There seem to be about a million metrics to watch if you want to run a successful ecommerce business. Which ones are the most important? Well, that depends on your goals. We’re not side-stepping the question, just stating a fact. You can track as many metrics as you want, but not every performance indicator qualifies as a KEY performance indicator (KPI) for your ecommerce business. Once you understand the method, settling on the best KPIs for your business gets a lot easier.
We’re going to show you how to identify KPIs for your business by breaking the process down into three parts. First, we’ll look at the main areas that an ecommerce business might target for improvement or performance goals. Then we’ll go through most, if not all of the possible KPIs. Lastly, we’ll put the two together, so you can see which KPIs you might track to meet your company’s objectives. Ready? Let’s go!
Table of Contents:
- Metrics, Goals, Objectives, and KPIs
- Setting Ecommerce Goals
- Ecommerce KPIs
- Manufacturing KPIs
- Revenue KPIs
- Product Team KPIs
- Marketing KPIs
- Warehouse KPIs
- Project Management KPIs
- Customer Service KPIs
- Matching KPIs to Goals
- How do You Track KPIs?
Metrics, Goals, Objectives, and KPIs
What’s the difference between a metric, a goal, an objective, and a KPI? Let’s start with some definitions.
- Metric: A metric is a measurable indicator that changes over time. It might be a number (such as the number of new visitors to your website each day) or a percentage (such as your conversion rate). There are distribution metrics, fulfillment metrics, marketing metrics — metrics for every part of your business. Fortunately, most metrics are tracked automatically, using various tools and software systems. That’s not the hard part. The hard part is figuring out which ones to focus on as your goals change.
- Goal: A goal is a broad, long-term, measurable benchmark or outcome that a business has identified as critical to its future success. Measurable goals help everyone on your team make better business decisions by evaluating every possible action through the lens of, “Will this help us reach our goal?”
- Objective: An objective is a shorter-term, measurable action or step that individuals or teams within the organization set for themselves that will help the larger organization reach its goals. Objectives should be aligned with a larger goal, and move everyone forward in measurable steps. There may be several teams working on different objectives toward the same goal.
- KPI: A KPI is a metric that tells stakeholders how well they’re doing at reaching their objectives and, ultimately, the overall goal. A KPI may be a single metric, like “sales,” or a calculation that uses more than one metric, such as dividing sales by the number of orders to find the average order value in a given time period. To determine which KPIs to watch, it helps to work backwards. Start with the goal you’re trying to reach and work backwards to determine the actions you need to take, and how to measure their success.
Setting Ecommerce Goals
Ecommerce businesses share many of the same goals as other types of businesses that sell a product or service: we all want to be profitable, develop a loyal customer base, and experience consistent growth. Ecommerce businesses have the additional complexities of tech integrations, digital-only customer interactions, ecommerce order fulfillment, logistics and delivery that can make accomplishing these goals more challenging.
Most goals fall into one of two major areas:
- Financial goals, such as those that fall under the large umbrellas of reducing costs or increasing revenue
- Strategic goals, such as launching a new product, selling internationally, or reducing your carbon footprint
Within these broad goals, each member of your team will have their own ideas about ways they can help the business reach its larger goal. The executive team’s challenge is to weigh the costs and benefits of each strategy, and decide which ones represent the greatest opportunities. Each team member should come away with one or more specific, measurable objectives that fall under their purview.
Because objectives are specific and measurable, each team can establish specific KPIs to track their progress. Team leads are already accustomed to closely monitoring certain performance metrics, but these metrics differ from team to team, and not all of them are KPIs. Let’s look at the most commonly used KPIs for each team.
Whether you manufacture your own goods, or order them from a supplier, it helps to know how your manufacturer or supplier stacks up against another. KPIs are one way to measure efficiency and compare costs.
- Yield: The number of units manufactured in a certain time period.
- Cycle Time: The time it takes to manufacture a single unit.
- Productivity: Overall equipment effectiveness (OEE) and overall labor effectiveness (OLE) measure how well equipment is performing and how productive line workers are.
- First Time Yield (FTY): The number of correctly manufactured units divided by the number of units attempted gives you the percentage of correctly manufactured units and, inversely, the amount wasted.
- Non-compliance Events and Incidents: The number of days or hours lost due to injuries or non-compliance issues.
It’s all about the numbers for the revenue team. Whether tracking revenue, units sold, or profit margins, there’s no shortage of financial KPIs to satisfy their needs.
- Sales Revenue: Total sales measured in dollars (or other currency). Revenue may be measured by the hour, daypart, week, month, or quarter or year. They may also be tracked by SKU, or product line to identify top selling or slow selling products.
