Monitoring the right metrics to measure the performance of an e-commerce website is not only the marketer’s duty, but it should concern the owner and anyone who has an interest in the business profitability.
Exactly. Until your e-commerce business doesn’t sustain itself through automatic processes like shopping cart recovery systems, email marketing, content marketing and so on, you should get involved into identifying and monitoring the right key performance indicators or hire an expert to do that for you. Even if you choose the second option, it should be cooperation between you and the expert that will add value to your business, so you still have to get involved in the process.
Neglecting the reporting part of an online business not only that will lead to negative results in terms of performance, but it will demotivate you and your employees because of the feeling that nothing is getting done. Thus, start with identifying the relevant metrics for your business and conduct an in-depth analysis of the website.
In a previous article, I’ve mentioned the importance of setting up goals before starting to run any marketing effort: by starting from the business goals, you can create a plan based on derivative goals like marketing goals, conversion optimization goals and so on. These goals can and will be achieved only if they’re REALISTIC and MEASURABLE. So, for each goal type, you can identify metrics in order to measure them. Here is an example of approaching these goals:
- e-commerce business metrics: Customer Lifetime Value, Churn rate, Retention Rate, Year over Year Growth
- e-commerce marketing metrics: Customer Satisfaction Index, Net Promoter Score, Marketing ROI
- conversion optimization metrics: Conversion Rate, Revenue per Visitor, Average Order Value
As you see, these metrics have a customer side component. There are some complex and more difficult to build indicators like Customer Lifetime Value or Churn Rate, but this fact shouldn’t frighten you. Even if, at first sight, it seems complicated to calculate those metrics and to put into practice a procedure to monitor them, you should know that they act like a mirror for your business. The projections of your business strengths and weaknesses find themselves in the metrics values.
Why do I care about so much about the churn rate to write a full blog post about it
According to Investopedia, the churn rate is the percentage of subscribers to a service who give up the service in a given period of time. Analyzing your business while always having the customer in your focus is the key to understanding the effects of your actions. Metrics that measure the customer’s behavior are priceless because they reveal the likelihood of an existing customer to become an ex-one. And that’s why you should care about this metric as much as I do.
At first sight, it seems that this indicator is more suitable for SaaS business models…and it is somehow true: churn rate has been recently “discovered” by the e-commerce players and adapted to the particularities of this type of business. While SaaS business models allow tracking the subscribers’ behavior – they sign up and then they either continue to use the service or give it up, in e-commerce users may come and go without giving you a reason for their behavior.
The simplest way to calculate churn rate is by dividing the number of churns during a period to the number of customers at the beginning of a period.
This is the moment when confusion may appear. As Steven H. Noble explained in an article on the Shopify blog, certain adjustments need to be applied to the formula, due to the flexible and always changing customer’s behavior and medium’s factors. The conclusion of Steven’s attempt to give a definition to the churn rate is that every e-commerce business owner or marketer have to start from the basic formula and then to develop a customized one for the goals that he wants to achieve.
Don’t let your customers become churns!
The major commandment of the basic formula is that it should be used according to one’s needs. Keep track of the fact that the two variables are affected differently by the same factor: the customer’s behavior. At the beginning of the month, the associated value to the number of churns is influenced by changes while the value associated to the number of customers is just a snapshot.
Churn rate is so vital because it allows building a predictive model for the business. Modeling represents the basis of automation, so spending time and energy to build the indicator without errors, will certainly lead to a leverage effect in the future. In order to help you to build this indicator, here are a few guidelines:
- calculate churn rates quarterly – it will allow you to model the churn behavior and to benefit from its predictive role
- measure churn rate on both the customer’s count and the revenue basis– making profits while satisfying customer’s needs is what marketing involves. When calculating churn rate, don’t make the mistake to measure only one side while ignoring the other. 😉
- compare it with other indicators: churn rate is in direct opposite to the retention rate which is the number of current customers/number of all customers transacted in the last x days. Do not focus only on this metric to measure the efficiency of your marketing efforts, but build your own kit to handle both the threats and opportunities that will appear in the near future.
Be one step forward your competitors and start making accurate predictions for your business!