June 2, 2022
Explainer

Which e-commerce KPIs & metrics should online retailers be tracking?

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Online Optimism CEO Flynn Zaiger knows more than a few things about the challenges of growing e-commerce businesses in 2022. The social media agency owner and his team provide digital marketing strategies and design services for online retailers, and a range of other industries. 

Zaiger said today’s e-commerce businesses rely heavily on expense management to maintain profitability through consistent cash flow. This requires a foundational understanding of relevant e-commerce KPIs and metrics to ensure you stay on track.

The challenging e-commerce market

E-commerce profitability are facing several head winds: 

  • Soaring employee costs: “One of the most important facets of any business is its employees and yet employee costs are through the roof in this job market as inflation affects numerous nations around the world,” Zaiger said.
  • Costly warehouses: Warehouse costs have become volatile as well. “They’re not often talked about, since they used to be a far more static expense than rent.” Warehouses could once be located far from your most profitable customer locations, helping e-commerce brands to manage costs. But recent years have changed this dynamic. 
  • Supply chain difficulties: “Throughout the past several years, most brands have realized they need far more inventory behind the scenes to deal with potential issues importing new products if logistics hangups flare up again—which they will,” said Zaiger. “This is causing skyrocketing warehouse prices, even in locations that business-owners assumed they’d never deal with.”
  • Dominant incumbents: As much as the e-commerce industry has been disrupted, its fundamental structure and key players have remained. As Marketplace Pulse put it: “2021 was the year of broken supply chains, Amazon aggregators, more advertising, Shopify’s almost-marketplace, and one unanswered question — did the pandemic boost e-commerce after all?”

These insights from Zaiger and Marketplace Pulse are only a small window into the challenges of running an e-commerce business in 2022. Let’s take a look at the wider industry picture, before we explain how to pick your own key performance indicators (KPIs) and metrics, to help you map what is and isn’t working for your e-commerce business. Here is a quick snapshot:

  • Sales are still rising quickly: Global e-commerce sales are set to $7 trillion in 2025, according to CB Insights.
  • Stock and shipping problems remain: 88% of e-commerce business have said supply chain disruptions have negatively impacted their customer service.
  • Social commerce is emerging: 30% of US consumers have bought goods through social platforms, compared to half of China’s consumers.
  • In the US, e-commerce actually lagged brick-and-mortar retail sales in 2021, with Americans spending 18 percent more on items such as food, cars, furniture, and electronics.

Amid tough economic conditions and the dominance of Amazon, other online retailers remain committed to working harder and smarter to create the best shopping experiences possible.

Luckily, one of the great things about being an online-first business is how much useful data you can surface to support that mission. You can use that data to change product lines, introduce new sales channels, or implement more affordable and effective marketing campaigns. 

But while you might already have set some KPIs around sales in your e-commerce business, there are many other indicators and metrics you might want to start tracking in 2022. In this article, we’ll explain the KPIs and metrics that ambitious online retailers are tracking, across product sales, finance and accounting, and shopper website behavior.

What are e-commerce KPIs?

KPIs are signposts about how your business is doing. E-commerce KPIs, in particular, are data insights that online retailers use to measure and track the success of everything from sales, through to pricing, website performance, digital marketing, and profitability. 

Why are e-commerce KPIs important to track?

By understanding which e-commerce KPIs are most important to your online store or marketplace shop, you can make data-driven decisions that help you compete both locally and globally.

Goal-setting is important for every business. For e-commerce businesses, this is increasingly true after your business has started up and found (a little) success. Because when you first launched, all your time and cash probably went into setting up a working website, working out payment processing and payment gateways, and then facilitating that first batch of customer orders. 

But as you got more comfortable, you probably got the sense there was a lot you could be doing to optimize your e-commerce store and wider business. 

And that is where e-commerce KPIs can be truly valuable.

E-commerce KPIs vs. metrics: what’s the difference?

In this article, we’re using the terms metrics and KPIs interchangeably, for ease of reading—but there is a distinction between the pair:

  • KPIs are specific and measurable signs of how your e-commerce business is tracking against its goals that help to track and improve the performance of an online business. 
  • Metrics are just data points that are unlikely to give you much insight into your performance indicators if they are viewed on their own.  

For example, website traffic and mobile app download data alone won’t tell you whether or not your search engine optimization (SEO) or pay-per-click advertising spending is actually generating sales. To get a complete picture of your e-commerce business's performance around such spending, you need to track both metrics and KPIs.

