By Guilherme Lebelso
In a customer-centric company, the data we gather from our customers and their user experiences on our eCommerce platforms is critical to growing our business and continually improving our products. Data provides us critical insight into the sorts of products and experiences our customers are looking for, which allows us to better curate our selection to meet their needs.
At ZX Ventures, we use eight key metrics that allow us to better understand our customers’ needs and adapt our eCommerce platforms to meet them. While there are other metrics a company could use to monitor eCommerce, these metrics stand out for their impact on our bottom line and our ability to grow our platforms to benefit our customers.
Some of the key metrics we track are:
Customer Lifetime Value (LTV). Customer lifetime value measures how much revenue a single customer can be expected to generate over his or her lifetime as our customer. LTV also allows us to analyze customer patterns, which we can use to predict future needs or desires. (KISSmetrics has a great explanation of LTV, available here.)
Traffic. This may seem obvious, but a key metric is site traffic—how many people visit the platform. Many of the other metrics turn on this data: without traffic, there are no sales to analyze. It is our job to provide quality content to attract customers and entice them to spend more time on the site, ultimately resulting in purchases and repeat visits.
Conversion Rate. The conversion rate reflects how many customers make purchases once they are on the platform. The higher the conversion rate, the better your product is performing.
Churn. In line with LTV is churn, the number of customers who do not come back to your website after initially exploring a platform. Obviously, the lower the churn (and highest recurrence), the better. Our goal is to engage with our customers in a way that makes them want to come back to our site and purchase products over and over.
Average Order Value (AOV). As the name indicates, the average order value looks at how much each customer spends, on average, per order. This factor depends on both traffic and conversion rate.
Customer Acquisition Cost (CAC). This metric is found by dividing the cost of acquiring customers by the number of customers acquired during a specified period. For example, a company would have a CAC of $1 if that company spent $1000 in a year and acquired 1000 customers in that time.
Cost Per Action (CPA). Also called cost per conversion or pay per acquisition, this is measured based on a pricing model that allows companies and advertisers to pay for every individual acquisition—each click, impression, etc. This allows the company to track which advertisements are the most effective.
Contribution Margin (CM). CM is the final price of a product after all variable costs are paid for, including fixed expenses such as overhead. The CM directly correlates to the cumulative profit that a company can earn from each unit sold.
Ultimately, our loyalty is to our customers. Therefore, our goal is to create the best eCommerce platform possible to meet their needs. By understanding these metrics, we can work to consistently improve the customer experience, increasing the chance that our platform will become their go-to option for online purchases.