One of the great things about selling things online is that you can literally track everything.
One of the horrible things about selling stuff online is that you can literally track everything.
As with most things in life, our greatest strengths can also be our greatest weaknesses. This is certainly the case when it comes to ecommerce KPIs and analytics. The sheer amount of data that's now available to us as ecommerce store owners, managers and marketers is nothing short of incredible.
Onsite analytics, customer data tracking, heat-mapping, screen recordings, segmenting, the list of possibilities goes on and on and if you're not careful you can start to drowned in data.
It's a real thing, and we call it "vanity metrics".
Vanity metrics are all the numbers around you that distract, shield and hide what you should really be paying attention to. We have dozens of shiny objects circling us at all times in the form of analytics always calling for our attention and overshadowing the rest and even worse, overshadowing what's really important. So where should you really look?
The single most important KPI in ecommerce is cost-per-acquisition (CPA). CPA, is obviously the cost that it requires for to acquire a new customer (not just generate an order, which is an important distinction) but more importantly, it is the metric that calibrates all other metrics to tell us if they are actually performing at sustainable levels.
Without knowing our CPA, we have no "baseline" for any other metrics.
Without knowing our CPA we don't know if a 7% conversion rate is actually good or bad.
Without knowing our CPA, we don't know if our lifetime customer value of $775 is enough.
Without knowing our CPA, we don't know if our average order value of $65 is enough.
I could go on and on.
Let's work from the other way and go through a few examples.
Let's say you have an ecommerce store and you convert at 7% rate globally. If you have 10,000 users per month that means you can expect around 700 orders and your average order value is $50, so we're looking at about $35,000 in sales. It all sounds great. 7% is actually a phenomenal conversion rate for some industries and hey we sold 35K worth of product so you're ecstatic. It's great right? Actually we don't really know, because we haven't factored in the cost of ads, promos and marketing to get us there. we're basically flying blind.
Let's take it a step further: in the above example our CPA is actually $38. Now that you know this, the above example actually looks terrible. Suddenly $35,000 seems like nothing and there's no way you're going to be green once you factor in cost of ads, product and other costs of doing business.
CPA cuts away all the shiny objects so that we can see through to a clear picture.
CPA allows us to look at every other metric with an honest vision and determine if we're on the right track or not.
But wait, there's actually one thing we left out that can turn this thing around: our lifetime customer value.
In the above example, it costs us $38 on average to make a $50 sale an acquire a new customer, however what we didn't mention is that the average customer comes back at a 50% rate multiple times and our lifetime customer value is actually $400+.
And just like that, $38 CPA actually sounds fantastic.
But didn't we just contradict ourselves? Doesn't that make customer lifetime value the most important metric? Yes actually. And then no.
A customer lifetime value of $400 sounds great. But then again, it only sounds great because we know our CPA is $38. Without that baseline, the $400 number actually tells us nothing - so once again we're back to one: CPA is the most important KPI.
This last little detail opens up an entire new conversation that could be it's own blog post: the more you're able to extract per customer, the higher CTA you can afford to pay. And he who can pay the highest CTA wins.
In reality ecommerce metrics really work together in a "mesh" and not a straight linear fashion. Digital marketing is a math equation, and one change in the formula can make it work or not, however CPA is the foundation that gives all other metrics meaning and value.
I was asked this question recently by a journalist writing a story, and to be honest the entire premise is flawed to begin with based on the previous thought. Ecommerce metrics are all important - but after CPA, pretty much every other one can fall wherever you want in level of importance and weight.
By the way, this is the way I answered (with my above disclaimer):
You can re-order 2 through 8 into any order you want, it will still be true.
You can see how quickly you can get "lost" in data if you don't know where to first look and calibrate yourself. The important thing is that you a pick a side and stick to it, it's actually an emotional solution to a logical problem.
Staying disciplined and clear-headed when doing the job of a digital marketer is extremely important. If you've ever opened Google Analytics, you realize just how quickly you can get overwhelmed.
So don't. Cut through the vanity metrics and go straight to your CPA then do whatever you need to track it clearly and concisely. Jot it down on a napkin, track it in a Google Sheet - it doesn't matter how. The important thing is that you do it and then work backwards from there.
Once you know your CPA, you'll be empowered to then review all your other metrics and determine where you need to make improvements and why.
More importantly, it will allow you to project growth and scale up successfully. Which at the end of the day, growth is the real most important KPI.