If your company reported its best-ever quarterly sales results, your first instinct would probably involve a good number of fist pumps. But then you’d pivot to an important question: What happened to make the quarter so successful? The answer would be found in sales data analysis based on specific metrics. You’d take those key sales metrics, study them, and form actionable insights to steer future business decisions.
Here’s how you can monitor current sales, conduct a sales analysis, and make data-driven decisions for your own small business.
What is sales analytics?
Sales analytics is the practice of generating insights from sales data, trends, and metrics to set targets and forecast future sales performance.
For instance, you could compare the year’s sales revenue with your company’s historical sales data and look for upward or downward trends. Similarly, you could study your customers’ average purchase value or your sales reps’ lead conversion rates, and then compare actual results to expected performance. The goal is to leverage information about sales trends to craft a data-driven sales strategy. All members of a sales organization are stakeholders in the process and share the goal of increasing revenue.
Why should companies monitor sales analytics?
Companies large and small use sales analytics tools to understand their businesses. Sales analytics allow you to analyze your customers’ purchasing habits, your product performance, and your sales team’s performance. Armed with sales analytics metrics, your company’s sales reps, marketers, and product managers can strategize future initiatives and improve their overall sales and marketing efforts.
As a small business owner, you may have limited resources to pour into sales and marketing. By amassing sales analytics, you can maximize those resources. For instance, a sales analytics tool may scan your website traffic and reveal that your ecommerce store records most of its purchases from computers running Microsoft Windows during daytime business hours. This could lead you to conclude that a lot of people buy your products while they’re at work. You could then orient your sales funnel to capture those profitable customers—perhaps by purchasing sponsored posts on a business-centric social network like LinkedIn or by pursuing cross-selling opportunities with a B2B vendor. If, at any point, you notice your product sales diminishing, you can also use analytics to change course and try something new.
Shopify's analytics and reports give you the means to review your store's recent activity, get insight into your visitors, analyze your online store speed, and analyze your store's transactions.
8 crucial sales metrics for ecommerce stores
No matter what sales analytics platforms you use, there are eight key metrics that will reveal valuable information about your current sales and help you forecast future sales.
- Average order value
- Customer lifetime value (CLV)
- Sales growth
- Product performance
- Lead conversion rate
- Sell-through rate
- Sales funnel performance
- Sales pipeline performance
1. Average order value
Average order value is a metric that reveals how much people are spending during a typical visit to your ecommerce store. You can find this total by dividing the total revenue generated by the total number of sales in a time period. When you do your sales forecasting, you can assume that future customers will spend about the same amount per purchase as your current customers. Average order value is particularly useful as a factor in calculating customer lifetime value.
2. Customer lifetime value (CLV)
The customer lifetime value metric represents your prediction for how much money a particular customer will spend with your business over their entire relationship with your company. You start by studying how much they’ve spent with you in prior sales cycles and then use predictive analytics to estimate how much they might spend in each future sales cycle.
3. Sales growth
The sales growth metric looks at sales reports over a sustained period of time. It compares historical data with current sales performance to determine how much sales have grown or declined over time. You can promote sales growth by expanding your customer base and sales channels and by rolling out new products.
4. Product performance
The product performance metric breaks down sales by individual products. This is useful because the topline number on sales reports doesn’t always paint a complete picture. Your company’s revenue could be evenly divided among all the products it sells, or one product could be generating the majority of sales while the other SKUs lag behind. Knowing which products sell the best allows you to appropriately allocate marketing resources.
5. Lead conversion rate
A referral to your ecommerce store is known as a lead. A lead conversion is when that lead results in an actual sale. Your lead conversion rate may reveal information about the customer experience once a user is on your website or browsing your ecommerce store. You can determine whether you’re converting enough leads, and, if you aim to improve, you can drill down on conversion rate optimization to get better results.
