Monitoring your Key Performance Indicators (KPIs) will help you on the road to online retail success. Organisations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on overall performance whilst low-level KPIs focus on processes.
However, it is all very well deciding what KPIs are important to your business, they are only as valuable as the action they inspire. KPIs are a form of communication and should result in a greater understanding of your business and positive actions that improve its performance. Every KPI you define should have an owner who is responsible for ensuring that the metric is achieved.
Without KPIs, you can be making decisions on gut instinct, personal preference, or belief. KPIs allow you to make informed decisions.
As an e-commerce business, you have a huge amount of data available to you so why not make use of it? Let’s have a look at some KPIs for sales:
Average Order Size: also known as an average market basket, this tells you how much a customer typically spends.
Gross Profit: The difference between the sales value and cost of goods sold.
Number of Transactions: This is the total number of transactions.
Shopping cart abandonment rate: The shopping cart abandonment rate tells you how many visitors are adding products to their shopping cart but not checking out. The lower this number, the better. If your cart abandonment rate is high, this implies that there is too much friction in the checkout process.
New customer orders vs. returning customer orders: This metric shows a comparison between new and repeating customers. It is far cheaper to sell to an existing customer than it is to acquire customers.
Conversion Rate: This is the rate at which visitors on your site are converting to sales and is calculated by dividing the number of visitors (to a site, page, or category) by the total number of conversions.
Inventory levels: This KPI tells you how much stock is on hand, and how quickly the product is selling. It can be measured in a number of ways such as the Stock to Sales Ratio (should be low), The Sell Through Rate (should be high), or Weeks on Hand (should be low). Carrying too much will impact your cash flow.
As you can see some of the KPIs above are inter related to other aspects of the business. The Purchasing Manager might have ultimate responsibility for inventory levels, but there will be interaction with sales and marketing in order to achieve the desired objective of, for instance, a high sell through rate. There are a whole host of actions and questions to be answered that might improve this metric:
- Can stock be ordered in smaller quantities (this might impact volume discounts received and also result in higher shipping costs)?
- Is that product being marketed effectively?
- Should the product be re-photographed?
- Can slow-moving stock be moved with promotions (even given away) or more effective cross-selling?
- Would a Clearance Sale or Flash Sale be effective?
- Should slow-moving SKUs be abandoned once the current stock is sold?
- Will the supplier take returns?
- Can slow-moving stock be sold to a buyer of liquidated stock?
- Can some additional publicity be gained from a charitable donation of unwanted stock?
At Elver E-Commerce Accountants we have an analytics app that integrates with Xero to bring you a series of useful features to help grow your business. We call it Elvervision. In addition to the usual financial reports (profit and loss, balance sheet and cash flow) Elvervision can be used for:
- Cash flow forecasting
- Business budgeting
- Scenario Modelling
- KPI Dashboards
- Variance Analysis
- Decision Support
We provide Business Advisory Services and professional Accounting for E-commerce Businesses. Get in touch with us! Call us today on 01942 725419.