The only way to increase your e-commerce sales is to work the data. But we need to track the right data, and that means understanding how your different data metrics relate to each other. Then you can Track and Optimise them.
This simple trick is used by all successful e-commerce companies. It’s a feedback loop you can use to learn what works and then and exploit it to maximise your revenue.
This method is overlooked time and again by e-commerce companies who have the tracking but don’t know where to look. They drown in the data provided by their analytics package. Sometimes we choose to focus on the vanity metrics – that’s to say the ones that look good!
Don’t be fooled. Tracking your e-commerce metrics is of no use unless you use it!
The Revenue Calculator – How these metrics work together
Let’s look at the three key metrics that determine your revenue.
These are Traffic, Conversion Rate, and Average Order Value. If you multiply these together, you get your Revenue.
Revenue Calculator Instructions
Each metric has its own slider. You can drag this to change the figures below. These are the monthly figures for your e-commerce store.
For our calculator below, we’ve multiplied them together to calculate the monthly revenue, then multiplied again by 12 to calculate the annual revenue.
Add your own store’s metrics to determine your annual revenue.
Growth Calculator Instructions
We also have a growth calculator that multiplies each metric by a percentage. So if you had 1000 visits and wanted to grow this by 10%, then you would have 1110 visits.
The growth calculator applies this across the three metrics and then calculates the increase in annual revenue. It’s a great way to see the cumulative impact growing each metric has.
So when you click on the growth calculator button, you will see a new figure underneath. The one underneath is the growth metric that takes the growth percentage and multiplies the actual figure by your growth ambitions.
Have a play and see how these metrics influence each other. Set your store figures and your growth ambitions.
By growing each of the above metrics by just % we can compound your site's growth. This means increasing:
- Traffic by per month
- Conversion Rate by %
- Order Value by $
Lessons from the calculator
The most important takeaway from this article is that you should be tracking this data.
Don’t assess a campaign just on the increase or decrease in sales it generates. You can get improved insight into how the campaign performed by looking at the three golden metrics of Traffic, Conversion Rate and Average Order Value.
It helps you enormously in every aspect of your business. Whether you want to understand the seasonality of your business (e.g.,. How do shoppers behave in Christmas) or how a marketing campaign went, without these numbers you won’t be able to understand what went well and how to optimise it.
Remember what we said at the beginning: Track and Optimise.
Let’s give an example:
We run a Facebook campaign and want to measure its effect. Well, first we need to know the baseline. We won’t find out if it was successful or not without first tracking how the store is before. This is our comparison metric. So, let’s use the month before the campaign as our baseline.
So we run our campaign, and the figures are like this:
Month 1 (No campaign)
– Traffic: 1000 visits
– CR: 2%
– AOV: $30
– Revenue: $600
Month 2 (Facebook campaign)
– Traffic: 1500 visits
– CR: 3%
– AOV: $30
– Revenue: $1,350
Now, without looking at the metrics, you won’t get the insights into how this campaign worked. Have a look – what do you think the significant change is?
Well… There is an increase in traffic of 500 visits, but more important is that the conversion rate has jumped up a percentage point. Small increases in conversion can have a dramatic effect.
This means that out of those 500 new visits from Facebook; the conversion rate was very high. The adverts must have been very well targeted as of all the clicks it generated a higher percentage than usual became customers.
So, you can see how you get a better idea of customer behaviour from looking at these metrics. They tell a much richer story of what is going on with your e-commerce store.
Which comparison metric to choose?
In the example above we compared against the month before. We’ll call this Month on Month. But sometimes this might not be a good set of metrics to compare against. Say for example you are in January and last month you had a boost in sales from Christmas customers.
Using Month on Month in this instance would not help you tell a realistic story of what customers are doing on your site. It would be skewed by the Christmas shopping.
In this instance, I suggest Year on Year. That’s to say comparing this year’s January against the previous year’s January. This gives you a clearer understanding as it takes into account the seasonal peak.
The best comparison metric
All comparison metrics require you to interpret. Always thing about the story at large – how all your customers are using the site. In the above January example, we suggest comparing against the previous years month, but this can be problematic because your business is constantly changing.
Hopefully, you are growing so there will be a natural lift in these metrics year on year. Sometimes even larger changes have occurred across the site and the year on year data is not too useful. We have to wary of vanity metrics that look good but don’t give us a good idea of what’s going on.
So, let’s return to the original premise of having this comparison metric. In our example, we want to check how the Facebook campaign went. But if we run this in January what comparison metric do we use? Remember we need a baseline to see what changes occur with our metrics.
If we choose Month on Month, the data is skewed by the Christmas peak.
If we choose Year on Year, the data is skewed by any number of changes that have occurred in the last 12 months.
So in this instance, we need to create our own targets. We need to take a step back and look at all the data. We need to look at the trends we have seen in our industry and our store. We look at Month on Month and Year on Year.
We need to make some ‘Guesstimates’ – based on our experience and the data. Then when we run our Facebook campaign, we can see how it performed against a more realistic target.
