ca. 30 Minuten
nach Wunsch auch mit VideocallBusiness Intelligence… what are we actually talking about!?
A Quick Guide in 6 episodes.
Today's topic – episode 3: Traffic, Average Session Duration, Conversion Rate, Average Order Value – we provide you with the definitions of some basic eCommerce metrics!
About this blog series
Business Intelligence. Is it baloney or a term that matters? Does it even concern me or will I have deleted the word from my vocabulary by tomorrow anyway? You’ve probably heard about it and read about it, but you may not have ever quite understood exactly what it means? Anyway – Business Intelligence surely is a term that leaves many people in a quandary. Maybe this is you? Then maybe we’ve got something for you: This Blog Series offers you some help by providing six successive blog articles about what we are actually talking about when we use the term Business Intelligence – based on our extensive BI-centered work in consulting and development for the online sector. For everyone who wants to know more, and in particular, for online retailers.
INDEX OF EPISODES
- Episode 1: What’s the use of Business Intelligence? Do I need that, too?
- Episode 2: BI Fundamentals – Metrics and KPIs
- Episode 3: Important Metrics for Successful eCommerce (I): Traffic, Average Session Duration, Conversion Rate, Average Order Value
- Episode 4: Important Metrics for Successful eCommerce (II): Sales Metrics, Cost-turnover Ratio, Return Rate, Customer Metrics, Repurchase Rate
- Episode 5: Important Metrics for Successful eCommerce (III): The Customer Lifetime Value Special
Episode 6: 5 Golden Rules for your BI project – Drawing a Bottom line
Important Metrics for Successful eCommerce (I): Traffic, Average Session Duration, Conversion Rate, Average Order Value
In episodes 3 through 5 of our BI blog series, we want to give you a comprehensive introduction to a successful online retailer’s most important metrics. We will start here, in episode 3, with the basics and we will then proceed to explain important relations by concrete questioning.
It might seem trivial to you for us to include the usual suspects, such as traffic and conversion rate in our explanation, but for one thing distinct definitions (of those basic terms as well!) are, and always will be, the essential element of a successful BI project, and for another thing, the significant additional value ultimately consists in the comprehensive linking of all those usual suspects with additional elements.
A selection of the most important metrics that you should continuously keep an eye on in your Data Warehouse (that is to say: on a daily basis at least!) could, for example, look like this:
- traffic, average session duration, conversion rate, average order value
- sales metrics, cost-turnover ratio
- return rates
- customer metrics, repurchase rate
- Customer Lifetime Value
In this episode of our BI blog series, we present explanations for the first of those term groups; in episode 4, the second through fourth groups are covered; and the Customer Lifetime Value, finally, gets its very own episode (5).
So – let‘s get started:
1. Traffic
- Data Source: Webtracking tool/shop system
- Unit: Number of unique visits respectively of cookie-IDs
- Calculation: Unique visitors per period
- Responsibility: Marketing
- Central Question: [Short-term] Do I achieve the traffic that I need to generate a sufficient amount of conversions? Is my traffic in due proportion to this amount of conversions (see below, item 2: Conversion Rate)? [Long-term] Which channel generates the most traffic in relation to the contribution margin?
The first and most important metric in eCommerce is traffic. Firstly, the traffic is “only” measuring how many (unique!) visitors visit your shop. But: Without traffic there are no conversions and without conversions there are no sales. First steps of analysis: Where does the traffic come from? What do I earn from it? But successful shops go further.
Paid Traffic is a very immediate control parameter as it can be measured and evaluated in real time. The allocation of marketing budgets in Search Engine Marketing, such as Google Adwords, often takes place “only” according to the following flat principle: “How much did we pay to achieve what amount of sales?”
Unpaid Traffic shows how well known a shop is as a brand – but of course, the question, if the responsible Marketing department has done its SEO-homework thoroughly, is slipping in here in a large part, too. The unpaid traffic is open to influence only in the medium term; at an online shop’s start, it is nearly at 0%. But by a cleverly implemented Search Engine Optimization (SEO), shops can end up in higher and higher ranks of the unpaid search results.
In the ideal case and within the scope of solid planning, the target values whose discrepancies are submitted to a target-performance comparison in the dashboard on a daily basis are defined per channel. On the basis of a holistic channel analysis, the traffic should then be evaluated and adjusted by various criteria. Which channel/sub-channel provides better, repurchasing customers, less return and higher order values per shopping cart?
2. Average Session Duration
- Data Source: Webtracking tool/shop system
- Unit: Time
- Calculation: Accumulated duration of all shop visits / number of shop visits
- Responsibility: Marketing
- Central Question: How can I optimize my web shop and its contents to make it attractive for visitors and accordingly increase their length of stay?
While traffic just provides information about how many visitors end up in an online shop, the average session duration displays to what extent it has the ability to actually keep them. If I record high traffic, but measure low average session duration, I obviously have to adjust my shop to make it more attractive for potential customers. Thereby, I ought to observe how the average session duration is modified by adjustments concerning, for example, my web shop’s structure, sales discounts or layout. This way, I am purposefully optimizing my shop in order for customers to have an extensive stay.
Additionally, the average session duration can be relevant for holistic channel analyses: If the visitors on a certain channel show a noticeably high length of stay (in this case calculated separately for the single streams of visitors coming through the various channels, of course), maybe even associated with noticeably positive values of other metrics, such as conversion rate or average order value (see below), a focus on the further development of that channel can be advisable.
3. Conversion Rate
- Data Source: Webtracking tool/shop system
- Unit: Percentage
- Calculation: Number of orders per unique visits
- Responsibility: Marketing
- Central Question: Which online channels generate the best conversion rate – before and after returns?
The conversion rate measures the degree of how well a shop is performing. Webtracking tools are able to measure the conversions of every button and product picture in the shop. Also important: How many shopping carts are packed? For the consideration on an aggregated level, in a first step it’s interesting to see how many visitors actually bought (converted) something. Depending on assortments, sales discounts and partly on the specific business model as well, conversion rates are highly varied. Thus, a ‘normal’ shop’s conversion rate is usually considerably lower than the one of a private shopping club.
Many efforts to optimize the conversion rate are related to the shop: Does the site have optimum usability? Are all the buttons in the right place and use the right color? Is the purchasing process quick and easy? But in the context of a holistic consideration, you should also integrate metrics from the commodities management, such as the article’s availability in the core sizes, and additionally consider some technical data, such as your shop back-end’s loading times.
4. Average Order Value (AOV)
- Data Source: Webtracking tool/shop system
- Unit: Euros (VAT included) (or: number of items)
- Calculation: Demand-sales / number of orders (or: ordered items in total / number of orders)
- Responsibility: Marketing
- Central Question: Which differing AOVs do I achieve per online channel and customer group – before and after returns?
The AOV shows the shopping cart’s average value: How well is the cross-/up-selling performing (cross = the shopping cart contains items from different product categories; up = higher-priced items are sold)? eCommerce professionals measure and track the target AOV that is necessary to cover the variable and fix costs.
And now, on to sales metrics, cost-turnover ratio, return rates, customer metrics and repurchase rate – in episode 4 of our BI blog series!
Especially for growth-oriented retail companies, we have compiled a KPI Guide with the top 5 KPIs. Download now for free and define your relevant key figures for an effective KPI strategy!
