Retail store owners can get a sense of their business’s health—beyond looking at their financials—by observing foot traffic and talking to customers. Owners of online stores, however, don’t have the same opportunities to observe customer reactions to what they do. That’s where analytics come in.
Information gathered from analytics isn’t the same as the information gathered from people’s words and facial expressions. Instead of hearing your customers’ stories directly, analytics let you “visualize” them based on specific sets of numbers.
Ecommerce experts refer to hundreds of data points on a regular basis. This guide will help you understand and become comfortable with the language of analytics. It is designed specifically for analytics beginners, identifying the terms you need to know and the numbers you should be looking at. With a deeper understanding of your customers’ actions, you can better serve and engage them, and ultimately increase your sales. Once you’re equipped with the basics, you’ll have what it takes to make the right decisions as you get your business off the ground.
How data can illustrate stories
Analytics is as much about art as it is about science. That’s because a good data analyst can tell you a story from the thousands of clicks, visits, bounces, seconds, and conversions they observe. We’ll look at each of these terms later in this guide, but for now we’ll collectively call them “data points.”
Data points can tell you a story about the total number of visitors to your site in a given week. For example, maybe only 50% enjoyed your website enough to even spend more than a few seconds on it. And maybe only half of those who stayed actually made a purchase, while another 10% got stuck at the checkout page, became frustrated, and left.
That’s the story of a group of individuals who took very different actions on your online store. This type of knowledge—and we’ll look at how to find these numbers below—can help put you ahead of your competition. But it also can leave you with new questions. Is 50% good or bad? How many seconds (or minutes) is considered a good amount of time for a customer to spend on a site? How many of the people who do stay should I expect to buy sometime? How do I find out why the others aren’t buying?
Until you know the whole story, you can’t change the ending. Once you understand why visitors to your site behave the way they do, you can do something about it. But the answers to the above questions depend on context and will differ vastly depending on the type, size, industry, and stage of your company.
For example, in the context of a social network such as Facebook, the average time spent by users on the site needs to be much higher than on an ecommerce site. Social networks need users to stick around as long as possible so they’ll be exposed to, and hopefully click on, ads. By contrast, it’s just as valuable to an online store if a customer stays for only a few seconds but makes a purchase during that time.
Ideal visit times can vary, even among ecommerce stores. Customers purchasing complex and expensive products, for example, need time to examine and research those items. So it’s often a good sign if they spend several minutes on that product’s site. But if a customer spends a lot of time on a site selling simple, inexpensive products, it might be because they’re confused by the purchasing process.
Once you become fluent in ecommerce analytics, you can tell your own stories from the numbers you see and improve them. In the following sections you’ll discover which data points are important to your store, how to measure them, and how to use them to sell more online.
Marketing analytics for complete beginners
This guide will look at many analytics indicators, but if you’re just beginning your journey as an ecommerce entrepreneur, this is the place to start.
The top priority for ecommerce newcomers should be achieving “product/market fit,” which means offering a successful solution to a problem or unmet need that customers are willing to pay you for. At this stage, nothing else matters.
A business is only ready to scale—the investment of time and money in marketing to grow sales and make a profit—once it has achieved product/market fit. Scaling prematurely can be dangerous, leading to financial loss and even bankruptcy.
As an example, let’s say an ecommerce store sees that their number of visitors are growing and that their first customers are enjoying their products. They view this as a sign that they’re ready to start scaling, so they massively increase their advertising spend.
However, they didn’t pay enough attention to other metrics, such as bounce rate and returning visitors, that indicate they’re not as well positioned for growth as they thought.
Because their landing pages, overall design, and navigation still need work, the cost of acquiring each customer is too expensive, and that results in big losses. To correct this, they scale back down and look closely at and improve the right metrics. Then they start investing in marketing again.
The stage in your company’s evolution when you pursue product/market fit is called the validation phase. That’s because it’s the point where you validate whether you have a store with the qualities to start scaling safely. Stores with product/market fit have:
- Products its customers like
- A positive shopping experience that brings customers back to the store repeatedly
- A big enough customer base to scale growth around
But if you plan to use analytics to make data-driven decisions about your business, vague terms such as “products customer like” aren’t enough. There are five metrics you can objectively follow to make sure your store avoids the problems faced in the example above and scales at the right time:
- Customer lifetime value (LTV): How you will profit from your average customer during the time they remain a customer. For example, if your typical client comes back to your store three times to buy something, spends, on average, $100 per purchase, and your profit margin is 10% ($10), that customer’s LTV is $30. This is important to know, because LTV is directly linked to profitability. A company with high overall LTV will be able to spend more to attract customers and will have a higher margin.