“E-commerce in the West looks practically the same as it did two decades ago. A search bar with a list of results. Amazon won that paradigm. It’s not going to get disrupted by anything that does the same thing.” - Marketplace Pulse

How should e-commerce retailers choose their KPIs?

One of the most useful things about e-commerce management is also one of the most confusing—there are endless metrics and analytics available to you. And it can be difficult to know which ones are the most important. However, there are a few general guidelines that can help you narrow down your focus areas. 

Step #1: Consider your business model

First, think about your e-commerce business model and how it affects your interactions with your customers and clients.  

  • Business-to-business (B2B) e-commerce is used by manufacturers and wholesalers who sell to retailers. 
  • Business-to-consumer (B2C) e-commerce, or direct-to-consumer (DTC) e-commerce as it is sometimes known, is when businesses sell to consumers. 
  • Consumer-to-consumer (C2C) e-commerce, or peer-to-peer (P2P) e-commerce, is when consumers sell products or services to each other. This model is used by e-commerce marketplace platforms such as eBay, Gumtree, and Etsy. 
  • Consultant-to-business e-commerce businesses enable consultants and contractors to sell their products or services to businesses. This model is used by freelancers, contractors, and other gig economy workers who provide services to businesses.

Step #2: Consider your retail vertical

Next, remember that what you’re selling matters too. 

  • For example, if you’re selling clothing, you’ll want to focus on KPIs like conversion rate and average order value (more on those soon).
  • But if you’re running an online food store, or selling any other kind of perishable goods, then your inventory, warehousing, and shipping costs are likely to be more important. 
  • Similarly, if you're an online service provider, then customer lifetime value (more on that soon, too) might be a more important metric. 

Once you have a good understanding of your goals, you can start to narrow down your options and choose KPIs that will give you practical insights into your business. 

Step #3: Consider your business plan

While your business model and vertical will play a key role in shaping your KPIs, so too will your long-term plans for the business. For example, if the goal is to scale up quickly, then choosing KPIs that focus on acquisition and retention rates (more on those soon) may be more important than the average value of each sale. 

Finally, remember that as your business grows or shrinks, your KPIs will need to evolve as well. What works for a small business might not work for a large one, so be prepared to revisit KPIs often. 

“In the not-too-distant future, shoppers may be able to craft entirely personalized digital shopping experiences—from consulting with virtual advisors, to customizing physical and virtual goods, to seamlessly moving between devices and platforms.” - CB Insights

The top e-commerce KPIs and metrics across sales, financial management, and checkout performance

With that said, there are many KPIs and metrics that are useful to each of the different business examples given above. Here is a closer look at what several metrics can tell you, and the goals they can shape.  

6 e-commerce sales KPIs and metrics to watch

It makes sense to start with sales. Seasoned e-commerce founders and industry watchers know that selling more and more doesn’t equal success. If only e-commerce were that simple. To get a true picture of how sales influence your financial performance, you need to dig a little deeper than the sheer volume. Here is a quartet of measures that can help you do this. 

1. Average order value (AOV)

The average order value (AOV) is the number of items per order multiplied by the price per item. Track AOV as a whole and then segment by device type, platform, and traffic source to identify high and low AOV areas.  This will help you run more marketing campaigns with a positive ROI. 

For example, you could introduce cross-selling or up-selling to increase trans

2. Customer lifetime value (LTV)

Customer lifetime value (LTV) acts as an estimate of the total amount of money each customer will spend at your store. With costs so high for many e-commerce businesses, LTV can be useful for setting a ceiling for how much you can afford to spend on acquiring new customers.

The easiest way to track this metric is to take your AOV and multiply it by the number of customer visits per year, and their average time spent with your company.

3. Net promoter score (NPS)

Customer satisfaction and net promoter scores (NPS) are ways to gauge how satisfied customers are with your products, shipping, returns, and customer service. NPS is important for small businesses that may not have as many resources to spend on acquiring new customers. These businesses can use NPS to nurture existing customers for additional sales and word-of-mouth referrals.

4.  Year-over-year sales

Year-over-year sales help you compare your company’s quarterly sales with that of a quarter from a previous year. This retail metric should not be viewed in isolation though, because it can not give you a true picture of why your sales were up or down.

5. Cost-per-acquisition

This metric can help you set goals to balance your sales with operational costs. Think about that for a moment. Clothing materials, product manufacturing, and marketing effort. They are all much-needed costs that eat into your potential profit. A simple way to find your CPA is to take your total marketing cost for a month or quarter, and then divide it by the number of sales over the same time frame.