- Cost of Goods Sold (COGS): Total cost to produce or procure the goods, including manufacturing, fulfillment costs and inventory carrying costs, as well as the direct labor and overhead required to manage these processes.
- Landed Cost: The total of all costs associated with a product from manufacturing through fulfillment and delivery to the end customer. This includes COGS, as well as fulfillment and shipping costs, risk protection, compliance costs, quality control, shipping surcharges, payment processing fees, duties, tariffs, broker fees, harbor fees, value-added tax, late fees, cancelation fees, and special handling charges.
- Gross Profit: Net sales minus COGS.
- Net Profit: Net sales minus COGS and all other expenses including taxes.
- Average Order Value (AOV): total sales divided by the number of orders.
- Median and Mode Order Value: In addition to AOV, knowing the median (middle order value) and mode (most frequent order value) can more accurately represent the amounts you might expect from each order, since AOV may be skewed by a few abnormally large orders.
- Gross Margin: Gross profit divided by net sales, multiplied by 100 to get a percentage. Average gross margin is this number tracked and averaged over time.
- Cash-to-Cash Cycle Time: The amount of time between the cash outlay for manufactured goods to the payment collection from the sale of those goods.
- Transactions: The number of transactions (orders) in a given timeframe.
- Conversion Rate: The number of visitors to your website (traffic) during a certain time period divided by the number of visitors making a purchase, multiplied by 100 to get the percentage rate.
- Abandoned Cart Rate: The number of transactions (orders), divided by the number of visitors who put items in their cart during the same timeframe. (Multiply by 100 to get the percentage.)
- New Customers vs. Repeat Customers: The ratio of new visitors to returning customers on your site.
- Customer Acquisition Cost (CAC): Total marketing spend, divided by the number of new customers who made a purchase within a given timeframe.
- Revenue Per Visitor (RPV): Sales divided by the total number of visitors to your site during the same timeframe.
- Customer Lifetime Value (CLV): The sum total of all the purchases a single customer has made.
- Churn Rate: The percent of customers who do not return to make another purchase.
Product Team KPIs
Product development teams and inventory managers must closely track sales and inventory to forecast demand, avoid stockouts, identify top sellers and affinity products for bundling, and move slow selling items out. These are just a few of the KPIs they may be watching.
- Sell-Through Rate: Number of units sold during a certain time period, divided by the number of units received from suppliers or manufacturers during that same time period, multiplied by 100 to get the percent of inventory sold. This KPI measures the quantity of inventory sold as a percentage of the quantity available for sale.
- Inventory Turnover Rate/Ratio: Cost of goods sold, divided by the average inventory value during the same time period. (Average inventory value = beginning inventory + ending inventory / 2) This KPI measures efficiency by tracking how many times you sell through your inventory in a certain time period.
- Inventory to Sales Ratio: The average inventory value during a certain time period, divided by the net sales (sales minus returns) during that same time period. It is expressed as a decimal or multiplied by 100 to get a percent. In general, the lower your inventory-to-sales ratio, the more efficient your business. But if it’s too low, you may run out of inventory or be unable to manage an unexpected surge or supply challenge. When tracked month over month, it can help with forecasting and setting reorder points.
- Profit Margin by Product: Sales price per unit minus the cost of goods sold per unit.
- Carrying Cost per Line: How much it is costing you to store the inventory of a specific SKU over a given period of time. This is an important metric for end-of-year accounting.
- Product Affinity: Products that are often ordered together.
- Related Products: Products viewed before or after each other, indicating a similar interest by the customer.
- Return Rate: Number of units returned, divided by the total number of units sold (multiplied by 100 to get percentage). This may be tracked by individual product, product line, or for all products sold.
- Hit Rate: Total number of sales of a particular product, divided by the number of customers who contacted customer support regarding that product. This KPI can identify problems with manufacturing, product design, packaging, or web store descriptions/photos.
Marketing folks are constantly watching the early funnel metrics to help identify the best strategies and tactics, and rationalize the (sometimes very) expensive costs of building demand. Whether watching physical orders in traditional DTC businesses, or lead prospects in service-based businesses, it’s important for marketers to understand the “front side” of the business funnel to gauge overall interest in the business. They also have a responsibility on the “back side” to evaluate effectiveness and results. These KPIs help them do both.
- Return On Ad Spend (ROAS): the amount of revenue earned for each dollar spent on marketing. This can be calculated by marketing channel (Google or Facebook), by campaign, or by total marketing spend per year.