- Returning visitors: The percentage of users who return to your site after their first visit. This number is a clear indication that people liked what they saw. According to our research, a good ratio of returning visitors to new visitors is anything higher than 20%.
- Time on site: The average amount of time users spend on your site per visit. As we saw in above, how much time is a good amount of time depends on what you’re selling. But in general, if people are spending time on your site it shows they’re having a good experience. According to our analysis, a good average time on a site is more than 120 seconds.
- Pages per visit: The average number of pages users navigate on your site in a single visit. A high number of pages per visit (around four) indicates people are interested in what you’re selling.
- Bounce rate: The percentage of users who visit a single page on your website and leave before taking any action. A high bounce rate (usually higher than 57%) means your site is not giving a good first impression. High bounce rate was the primary cause of the losses in the example above, and it’s especially harmful when you’re investing in advertising. A user may bounce because of poor design, unmet expectations, or slow page-loading time.
With the exception of LTV, which you need to calculate yourself, the above metrics can easily be accessed through Google Analytics. They appear on the first page, as soon as you log in:
If any of your metrics are below average, try putting yourself in the shoes of your customer, brainstorm ideas for improving your site, and test solutions until you see those numbers start moving up.
Talking to customer can also help. They may provide insights you otherwise couldn’t see.
When all of the above metrics are looking good, you can move on to the next phase of your company’s evolution, the efficiency phase.
Analytics for customer acquisition efficiency
In the previous section, we looked at using analytics to achieve product/market fit for your online store. But getting to product/market fit isn’t enough. You still need to grow your customer base efficiently so your revenue outweighs your fixed costs and your store can become profitable.
In a bricks and mortar business, such as a factory, “efficiency” usually means keeping costs low and profits high. This is achieved through good management of the most costly parts of the operation, such as physical resources like raw materials and machinery.o.,
Since an online store requires few physical resources, its biggest expenses aren’t tied to materials or machinery. Its main job is turning visitors into buyers, which means its biggest costs will be marketing, sales, and customer support. For an online business, becoming more cost-efficient means better managing of customer acquisition efforts.
Your goal during the customer acquisition efficiency phase is ensuring your website is easy to navigate and quick to load so visitors have the best possible shopping experience.
The efficiency phase is where you make sure everything is working well. Once that’s achieved, you can safely start scaling growth.
Launching an ecommerce store is like building a new car. Unless you’re sure about the car’s structural quality, you won’t feel safe driving it at 100 miles per hour. You might need to undertake some tests and fix a few things that need fixing to certify it can run as fast as you need it to without breaking down. Then you can accelerate.
In ecommerce, you test your store by running small-budget advertising campaigns and monitoring key metrics to assess whether they’re performing well. If they are, it’s safe to increase your marketing budgets and start scaling. If not, your conversion rates will be too low, customer acquisition costs too high, and you’ll lose money.
The main metrics to watch while improving your customer acquisition efficiency are:
1. Conversion rate
The percentage of people that visited your website and either signed up or made a purchase is called the conversion rate. This is an important number, because the lower your conversion rate, the more expensive and time consuming it will be to make a sale.
Install ecommerce tracking in Google Analytics to monitor conversions from your Google Analytics dashboards. To install, click Admin on the menu bar at the top of any Google Analytics screen. Choose Ecommerce Settings and then Enable Ecommerce. When presented with the option, select Enhanced Ecommerce Tracking too. This provides you with more data on your products and visitor behavior.
In Google Analytics you’ll see your overall conversions in the ecommerce report:
Google Analytics Ecommerce report
Knowing if your current conversion rate is good or bad can be tricky, since it depends on your industry, size, and type of product. For instance, websites selling expensive all-inclusive package tours to Italy will have a low conversion rate (often less than 1%) because the purchase is complex and requires users to do a great deal of research before buying.
The 4.36% conversion rate in the above image, however, is from a high-performing company selling inexpensive and simple menstrual products. According to our data, an average conversion rate for such items is between 2% and 3%.
