That Tracks: CAC, AOV and Other E-Commerce Marketing Metrics
If we’ve said it once, we’ve said it a million times: marketing is not sales. But there are of course really important crossovers between the two. Marketing is about building awareness and relationships, which—yes—translates to sales. The two do not share the same key performance indicators (KPIs), but their respective KPIs can inform how the other operates.
For example, you wouldn’t want to sow a million on ads if you’re only reaping a few thousand in sales. And you wouldn’t want to spend much at all on print mailers if 100% of your sales come from SMS. You have to know when, when, how and why your e-commerce efforts are successful so you know where to focus your marketing efforts.
10 E-Commerce KPIs to Track
The specific KPIs for your e-commerce brand will vary depending on what success looks like to you, which marketing strategies you’re employing, etc. However, there are 10 metrics we use as a creative, data-driven marketing agency to provide proof of concept and optimize performance across client campaigns.
1. Customer Acquisition Cost (CAC)
The customer acquisition cost (CAC) defines your marketing spend per acquired customer. It is a formula that reveals the efficiency of your marketing strategy and the current monetary value of each new customer who converts per month.
CAC = Marketing Spend / # Number of New Customers
By increasing the effectiveness and efficiency of your marketing spend, you can gain more customers with the same monthly budget. Your CAC will likely be higher when you launch than it will at 12 months, for instance, so it’s critical to set your own internal benchmarks.
2. Average Order Value (AOV)
No, AOV is not a representative of New York's 14th congressional district. That’s AOC. Your average order value (AOV) is the mean amount that customers are spending per order. Each purchase can contain multiple products or services, and the AOV shows you the average of how much each cart is worth.
AOV = Total Revenue / Total Number of Orders
Up-selling and bundle deals can increase your AOV to generate more revenue per customer purchase conversion.
3. Conversion Rate (CR, CVR)
Speaking of conversions, your conversion rate (CR or CVR) indicates the ratio of leads or website visitors to those that complete conversion. In e-commerce, a conversion is usually a purchase, but you can also calculate conversions as booked consultations or other first-step commitments.
CR = (# of Purchases / # of Sessions) x 100
Conversion rate is expressed as a percentage of the total purchases to the total number of website visitors (sessions). Increasing your conversion rate increases the total number of website visitors, leads and click-throughs that result in a purchase.
4. Customer Lifetime Value (CLV)
Your customer lifetime value (CLV) is the estimated value of a customer from first visit to final purchase. Long-term and repeat customers have a greater lifetime value. This metric averages all customers, but it can also estimate the value of a single customer or client.
CLV = Average Value of Purchase x # of Yearly Purchases x Average Customer Relationship (years)
Increasing your customer lifetime value can optimize the total revenue and relationship length of each converted lead. As a caveat, it’s critical to note that CLV is only one way of looking at the value of a customer. To marketers, each prospect, customer and audience target has value—some more quantifiable than others.
5. Margin
Your margin is the amount of profit earned after subtracting the cost of goods and shipping from each purchase. Basically, this is the true measure of your return on investment (ROI). Margin defines how much revenue your e-commerce business can generate from overall sales.
Margin = Purchase Price - (Product Cost + Shipping Cost)
Increasing your margin can increase your profits per sale. Sometimes in marketing, margins can be a sticking point. When the C-suite sees lower margins, marketing is one of the first places they want to cut their budgets, but that can often exacerbate the problem. You’re making less profit so you want to… be less visible to customers? Yeah, no.
6. Bounce Rate
While we’d love to think it refers to the BPM of a Big Freedia song, bounce rate is the percentage of website visitors who leave without navigating to a second page on your website. Bounces typically suggest that your pages are not effectively directing visitors down a conversion funnel.
Bounce Rate = (Total single-page sessions / Total Sessions) x 100
Decreasing your bounce rate typically leads to inversely increasing your engagement and conversion rates. Generally speaking, the longer a user remains on your website, the deeper their connection is to the brand and the more likely it is that they’ll take an action.
7. Click-Through Rate (CTR)
Click-through rate (CTR) is a standard marketing metric across all brands—not only in e-commerce. This metric represents the likelihood that users who see your emails, ads, etc. will actually “click through” to your site. It’s a way to measure the effectiveness of off-site marketing techniques.
CTR = (Clicks / Impressions) x 100
In this formula, impressions are the number of views. The higher the CTR, the better. While CTR is important, it’s not the end-all-be-all, because having 10,000 impressions with a 1% CTR (100 customers) is in some ways better than having 100 impressions with a 99% CTR (99 customers).
8. Revenue Per Visitor (RPV)
Revenue per visitor (RPV) is the average revenue per visitor—duh! In other words, it’s the average amount your e-commerce store earns per user. While not all visitors make a purchase, you can see the relationship between traffic and earnings.
RPV = Total Revenue / Total Visitors
While RPV is similar to AOV, they’re two different metrics. AOV represents revenue generated per order, whereas RPV represents revenue generated per user. Your average order value is a great KPI to use for determining target cost per click (CPC) and total ad spend, but it doesn’t tell you how effectively visitors convert to customers.
9. Churn Rate
Churn rate is either (a) the pace at which you make butter or (b) the rate at which your customers “drop off.” In marketing, we look at the latter. Churn is typically measured on an annual basis and represents the number of customers who stop engaging with or subscribing to a brand.
Churn Rate = (# Customers Lost in a period / # Customers Gained in a Period) x 100
Decreasing your churn rate can improve the overall size of your active customer base. Customer drop-off is normal, but brands want to keep tabs on the rate to ensure it doesn’t increase or align with specific campaigns, touchpoints, events, etc.
10. Repeat Purchase Rate (RPR)
Last but not least is the repeat purchase rate (RPR), the rate at which customers come back to buy again. Consider this the counter to churn rate. This is a great metric to track and increase as it represents customers who are engaged and want more of your products.
RPR = (# Repeat Customers / Total Customers) x 100
Increasing your repeat purchase rate increases the total number of customers who return to buy from you more than once or become regular shoppers. This also increases customer lifetime value and reduces the cost per customer. In marketing, it’s always easier to convince someone who already knows, likes and trusts you to make a purchase than a complete stranger.
Elevate Your E-Commerce Marketing Strategy
With great data comes great marketing. Tracking the metrics above empowers brands to create better strategies for more effective engagement, conversions and overall business growth. Elevate My Brand experts are eager to help you gain insights and set KPIs so you can make data-driven decisions for your e-commerce brand.