Setting Growth Targets
Targets help us see how campaigns go. But they can also serve an even more ambitious purpose. Helping us grow our revenue.
It’s a trick that’s used across many areas of life. Whether it’s growing a business or growing yourself. Setting targets and deadlines is an important way to achieve your ambitions.
The most successful businesses know this and set targets. Many share their targets with their entire businesses.
It helps when growth goals are transparent and understood across the board.
I read about this amazing hospital in India that sends SMS messages to the doctors every morning with a Profit and Loss update.
By sharing their stats and their targets, doctors appreciate how the business runs. As a consequence they became so efficient, they can afford to help those who cannot afford treatment.
That’s the power of setting goals and working towards them as a team.
With targets and deadlines you have focus. With focus, you can have achievable growth. So, when you are telling the story of your customers at large – tell a story of growth. Where you are fulfilling customer needs and expanding into the market.
Use the Month on Month data and the Year on Year data. Use your understanding of the industry. Look at the trends inside your business and out of it. Look at your investment and growth as a company.
Use the growth calculator above to set ambitious growth targets across each metric and then follow the Track and Optimise methodology to learn and exploit what works for you.
But what about the profit?
There are many more metrics out there. Each of them provides additional details in your customers’ story.
Just as a good story has three acts, so does a solid e-commerce business plan. The other metrics provide more details, but the three are the central pillars upon which to build your business.
So far we have the following equation: Traffic x Conversion Rate x Average Order Value = Revenue
But there is more to a business than Revenue. Revenue is Vanity – Profit is Sanity.
So we need to look at another metric: Cost.
Now our equation looks like this: (Traffic x Conversion Rate x Average Order Value) – Cost = Profit
Determining Return on Investment
Let’s look at an example marketing campaign. Say we were to spend $1000 to an Expert, who is a whizz at Social Marketing. They will create all the adverts, target them to Facebook and Twitter and bring in sales.
Once the campaign is complete, how do we check the performance. Well, first off we can use the comparison process we described earlier. We can either compare against the previous month (MoM) or the same month the previous year (YoY) or even better is to create our targets from looking at both of these data sets. We call this our Target comparison.
Here are some example figures:
So in this example, we have only made an additional $280 when we spent $1000. So we lost $720. This means there was a negative return investment.
We can work out Return on Investment like this: ROI = (Gains – Cost)/Cost
In this instance we had: ROI = ($280 – $1000) / $1000 = -72% ROI
Using ROI to set Targets
One of the biggest disappointments I see with e-commerce store owners is being let down by marketing professionals.
They have spent a ton of money and not seen any results. The expectations were not met. It’s disparaging.
If we always work with ROI targets we can use the data to make informed and performance based marketing decisions.
Use the above equation to set ROI targets when building a proposal with an Expert. We can say we are looking for a positive ROI on everything we spend with you. Then we track the costs and the revenue to determine the ROI.
This is the power of data-based marketing.
You can do this in your spreadsheet. Calculate the revenue targets that you require for a positive ROI. Update the three metrics used to determine your Revenue and compare how the actual revenue compares against your comparison.
By doing this you can monitor:
- You are achieving the positive ROI targets you require
- Which of the three metrics is performing positively
This lets’s you ensure your campaign is focused around growing your business and lets you learn what works so you can feed this back into future campaigns and optimise your growth further.
A final message about YoGrow
We took the above process of monitoring ROI in a spreadsheet and turned it into a service anyone with an e-commerce store can use.
The problem with spreadsheets was they needed manual updates. The problem with the analytics packagers where they were not focused on ROI.
YoGrow integrates these elements to provide an analytics platform designed for growth.
Not only that, but we also have a directory of e-commerce experts who can create proposals for you. They all have ROI at their core, so you can be assured that the campaign will grow your business.
Our live monitoring and weekly emails let you keep your finger on the pulse and an eye on performance.
So, let’s go through some of these terms and then look at the maths that follow. You don’t need to be a maths whizz – we’ll run through each bit from scratch.
- Analytics: This is the package that collects all the data on your site. One of the most popular is Google Analytics
- Metrics: These are the individual elements measured on your site. For example, how many times your site is visited is called a ‘visit.’
- Traffic (Sessions): There are many ways to measure how many people visit the site. If you want to get a better understanding of a single person using your site, then a Session is often used. This considers multiple visits within a time period (usually 30mins) to constitute a person. This is called a Session. The total number of sessions is called Traffic.
- Conversion Rate (CR): How much of your Traffic ‘converts’ into orders is your conversion rate. So if you have 100 visits and 50% convert, then you will have 50 orders.
- Average Order Value (AOV): Each customer will have a different total order value. We can average all the order values to get the average, and this is useful in working out our total revenue.
- Vanity Metrics – Hits are considered a vanity metric. They look good but don’t give us useful information. It just shows how many times the page has been loaded, and a single person may have done this many times. A more useful (but much smaller figure) is the Sessions metric. There are many vanity metrics out there – we want the metrics that grow your business not the ones the big up our egos!
- ROI – Return on Investment