2. Page load time
Our study shows that page load time can have an impact of as much as 16% on revenue.. Increasing speed has become a fundamental product requirement as users demand websites load faster and information be readily presented. Every second counts when it comes to how much time it takes for a page to load. If your visitors can’t find what they’re looking for, it will have a direct negative effect on business results.
When your pages take too long to load, conversion rates will be affected, which will have a negative impact on your customer acquisition efficiency. With more competition and lower attention spans, users get frustrated after waiting for just 400 milliseconds for web pages to load. Monitor your average page load time in your Google Analytics dashboards to make sure your pages are loading fast enough.
One of the most common causes of slow load times is oversized images. Photos, logo, and other images help shoppers visualize products, but they need to be properly optimized. Use Photoshop or Pixlr (a free online program) to reduce the size of your images—but make sure in doing so you don’t also reduce the quality of the image, which can make a photo look pixelated, like the ones shown below:
Visit your Google Analytics Behavior > Site Speed report to learn if your pages could be loading faster.
Google Analytics Site Speed report
3. Customer acquisition cost (CAC)
If you’re spending more money than you’re making, your business won’t be profitable. So the metric you need to pay the most attention to is the ratio between customer lifetime value and customer acquisition cost (CAC). CAC measures the amount of money you’re spending to acquire each customer. Since customer acquisition is the main expenditure in ecommerce, if your CAC is higher than the lifetime value of a customer, you will be operating at a loss.
CAC is calculated by comparing the amount you spend in marketing against the number of sales you generate from that amount. For example, if you’re spending $10,000 per month on Facebook advertising, and from that $10,000 spend you generate 1,000 sales, your monthly CAC from your Facebooks campaigns would be $10.
Next, you need to calculate the maximum amount it makes sense to spend on each customer acquisition, based on your CAC/LTV ratio. For example, if your average profit per order is $10, and your customers buy from you 10 times on average, your LTV is $100. So you need to spend less than $100 to acquire each customer in order to make a profit.
Improving conversion rates, CAC, and page load time is a constant effort for anyone running an online business, but also an important task that should be prioritized early on. Keep monitoring and optimizing these numbers, as it’s normal to see variations over time.
Once you improve your customer acquisition efficiency metrics, you can start scaling growth—the subject of the next section of this guide.
Analytics for scaling growth
Once you’ve made the necessary adjustments advised in the previous sections, you are ready for the scaling phase.
In ecommerce, scaling refers to growing sales. There’s nothing wrong with running a slow-growing company that simply helps pay the bills. But if you have a popular product a lot of people want to buy, why not try to sell as many as possible?
As you’re scaling growth, the main business metrics you’ll need to watch are:
- Transactions: Make sure growth is steady by improving your number of transactions weekly or even daily.
- Average order value: Selling more items or higher-priced products per transaction will help you improve your overall business performance.
- Revenue: Make sure your monthly revenue numbers are going up.
- Unique visitors: If all your other metrics are trending up, then your unique number of visitors will naturally reflect more sales and revenue. Just be careful not to pay too much attention to this metric before the above numbers are also positive. Make sure to manage your LTV/CAC ratio while you grow unique visitors so you remain profitable.
While you still need to monitor your conversion rates, bounce rates, CAC, and other metrics in each of your channels (we’ll cover this in more detail in the next section), the above metrics are the most important for scaling growth and the ultimate measure of your performance.
Track these metrics weekly in a spreadsheet and use them as a general overview of your store’s performance. Add your metrics to each corresponding week and compare them against the previous week. Your main goal should be to always do better than the week before.
In the next section, we’ll talk about the different acquisition channels—places where you can reach out to your potential customers and invite them to buy from you— and the most important metrics related to each.
Customer acquisition metrics
By looking at your Google Analytics dashboards, you should now have a good understanding of your company’s current position in the development cycle—whether it’s in the validation, efficiency or scaling phase.
In this section, we’ll focus on helping companies in the efficiency or scaling phases better manage their customer acquisition efforts. If you’re in efficiency phase, you’re ready to use acquisition metrics to optimize your store for future growth. First, you should invest a small amount of resources in marketing, through low-budget advertising campaigns, to bring in just enough traffic to generate data. Then, analyze that data to gain insights on the best ways to optimize the core metrics of your product. Once you’ve done that, you can move to the scaling phase and invest more heavily in the channels that have worked best for you.
Previously, we talked about some of the most important business metrics for evaluating your company’s growth during scaling. Now, let’s look at how companies that are ready to scale can use analytics to manage each marketing channel and invest more in their growth.