6. Sell-through rate
Your sell-through rate is the rate at which you can sell off your existing inventory. To find your quarterly sell-through rate, divide the amount of inventory you sold in a quarter by the amount of inventory you acquired during that quarter. If you added 1,000 pieces of inventory and sold 850 pieces, you have an 85% sell-through rate. If you added 1,000 pieces of inventory, but only sold 318, your sell-through rate is 31.8%. Your target sell-through rate depends on your industry, but a goal of 80% or higher is ideal.
7. Sales funnel performance
Your company’s sales funnel is the series of customer interactions that turn prospects into paying customers. The sales funnel begins the moment a prospective customer becomes aware of your brand, and it continues when they visit your site and eventually buy your products. Sales funnel analytics go beyond a customer’s behavior on your website. You’ll have to study the success of ad campaigns and social media posts to find out what’s feeding your sales funnel with the most valuable prospects. You can also use analytics to identify sales funnel leaks—instances where a potential client begins the customer journey, but doesn’t complete a purchase.
8. Sales pipeline performance
A sales pipeline is a means of organizing and studying potential customers as they move through your company’s sales funnel. There are seven stages in a sales pipeline: prospecting, lead qualification, demonstration, proposal, negotiation and commitment, opportunity won, and post-purchase. Your sales pipeline velocity is the speed at which a prospect moves through your pipeline and becomes a paying customer. Use sales pipeline analysis to track the customer experience and generate sales forecasts and sales targets based on current conditions.
How to perform a sales data analysis
Any small business or ecommerce store owner can conduct a sales data analysis. What’s required is a clear objective, collection tools, an analytical study, and the willingness to make changes. Here’s the process, broken into four steps:
- Determine a sales metric to analyze
- Collect data using analytics tools
- Analyze your results
- Apply your findings to future initiatives
1. Determine a sales metric to analyze
Start the sales analytics process by picking a metric you want to study. This could be sales pipeline velocity or the performance of a sales channel. By focusing on a specific metric and not getting too broad, you improve your chances of achieving actionable insights. For instance, studying a specific Instagram ad campaign might give you more precise knowledge than bunching together all your social media campaigns from the past year.
2. Collect data using analytics tools
You can sort through customer data by using tools like Google Analytics, Shopify Analytics, Zoho Analytics, or Microsoft’s Power BI. They can help you monitor site traffic, user behavior on your site, and the overall sales funnel. These tools can also turn data into reports filled with charts and graphics, making it easy for your team to recognize trends in the data.
3. Analyze your results
Use your raw data to analyze your company performance and learn about how your customers interact with your website or ecommerce store. Analysis often works best when you’re comparing two things, such as website traffic in two successive quarters or the total sales volume of two similarly priced products.
4. Apply your findings to future initiatives
You may find that you’re pricing your products too high—or too low. You may find that customers tend to leave your site at a certain point in the sales funnel, which could indicate problems with the user experience (UX). The true value of sales analytics comes when you take action to address your findings, make changes, and then reassess your sales metrics over time.
Sales analytics FAQ
Is sales analytics only relevant for large businesses?
Sales analytics benefit companies of all sizes. Whether you’re selling 50 handmade items per year or thousands of palettes every day, you benefit from knowing your sales volume, average order value, sell-through rate, sales pipeline velocity, and more.
Can you use sales analytics to study both online and offline sales data?
Yes, you can analyze any type of sales data, provided you keep careful records of your sales. Many online sales analytics tools specialize in ecommerce sales, as they’re running under the hood of your website. Using traditional accounting software like QuickBooks can extend this to all of your sales—not just the products you sell online.
Is it necessary to collect historical sales data to perform sales analytics?
Depending on what you wish to analyze, you may not need historical sales data to perform sales analytics. If you’re strictly studying the efficacy of a particular marketing campaign, you can get a lot of information with only the data from that campaign. If you want to track other metrics, like sales growth over time, you will need the historical data along with current sales data.
Is it possible to use sales analytics to optimize pricing strategies?
Yes, you can use sales analytics to study the effectiveness of your pricing strategies. Assess which pricing campaigns generated the most sales volume and the greatest net profit. Having identified your most successful tactics, you can plan future campaigns using similar strategies.