7 financial KPIs and metrics for e-commerce

We mentioned earlier that sales are only part of the picture. Income and revenue only tell half the story, which is why you need sound e-commerce financial management to help you tell the rest. It’s no secret that e-commerce businesses can be very costly to operate, which is why many of the metrics below can help you understand costs and losses just as much as profitability. 

1. Gross margin return on investment (GMROI)

This might be the most important metric of all for e-commerce businesses. GMROI helps you see how much money you’re making, versus how much you invested in inventory, giving your actual profit.

2. Direct costs 

Direct costs are expenses that arise directly from making, selling, and delivering your product or service. Direct costs are commonly referred to as the cost of goods sold (COGS) if you sell a product rather than a service.

3. Gross profit

Gross profit is the actual profit you make on top of COGS. Essentially, it's your profit on the product after the sale, taking into account how much your online store spent on inventory. Knowing how much you make on each sale is critical to scaling up in a sustainable way.

4. Total addressable market (TAM)

This is the annual value of all the goods and services in the market you are trying to serve. This is a useful number for e-commerce businesses considering a capital raise, as it gives potential investors an idea of the business’s potential to grow and deliver profits. But bear in mind that a large TAM usually comes with a large field of competitors too. 

5. Active customers 

This is defined as the number of customers who have ordered in the past 12 months. Some companies will define it over a longer time frame, such as the number of customers who've ordered over 24-36 months, depending on the type of business. 

6. Churn rate

The churn rate is the percentage of customers who are no longer active after the same period as you define your active customer base. In other words, how many customers have dropped off after a year? 

3 e-commerce website KPIs and metrics to monitor

Let’s turn our attention to your store’s website now. Getting the online shopping experience right is absolutely essential to running a successful e-commerce business. 

From your very first day of business, through every day after, your website KPIs and metrics will probably demand a huge chunk of your time.  

  • Website data can help you to gauge the performance of your online store and identify areas in need of improvement. 
  • They can provide valuable insights into the behavior of online shoppers, such as where they are spending most of their time, which products they are browsing (and ignoring), and where and when they are deciding to hit the little x button on your site. 
  • And importantly, website metrics can also help you to track changes in sales and conversion rates over time. 

Here is a closer look at the e-commerce website KPIs and metrics you should be watching.

1. Shopping cart abandonment rates

High cart abandonment rates often signal you're courting a poor online purchasing experience, likely around your payment processing. 

  • Abandonment means customers disliked the experience so much, that they’re willing to stop shopping altogether, sometimes even after finding the perfect product. 
  • Generally, most e-commerce experts suggest keeping the checkout process as streamlined as possible. 

For example, you might want to allow guest checkouts, so people can make a purchase quickly without having to open an account or sign up for a newsletter. 

2. Conversion rate

This is the total number of people who purchase versus the total number of people who have the opportunity to purchase. This percentage can indicate a few takeaways, such as whether you're attracting the right audience, whether you have technical issues with your site, and if you need to optimize your pages better.

  • Conversion rate is one of the most important KPIs for brands to track as it leads to an increase in revenue per visit, cuts customer acquisition costs, and enables brands to obtain more value from their existing customer base. 
  • Site speed has a significant impact on conversion rate: every second shaved off page load time provides a conversion lift on mobile and on desktop, while also reducing your bounce rates.

3. Bounce rates

Speaking of bounce rates, that’s the percentage of all visitors to your e-commerce site that leave after viewing only one page. High bounce rates suggest site performance issues. 

How to track your e-commerce KPIs and metrics

By taking all of these factors into account, e-commerce business owners can narrow down a large field of options and choose KPIs that are right for their specific retail business. 

Once you have an idea of which e-commerce KPIs are most important for your business, you need a process for actually monitoring them. 

  • Some companies monitor their website metrics through free Google Analytics dashboards, or use tools like Crazy Egg, Optimizely, or Supermetrics. 
  • Ramp’s software can’t help you set or identify your KPIs, but our financial automation software can deliver long-term expense management across many of the largest e-commerce cost centers, such as inventory purchasing, shipping, cloud SaaS and web hosting, and digital advertising.
  • Ramp can also help e-commerce businesses to drill down to specific departments, locations, and merchants with search and filter, or create vendor-specific cards in seconds to pay for everything from inventory to Facebook ads.

By crafting the right KPIs for your e-commerce business, you can lower your acquisition costs, improve your customer retention, and grow your sales through a conversion-friendly website. Yes, it’s a constant process. But the more you test and learn the stronger your online retail business will be.

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