There are dozens of acquisition channels out there, but for the purpose of this guide we’ll focus on the current most popular channels for ecommerce: SEO, SEM, Facebook sads, and email marketing.
That doesn’t mean these channels necessarily are the best fit with your audience. If your typical buyer spends more time on Pinterest than Facebook, for example, look into how to leverage Pinterest.If you know your audience, you know how best to reach them, whether that’s through events, blogs, magazines, Snapchat, direct mail, or something else. . By learning more about analytics, your audience, and their favorite channels, you should be able to replicate these lessons with any acquisition channel out there.
1. Search engine optimization (SEO)
If you have a product people regularly search for online, such as airline flights or shoes, search engines can be a great free channel for growth. When you’re optimizing your site to gain more organic traffic (traffic from search engines), the metrics you should be looking out for are:
- Search volume: You can only grow with SEO if there are a lot of people looking for your product on search engines like Google or Bing. Understanding Keyword Planner is useful for learning if the keywords you want to be ranked for can generate enough traffic for growth. If they can’t, you’ll never be able to use them to scale.
- Average ranking position: In your Google Analytics SEO report you can see the average position of the keywords that are bringing you traffic. Position 1 means you’re the first result in Google for that keyword—the one that generates the most traffic.
- Bounce rate: If someone comes to your site through a Google search result and their expectations aren’t met, they’ll leave and your bounce rate will increase. Google uses bounce rates as a measure for ranking too, so high bounce rates are not only bad for sales, but for SEO.
- Conversion rate: If you have a steady volume of visitors coming from organic traffic, you want to make sure you’re converting them into buyers as frequently as possible. Optimize your entire conversion funnel, from landing page to payment, to better leverage SEO to grow sales.
- Revenue: You want to generate sales and revenue from visitors finding you through search. Monitoring revenue from organic traffic is the best measure to see if your SEO improvements are having a positive impact. Our Compass Revenue Report will show you exactly how much revenue you’re generating from SEO.
2. Search engine marketing (SEM)
Advertising on search engines can help attract the right audience to your site. Work on both SEO and SEM strategies—they complement each other well. The metrics listed below are based on Google AdWords, the search engine’s advertising solution:
- Search volume: If you’re investing in search engine marketing you want to make sure, as with SEO, that the keywords you’re targeting have high traffic volume. Research through Keyword Planner before you start investing in SEM.
- Cost per click (CPC): You can control how much you’re willing to pay per click in SEM by adjusting your CPC in your Google AdWords dashboard. The more you pay per click, the higher your ad will show in your prospective customer’s search results, which will generate more traffic. The trick here is to pay enough to drive traffic, but not so much that your cost per acquisition (see below) will be too high and hinder your profitability.
- Average ranking position: This metric, shown in your Google AdWords dashboard, is directly related to CPC. The more you spend on your keywords’ CPC, the higher your ranking position will be, which will generate more traffic.
- Click-through rate (CTR): Your ad may get shown to a lot of people, but it will only be effective if the right people click on it. Make sure your ad copy is enticing to your target customer. This will raise your CTR (also shown in your Google AdWords dashboard) and generate more traffic.
- Bounce rate: If people are clicking on your ads but you’re still seeing high bounce rates, work on your landing pages and ads to make sure the message you’re telling is consistent. Monitor bounce rates for every SEM campaign in your Google AdWords dashboard.
- Conversion rate: Optimizing your SEM conversion rate will have a big impact on your profits. Be sure your entire conversion funnel, from the landing page to payment, is optimized to better leverage SEM for sales. You can find the conversion rate of each campaign in your Google AdWords dashboard.
- Customer acquisition cost (CAC): In Adwords, CAC is calculated based on your average conversion rate and average cost per click. For example, if your conversion rate is 10%, that means you need 10 clicks to make one sale. If every click costs $2, your CAC will be $20. If a Customer acquisition cost of $20 is too high for you to make a profit, you’ll be losing money while you generate sales.
3. Facebook ads
Leveraging advertising on social media can be tricky—people use social networks to connect with friends, not buy products. Still, social media is where people spend most of their time online, and Facebook is the most popular platform, so it’s worth experimenting with Facebook ads to grow sales. The main metrics used in Facebook advertising are:
- Impressions: If your ad has a low number of impressions, it’s not being shown to enough people. This means your target market is too narrow. Widen your audience by including more relevant interests.
