your ROAS allows you to use some of that additional revenue for more advertising, which then drives more customers and more revenue. It\u2019s a virtuous cycle.<\/p>\n\n\n\n Customer acquisition cost is simply the average amount you spend to acquire one new customer. The basic CAC formula is to divide your total sales and marketing expenses for one month by the number of new customers acquired that month. That number is the amount it costs you to acquire a new customer.<\/p>\n\n\n\n CAC = Sales & Marketing Costs \/ # Customers Acquired<\/strong><\/p>\n\n\n\n Why does this metric matter? Because each of your customers has an approximate lifetime value (which we\u2019ll cover shortly). If your CAC is equal to or greater than your Customer Lifetime Value, you\u2019re going to be out of business in short order. It\u2019s critical to know how much it costs you to get a single customer. How can you\u00a0improve your CAC<\/a>?<\/p>\n\n\n\n Your ultimate goal is to reduce the overall amount of sales and marketing required to acquire a customer, which then cuts your acquisition cost.<\/p>\n\n\n\n7 Key Ecommerce KPIs To Grow Sales and Revenue<\/h2>\n\n\n\n
Ecommerce KPIs #1: Return On Ad Spend (ROAS)<\/h3>\n\n\n\n
Ecommerce KPIs #2: Customer Acquisition Cost (CAC)<\/h3>\n\n\n\n