Chapter 1: Measuring Performance
METRICS ARE THE BUILDING BLOCKS OF ECOMMERCE ANALYTICS
When you are measuring the performance of an online business, there is a standardised set of metrics that most businesses use. They are common across all analytics software and likely the ones that you will set targets against that ladder up to your sales forecasts. These metrics provide the foundation for understanding user behaviour, identifying opportunities for growth, and making informed decisions to improve site performance. The metrics covered in the following lessons will connect to broader topics of this course to form insights about your business - and be referred to often! - so you may find yourself returning to these early lessons for clarification.
The definitions of these metrics is widely understood, but it’s important to note that depending on your analytic provider (Google Analytics, Adobe Omniture) the metrics may have slightly different naming as well as data capture parameters.
When it comes down to knowing your metrics, what you want to take away is what they mean and why they matter. By understanding how they provide information on your customer, your product offer and your website, you will take the first steps towards measuring performance in ecommerce.
Sessions
Sessions are defined by a user beginning their engagement with your site (by entry or by re-engagement of an open window) and ending their engagement (by exit or by timing out due to inactivity). Sessions measure engagement periods, while users is a separate metric tracking the individuals who may have multiple sessions. Also referred to as traffic or visits.
This is the leading metric for traffic and also a relative metric used to calculate other metrics. Sessions can be measured for engagement and quality, so you are understanding if you are sending the right users to your store.
Session Duration
Session duration measures the length of an individual session and then can be averaged across all sessions or segmented further.
The length of time a user spends on your site typically suggests engagement, so the longer the better. You may find that depending on a user’s activity in a session, they may spend more or less time. Users reading content-heavy blogs will spend more time than a quick shopping experience to purchase a single item.
Users
Users are defined by the unique IP address and stored cookies for a person’s browsing activity. This means that a single user could have multiple sessions. Users are effectively the number of people tracked on your site.
Understanding your user base is a way of understanding your potential customer base. These are all people (unless not tracked where users are counted multiple times) who can be measured for their loyalty, behaviour and preferences.
Frequency
Frequency is a measure of how often a user returns to your site.
FREQUENCY = SESSIONS / USERS
It can be used to measure loyalty of your users. Depending on your business type, you may see very different levels of frequency from your users, for instance a luxury item may require more purchase consideration and users may visit sites and shop less often compared to a more regular shopping experience with a grocery retailer.
Orders
Orders are a count of the total transactions completed on your site. They exclude failed orders or abandoned checkouts. Also referred to as transactions.
The number of orders going through your checkout will drive your conversion rate, so it’s a relative metric that is important to be aware of. Knowing the complexion of your customer’s purchases will tell you brand and category adjacencies, and support cross-shopping initiatives to increase the items per order.
Revenue
Revenue is a total of all the orders your site has processed, but bear in mind it can have nuances in analytics owing to currency conversions, shipping fees sometimes being included, as well as not capturing sales related to customers who were not tracked at all.
It can also be referenced as Demand (as it does not confirm that all ordered will be processed due to operational challenges or fraud) or GSO (gross sales ordered, as it does not factor returns)
Revenue is what a lot of sites measure success by, so it may seem obvious why it matters. It is however just a summation of the sales your site has taken, and does not necessarily include offline sales through Customer Care or from users who do not have their cookies tracked. As a result, analytics tools tend to see a 5-15% shortage of total business revenue reported in analytics software and exact figures should always be referenced from order management systems.
Conversion (CVR)
Conversion is a measure of your site efficiency in turning users into customers.
CONVERSION = ORDERS / SESSIONS
CVR is the golden metric most businesses will brag about. It means the customers who enter their site are more likely to purchase, because more sessions will include an order. It is incredibly important as a measure of intent and traffic quality, but is still just the end result of a long series of engagement activity. CVR will often tie into broader business strategies for digital marketing and traffic generation as well as UX (user experience) improvements across the site.
Average Order Value (AOV)
Average order value is a measure of your customer contribution, as it’s common to be targeting an increased basket size whether through multiple units (AIPO) or through higher average item values (AIV).
AOV = REVENUE / ORDERS
AOV can be a KPI used in businesses trying to improve profitability of their customer base as well as increasing overall spend per customer and loyalty. With fixed costs in fulfilling orders, often increasing the AOV can support making more transactions profitable to cover internal overhead costs.
Average Item Value (AIV)
Average item value is a measure of the price of the products customers are purchasing.
AIV = REVENUE / UNITS
AIV can be a key indicator for the “sweet spot” customers will convert on. It can be compared to the AIV of your overall product buy or catalogue, to further align your offer to customer demand.
Average Items per Order (AIPO)
Average items per order tells you the number of products per order a customer is buying .It is also referenced as UPT (units per transaction).
AIPO = UNITS / ORDERS
The number of items per customer basket can also have a large impact on profitability of your operations, so it can be a main lever in increasing your AOV. It can be targeted through “easy” purchases that take less consideration - similar to the gum at the till in a shop.
Add to Bag (ATB)
Add to bag rate is the rate at which customers add products to bag per session. It can also be relative to product view - this will be covered in the next lesson: Product Relative Metrics.
ATB = ADDS TO BAG / SESSIONS
Often more important than CVR, an add to bag suggests desire. A customer may not be ready to purchase, but that is then the barrier you are working against, not creating a want or need to purchase entirely. This can also shape your offer to ensure it is aligned with demand.
These metrics are your compass for navigating ecommerce with success. As you progress through the course, you will find them referenced often alongside some more granular metrics that will be covered in the following lessons. It can seem intimidating to digest all of these new terms and acronyms, but they will be your foundation in speaking ecommerce language and getting the most out of this course. Keep a glossary handy for reference in case you need to refer back to any formulas or definitions as you go.
LESSON SUMMARY
Metrics help you understand both what is happening on your site and what your users want
Sessions, CVR and AOV are the most common metrics used to both measure performance and set goals to grow ecommerce businesses
A number of metrics are relational, in that they are calculated by other metrics so if one changes it can affect the other