- Traffic: the total number of visits to your website in a given timeframe. Traffic is monitored in a myriad of ways, including traffic to a certain area of the website visited (blog, customer support, home page, product page) or the source of the traffic (search engine, social media, paid ads, other website, direct, email link, etc.).
- New Visitors vs. Returning Visitors: the number of new visitors compared to the number of returning visitors in a given timeframe. This KPI can help you evaluate the effectiveness of marketing campaigns, depending on whether you’re targeting new or existing customers.
- Time on Site and Average Session Duration: the length of time a single visitor remains on your site, and the average for all visitors.
- Bounce Rate: the percent of visitors who leave without clicking on anything.
- Page Views: the average number of pages a visitor looks at before exiting your web store.
- Traffic Source: Google analytics and some shopping platforms can identify where each visitor was or what they clicked on immediately prior to arriving at your store. Sources might include search results, paid ads, social media, other websites, an email, or any number of inbound links. You can also track the type of device and browser used.
- Email Subscribers: the number of customers or visitors who’ve given you their email addresses.
- Text Subscribers: the number of customers or visitors who’ve consented to receive texts from you.
- Subscriber Growth Rate: the rate at which your subscriber list is changing over time.
- Email Open Rate: the number of subscribers who clicked to open an email divided by the total number who received it, minus the number that bounced due to old or invalid email addresses.
- Click-Through Rates (CTR): the number of customers who opened an email or were exposed to a link, banner, display ad, or pay-per-click ad, divided by the number of people who click on the link/email/ad.
- Unsubscribes: the number of subscribers who request to be unsubscribed in a given time period.
- Social Followers: the number of followers or fans you have on a particular social media network.
- Social Engagement: the percentage of fans and followers who have commented, left a review, liked, recommended or otherwise engaged with your brand. Each social media network has its own tools to measure engagement.
- Search Position: this refers to what Google page and position your business appears on when a customer searches a keyword targeted by your business. This KPI measures your website’s Search Engine Optimization (SEO) and paid search performance for targeted keywords.
- Clicks: the number of clicks a particular link gets. You can track clicks within emails, on your website, social media, banner ads or pay-per-click ads.
- Cost Per Click: the amount you are charged by a pay-per-click advertising provider (such as Google or Facebook) each time someone clicks on your paid ad.
- Average Click-Through Rate: the percentage of visitors exposed to your link who click on it, averaged over time.
Whether you manage your own fulfillment center or partner with a third-party logistics (3PL) and fulfillment provider, the warehouse operations team should be tracking certain KPIs to measure accuracy, efficiency and how well they’re meeting your service level agreements. A tech-forward 3PL with advanced warehouse management systems will be able to track performance on a more granular level so they can offer their ecommerce clients real-time data and customized reporting.
- Supplier Accuracy: compares quantity and quality ordered to quantity and quality received to catch discrepancies.
- Receiving Efficiency: a measure of how much inventory is processed in a given timeframe which, if lower than normal, may indicate staffing issues or inefficient processes.
- Receiving Cycle Time: the time it takes to unbox, count, sort, measure, weigh, and label (if necessary) inventory after it arrives at the warehouse.
- Cost Per Shipment: how much it costs in time and labor to receive inventory, tracked by line item or SKU.
- Slotting Cycle Time: the time it takes to put inventory on the shelves, from when it gets through receiving to when it appears as available stock on your storefront.
- Slotting Accuracy: percent of inventory that is slotted correctly, which is often identified as the cause of picking errors and slowdowns.
- Slotting Cost per Line: how much it costs in time and labor to accurately put your merchandise on the warehouse shelves.
- Inventory Accuracy Rate: The difference between the number of units physically counted and the number of units on record, expressed as a percentage.
- Turnover Rate: The number of times a SKU (or all inventory) is sold and restocked in a given time period. The warehouse might track this KPI to determine where to slot and pick fast-moving products vs. slow-moving products.
- Shrinkage: How much inventory was lost due to damage, theft or other causes. It is calculated by subtracting the quantity shipped from the quantity received and comparing it to the quantity on hand.
- Order Lead Time: How long it takes your customer to physically receive their order after placing it.
- Order Cycle Time: How long it takes your fulfillment center or 3PL to fill the order, from the time it is placed to the time it is shipped.
- Orders Shipped Per Day: The number of orders shipped per day and a good indicator of a fulfillment center’s capacity and capabilities.
- On-time Shipping Rate: The percentage of orders that are picked, packed and shipped out within the expected timeframe, typically outlined in the Service Level Agreement (SLA) between the warehouse or fulfillment partner and the ecommerce business.
