How to choose KPIs for your eCommerce shop and how to measure the success of your eCommerce shop
Key Performance Indicators (KPI) are crucial when considering the success of the online business. Identifying and monitoring the key KPIs is essential. Particularly, in an eCommerce business because it can be used to gauge progress toward the sales and marketing performance etc.. KPIs will differ depending on the unique business goals you set up for your own online shop.
Now, one of common questions I get is how do I know which KPIs I should monitor?
The easiest way to set up your own KPIs is to look at your business strategy and goals. Ask yourself: what do I want to achieve in this quarter/month and/or year?
Once you define your objective, you can define your KPIs, which will help you understand whether you are on the right path to achieve your goals or not.
Is it possible to track too many KPIs? Of course, it is! Moreover, it happens more often than you think. When identifying KPIs for eCommerce shop you should be very specific. The last thing you want is to be overwhelmed with too many KPIs. Something between 5-7 KPIs per dashboard is probably a reasonable number. Bear in mind that the KPIs should be indicators of your business. So, don’t overdo it but rather keep it simple and easy to understand.
Now, what are some common KPIs for eCommerce? Rather than discuss some standard KPIs, I am going to focus on more customized online sales key performance. The one you can use to see how your business is doing.
Sales by category: this particular KPI was very helpful whenever I wanted to see how each of the categories are preforming against the target or just to see what the trend in a specific category is. When referring to the trend view, I mean comparing and looking at performance. For example: QoQ, YoY performance for a specific category.
If you have many categories within your shop but limited time/resources, one thing you can do is identify your top 5 categories and make sure you have a clear view concerning how these categories are preforming against the target. Monitoring sales by category has often enabled me in the past to identify declining categories on time and take actions accordingly. This prevented unnecessarily business losses as action was taken on time.
Sales by channels: nowadays merchants don’t only use one channel for selling but sales often come in via multiple channels (e.g. own ecommerce site, Amazon, Etsy, etc..).
Knowing the objective for each of these channels and monitoring their performance is important because it will help you identify the best preforming channel as well as marketing strategies for each of your channels. The strategy you will have for search engine marketing will be different from your strategy for selling on eBay. Furthermore, you need to know the performance of each of your channels. Because this is how you will know where you need to invest more money. As wel as where further optimization is needed etc.
For example: I remember a situation I had a few years ago where one of the channels had been identified as an underperforming channel. We tried many optimizations in order to specifically accelerate sales via this channel but none of our strategies resulted in a positive outcome. The final decision was to stop selling via this channel and instead focus on more profitable channels. Long story short, the decision to focus on other channels turned out to be a very good one. Because the budget we invested from the unprofitable channel went into other channels which had 2x higher ROI.
Inventory levels: this KPI is very useful in understanding how much stock of certain products is on hand, what is the selling speed of products and how long products are sitting in the warehouse.
The reason this is so important is because if you see certain products sitting longer than the average time 1. You can re-think your strategy (e.g. is this product relevant for your shop, do you want to reorder this product) 2. You can quickly take some actions towards selling this product faster (e.g. bundle with products that sell better, apply a discounted price, etc.).
So, these are some of the KPIs you could utilize for your own eCommerce shop. However, bear in mind there are no rules when it comes to KPIs for eCommerce shop. They have one purpose which is to indicate whether you are meeting your goals or not.