3 ecommerce KPIs you can measure from your ERP10 April 2019
This article on e-commerce KPIs was originally featured in ERP SoftwareBlog. You can read the original article here.
As with any other venture, we measure the success of an e-commerce channel by its performance. Assessing this performance involves analyzing numerous, multi-faceted sets of business data. A few of the key measurements include cost, revenue, customer engagement and satisfaction, as well as many others. We measure each of these data sets with e-commerce KPIs, or key performance indicators.
KPIs are not a new concept in the business world. Nevertheless, e-commerce has introduced many new KPIs that are specific to doing business on the web. For example, site traffic is a KPI which measures how many visitors access your website in a given time. Bounce rate is another, telling you the percentage of users who leave your site after viewing a single page within a specific timeframe.
As a rule, Google Analytics is one of the leading free website analytics tools for measuring how people find and use your website, including the KPIs mentioned above. It provides detailed statistics on overall website performance that allow you to refine your business strategies based on user behavior.
But many of the most important e-commerce KPIs are the same ones offline companies have always used to assess business performance. ERPs make it easy to collect and interpret this data. With an ERP-integrated e-commerce solution, the data transparency between the two systems makes analysis even easier.
Here are 3 crucial e-commerce KPIs you can measure directly from your ERP.
Cost of Goods Sold (COGS)
One of the principle objectives of any business is to reduce cost. The goal is to produce, market, and sell goods for the lowest possible cost in order to maximize the profit margin, while still ensuring quality and customer satisfaction.
Cost of Goods Sold, or COGS, is one of the most effective e-commerce KPIs for determining this. It looks at all the costs a business incurs in order to sell a specific product. This includes manufacturing or acquisition costs, marketing costs (such as money for ads), employee costs (such as wages), and other expenses.
An ERP-integrated e-commerce solution naturally lowers operational costs by automating many of your simplest (but most time-consuming) business processes.
Take order processing as an example. When a customer places an order in your web store, you normally have to copy the order information over to your accounting software. Then you have to invoice the order, and copy the invoice back over to your web store. This process might only take a few minutes. But the more orders you get, the more those minutes add up—and more you risk making a (potentially expensive) mistake.
With an ERP-integrated e-commerce solution, this whole process happens automatically. Not only does this eliminate the time you would have to spend paying employees to do it manually, but it also eliminates the possibility of human error. By lowering your cost per order, integrating to your ERP can dramatically reduce your cost of goods sold over time.
Average Order Value
One of the most important e-commerce KPIs is average order value. This KPI is exactly what it sounds like: the average value of an order your web store receives.
Unlike COGS, where the KPI should gradually decrease, we want the average order value to go up. It is closely related to other sales-centered e-commerce KPIs like conversion rate, which is the percentage of site visits that lead to a purchase. Increasing these KPIs is the way to maximize sales growth.
With average order value, we’re not necessarily making more sales (i.e. higher conversion rate). Instead, we’re trying to increase the amount customers spend on each order. Note that this KPI does not necessarily target returning customers, as it factors in first-time sales as well. If a new customer spends $10 on average the first time they visit, eventually we want new customers spending $15, and $20.
Cross-selling and upselling are among the most effective strategies for increasing average order value. E-commerce platforms provide built-in tools for this, such as complementary item suggestions. For example, if a customer is browsing printers, you can configure your web store to recommend ink cartridges and paper. Depending on your e-commerce solution, you can also bundle these items together in kits.
Another effective strategy for increasing average order value involves structuring your prices to offer a discount once the customer’s order meets a certain threshold. This can be a direct discount, such as 5% off on all orders over $100. Free shipping is arguably even more effective. Managing complex price structures like this is obviously much easier with an ERP-integrated solution.
New Customer Orders vs. Returning Customer Orders
Customer satisfaction is a crucial metric for any business. There are numerous e-commerce KPIs for measuring it.
New customer orders vs. returning customer orders tells you how many new customers you have acquired in a given period. But it also tells you how many customers are coming back. This is important for two reasons.
First, returning customers tend to spend more than new customers. So consistently bringing customers back to your store is likely to have a positive impact on your average order value. In fact, these two e-commerce KPIs are very closely linked.
Fostering customer loyalty is vital to the long-term health and sustained growth of an e-commerce business. Virtually anyone can set up a web store and begin selling products. Differentiating your brand is the only way to stand out in saturated market, and customer loyalty is the lifeblood of brand recognition.
Some of the most effective loyalty-building strategies overlap directly with average order value. Loyalty programs and coupons are two examples. By offering loyalty points, you provide customers with a reason to return to your store and make additional purchases. Offering more points for bigger purchases encourages shoppers to add one more item for extra points.
Coupons work exactly like the discount method we discussed above. The difference is that the coupon can serve as the customer’s whole reason for returning to the store.
We’ve looked at three crucial e-commerce KPIs. There are many others, all of them important to your business growth. An ERP-integrated e-commerce platform makes it easier not only to assess these KPIs, but to improve them dramatically.