- Return Rate: The percent of orders that are returned, tracked by SKU or overall. The operations team pays close attention to operations-related reasons for returns, such as inaccurate orders, undeliverable orders, and damaged orders.
- Picking Productivity: How many order lines (different SKUs within the same orders) are picked every hour, which is a good indicator of how quickly workers are able to move around the warehouse and locate items.
- Order Accuracy Rate: The percentage of orders that are picked without an error (i.e. wrong item, duplicate items or missing item).
- Picking Cycle Time: How long it takes for an order to be picked, from the time the picker receives the packing list to the time it is sent to the packing station.
- Cost Per Order: How much it costs in time, labor and packaging costs to pick and pack each order.
- Deliver-by-date Percentage: The percentage of packages delivered within the promised number of days for a particular shipping method.
- Cost Per Shipment: Shipping costs per order.
- Orders Per Hour: Used by 3PLs to track overall productivity, not just the productivity of a single ecommerce brand.
- Lines Per Hour: Similar to picking productivity, this KPI tracks how many different SKUs are picked every hour. It is a good indicator of how quickly workers are able to move through the warehouse and locate items.
- Cartons Received Per Hour: Tracks overall productivity of receiving team
- Accidents Per Year: Tracks frequency of accidents over time.
- Time Since Last Accident: Tracks successful accident-free periods.
- Time Lost Due to Injury: Quantifies the impact of an injury to the business in terms of lost productivity and cost.
- Total Recordable Incident Rate (TRIR): Number of work-related injuries per 100 full-time workers, per year. This metric is required by OSHA to monitor high-risk industries and rank businesses.
Project Management KPIs
Let’s say you’re introducing a new product. To determine whether it’s a success or failure, or whether you should follow through or pull the plug, you might want to track these KPIs.
- Cost Variance: The dollar amount allocated (budget) for the project, minus actual costs, including design, manufacturing setup, materials, marketing, and inventory setup. Variances between expected costs and actual costs will determine whether you need to trim the project or add to the budget. Tracking actual labor hours and costs will also help with the planning of future projects.
- Return on Investment (ROI): Total expenses for a project, subtracted from actual earnings the project delivers.
- Cost Performance Index (CPI): Earned value divided by actual costs. A number greater than one indicates the project was worth it.
Customer Service KPIs
Customer service is a necessary expense for all ecommerce businesses, but should be kept as low as possible. Successful businesses respond quickly, resolve issues quickly, and work proactively to prevent issues from occurring or recurring.
- Customer Satisfaction Score (CSAT): The average score your customers give you in response to the question, “How satisfied were you with your shopping experience/our brand/the product you ordered?” You can set your own numbered scale, and stick with it to track changes in satisfaction over time.
- Net Promoter Score (NPS): The average score your customers give you in response to the question, “How likely are you to recommend our website/brand/product?”
- Email/Call/Chat Counts: The number of customer service contacts, broken down by method.
- Response Time: The average amount of time in minutes, hours or days it takes your CS team to respond to a query.
- Resolution Time: The average number of minutes/hours/days that pass from when the query was received to when it was resolved.
- Active Issues: The number of unresolved issues in progress. A higher than usual number or backlog might indicate a staffing problem, or something worse, such as a website crash or unresponsive server.
- Concern Classification: Tracking the customer’s area of concern, whether shipping, order accuracy, wrong size/color, lost package, etc., can help you identify areas or products to improve.
- Escalation Rate: The percentage of customer service contacts that result in escalation to a higher level of support.
Matching KPIs to Goals
As you can see, if you’ve got a goal, there’s undoubtedly a KPI that will measure it. Here are just a few examples of how a business goal might translate to objectives for each team, and the KPIs they would use to track their progress. NOTE: these are over-simplified examples, and are not meant to be followed.