- CTR: This is the percentage of people clicking on your ad after seeing it. If your CTR is too low, the messaging or design of your ads need some work, or you’re showing your ads to the wrong audience.
- Cost per click (CPC): In Facebook, a click will cost more depending on the type of audience you’re targeting. A high CPC will translate into higher CAC.
- Bounce rate: Bounce rate works the same with Facebook as it does with SEM.
- Conversion rate: Conversion rate is an important metric, and each advertising campaign may have a different conversion rate. If you identified a particular campaign with a bad conversion rate (in Google Analytics, go to Acquisition > Campaigns to find out), work on your landing pages and ads to make sure they both have a consistent and clear message, highlighting the value of your products.
- CAC: CAC also works the same with Facebook as it does with SEM.
4. Email marketing
Email marketing is, on average, the best performing channel for sales in ecommerce. The challenge is building an email list, which takes time (we strongly discourage you from buying email lists). The main metrics you should be watching for when leveraging email are:
- Number of email subscribers: If you want to grow sales by using email, numbers matter. The bigger your list, the better your chances of making a sale. Work on getting as many email subscribers as possible from your potential clients.
- Sales from email: Simply having a big list of email addresses isn’t enough—you need to be able to sell to them. There are two aspects to this. First, you need a list of people who will be inclined to buy from you. Second, you need to work on the content of your emails to make that happen. Read more about these two metrics below.
- Conversion rate from visitors to email subscribers: Building a list requires adding forms to your website and asking people to subscribe. The conversion from visitors to subscribers will depend on how well you can convince visitors to sign up.
- Conversion rate from subscribers to sales: Once you have built a list of people interested in your products, you want to send them regular emails that are interesting, entertaining, and will convince them to buy from you. Work on the designs of your emails and your selection of products to make sure you sell to your list.
- Open rate: If people don’t open your emails, there is no chance of you selling to them. A quality email list can generate open rates of 20% to 30%. Test your email subjects to make sure they are enticing and can convince people to open them.
- Click-through rate: Once your subscribers have opened your emails, you want them to click on a product, promotion, or piece of content and go back to your site to buy from you. The percentage of people that click on a link in an email is the click-through rate.
- Unsubscribe rate: If you’re not careful with the type of content you send to your list, people may unsubscribe. If too many people (more than 1%) unsubscribe, it’s a sign you’re not sending them what they signed up for.
In the next section, we’ll look at how to tie together everything we’ve discussed so far and incorporate analytics in your company’s routine.
How to incorporate data into your company’s routine
You can really see the difference in performance of companies that incorporate data into their weekly routines. Merchants in the habit of analyzing data, getting insights from their analytics, and putting those insights into action are the ones who become the most successful.
Making data analytics a habit is simple. Whether you’re a solo entrepreneur or part of a team, all you need to do is implement weekly check-ups, in the following way:
Successful companies focus on solving their biggest bottlenecks first. Start every week by opening your analytics and taking a clear view of what your priorities need to be be for the coming days.
By understanding, for example, that your average page load time is high in comparison to your peers (or your previous week), and that page load time directly impacts conversions, you’ll know that its reduction should be a top priority for you.
As you can see in the example above, conversion rates are a big problem for this store. It should be focusing its efforts on optimizing its landing pages, store experience, and sales funnel to improve its conversion numbers and sell more.
You can also simply keep track of your metrics in a spreadsheet or a whiteboard. The important thing is to prioritize.If you want to improve your numbers over time, always compare your data with the previous week.
Once you identify your biggest problems, brainstorm ideas that can positively impact the red metrics on your dashboard. Put these ideas into action and follow the same check-up the next week to verify if your numbers have improved. Repeat this process every week until all your metrics are green.
That’s it. When you’re fluent in analytics and incorporate data into the decision-making process of your company, nothing can stop you.
Make your analytics work for you
Most businesses don’t fail due to lack of work or dedication—they fail by executing the wrong things. The trick is to understand which data points are important for each development stage and to use that knowledge to make changes that will actually have a deep impact on your bottom line.
About the author: Ramon Bez is a growth marketer with ten years of experience in using data to find opportunities for sustainable and profitable growth. In his last company, TourRadar, he helped raise revenues from $500k to $1M in under a year. Now he works as Content & Growth Marketer at Compass.