Business Goal: Increase sales by 10% year over year
- Sales Objectives: Increase conversion rate by offering free shipping; test tiered shipping rates with minimum order values
- KPIs: Clicks, Conversion Rate, Abandonment Rate, Landed Cost, Shipping Costs
- Marketing Objectives: Increase digital ad spend to increase traffic and implement a loyalty program to encourage repeat purchases
- KPIs: Traffic, Click-Through Rates, First-time visitors, Customer Acquisition Cost Repeat Customers, Customer Lifetime Value, Email Click-Through Rates
- Product Team Objective: Create bundles to increase AOV
- KPIs: Product Affinity, Product Relations, Top Sellers, AOV, Mode Order Volume,
- Operations Objective: Improve order accuracy rates to reduce returns
- KPIs: Order Accuracy Rate, Return Rate
Business Goal: Reduce costs by 5% year over year
- Manufacturing Objective: Cut costs by 2%; reduce waste
- KPIs: Productivity rates; First-time Yield, Cycle Time
- Marketing Objective: Improve quality of incoming traffic with targeted ads; implement an affiliate marketing program
- KPIs: Click-Through Rates, Bounce Rate, Page Visits, Time Spent on Site, Affiliate Performance Rates
- Product Team Objective: Reduce inventory carrying costs by ordering more economically; search for more affordable suppliers; reduce returns
- KPIs: Carrying Cost, Inventory to Sales Ratio, COGS, Hit Rate, Cost Per Order
- Operations Objective: Switch fulfillment operations to a global 3PL to reduce shipping costs and improve picking efficiency and order accuracy
- KPIs: Shipping Costs, Order Cycle Time, On-Time Orders, Accuracy Rate
- Customer Service Objective: Reduce number of contacts by improving online self-help pages
- KPIs: Email/Call/Chat Counts, Clicks, Concern Classification
Business Goal: Reduce carbon footprint by 50% in 5 years
- Manufacturing Objectives: Improve efficiency; source recycled packaging materials; reduce waste
- KPIs: Productivity Rates; First-time Yield, Raw Materials Costs
- Sales Objective: Reduce travel; leverage green message to targeted groups of like-minded groups to increase customer base
- KPIs: New Visitors; Conversion rate, ROI
- Marketing Objectives: Reduce use of paper inserts and direct mail; improve online communications for basic services like tracking and returns; enlist help of customers by encouraging recycling of boxes and packing materials; communicate green commitment on packaging, tags, website, social media and advertising
- KPIs: Social Engagement, Social Followers, Sales
- Product Team Objectives: Source local suppliers and/or raw materials; reduce returns; develop eco-friendly packaging
- KPIs: Hit Rate, COGS, Gross Margin, Customer Satisfaction Score
- Operations Objective: Implement sustainable shipping boxes, bags & mailers; recycle wasted packaging and returned products; eliminate packing lists and return labels in orders; distribute inventory across multiple fulfillment centers to utilize regional and local shipping carriers whenever possible
- KPIs: Special Handling Costs, Shipping Costs, Inventory to Sales Ratio, Inventory Turnover Rate
Business Goal: Increase customer satisfaction rate by 10%.
Sales Objective: Reduce abandoned cart rate by testing various promotions at checkout
KPIs: Abandoned Cart Rate, Conversion Rate
Product Team Objective: Eliminate stockouts and backorders; resolve outstanding product issues
KPIs: Inventory Sell-Through Rate, Inventory Turnover Rate,
Inventory to Sales Ratio, Hit Rate
Marketing Objective: Add product reviews to product pages; hire a social media specialist to manage posts and respond to customer comments/complaints
KPIs: Social engagement, Customer Satisfaction Score, Return Customers
Operations Objective: Implement quality checks in receiving process; decrease order lead time (the amount of time between when a customer places an order and when they physically receive it); improve order accuracy rate
KPIs: Supplier Accuracy, Order Cycle Time, Picking Productivity, On-time Shipping Rate, Order Accuracy Rate, Return Rate
Customer Service Objective: Improve response time, resolution time and reduce the number of escalations
KPIs: Response Time, Resolution Time, Escalation Rate
How do You Track KPIs?
The first place to look for tracking data points is your shopping platform. Most platforms, including Shopify, WooCommerce, BigCommerce and others collect data with every order, and allow you to create dashboards to view orders or whatever info you want to track at a glance. Your warehouse or 3PL should have its own order and inventory management system that integrates with your shopping platform and back-end systems to provide real-time information. ShipMonk’s industry-leading 3PL platform makes monitoring orders and inventory levels a breeze, with custom reporting and robust features that put you in control.
As for marketing, Google analytics, Facebook, and other media channels have powerful tools that track traffic, clicks, click-through rates and much, much more, so you can measure the success of your marketing campaigns. Likewise, project management systems, customer service solutions, and manufacturers have their own tools for measuring KPIs.
Ready to Get Started?
If you’re worried that your tech systems and fulfillment operations aren’t quite up to the task, consider stepping up to a 3PL. The beauty of working with a third-party logistics provider like ShipMonk is that we invest in the technology and handle the integrations for you. We invest in the automation, robotics, and trained staff that make order fulfillment and returns processes incredibly efficient and accurate. Our system puts the KPIs you care about most at your fingertips. Whether you’re trying to boost sales or reduce customer service contacts, make it your goal to contact ShipMonk soon!