E-commerce web analytics refers to a collection of tools, techniques, and disciplines you can use to segment and analyze the web traffic that flows into, and out of, your e-commerce website.
While the subject-matter is a dizzyingly large one, the basic principles that underlie it are relatively straightforward. By understanding just a few simple concepts, you can get a firm grasp on how e-commerce web analytics works and how you can use it to your advantage.
In the following article, we’ll cover those basic concepts and conclude with an explanation of how to apply them to your own e-commerce firm.
The Funnel Concept
Virtually everyone who’s involved in e-commerce has heard of the funnel. It’s a simple idea. Potential customers flow through the top of the funnel towards an ever-narrowing spout. Most of these people will leave the funnel without ever purchasing anything. A few, however, will “convert,” and buy something.
The funnel is usually explained in terms of a buyer or customer journey. This journey proceeds through at least three stages.
The customer first becomes aware of a problem or pain point. He or she begins to research the problem itself and, maybe, does some preliminary research on potential solutions.
At this initial stage of the buyer’s journey, the customer’s understanding of the problem may be diffuse and poorly defined. The buyer may be generally “bored,” “uncomfortable,” or “unsatisfied.”
As the customer moves through the awareness stage, their understanding of the problem begins to crystallize and gain definition. “I don’t have any video games to play,” “My chair is terrible,” or “I’m hungry.”
After the buyer’s awareness of their problem becomes clear, he or she moves on to researching potential solutions for the problem. The buyer may create a list of potential solutions or strategies that people use to solve the problem.
Once the buyer has had time to consider the potential solutions for the problem, he or she begins to decide on one of them. Usually, the customer has, at this point, created a shortlist of providers of solutions to their problem.
It’s at this stage that the buyer actively compares features, benefits, and characteristics of different solutions and providers. They’ll consider the price as well.
E-commerce web analytics is overwhelmingly concerned with key performance indicators, or KPIs. Before we get into some of the most important ones, however, we’ll include a quick note about two different kinds of KPIs: absolute and relative.
Absolute KPIs are metrics without a comparator. Revenue, conversion rate, and email open rates are all examples of absolute KPIs.
Relative KPIs are metrics that come from combining and comparing at least two separate numbers. Growth rates are the most common relative KPIs. For example, the annual growth rate in an e-commerce firm’s customer lifetime value might be 12%. Each year it’s 12% larger than the year before and it comes from comparing last year’s customer LTV with this year’s.
Growth rates are powerful indicators of the future potential of a business or industry. They can often tell us more about an e-commerce business’s potential than static KPIs without context.
The conversion rate is the percentage of people who take a particular action to move to the next stage of the buyer’s journey. The action might be an actual purchase, or it might be something that comes before that, like signing up for an email list.
Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) is the amount of money you spend to get a person from the beginning of the buyer’s journey (the awareness stage) to purchase. To get the number, you simply add up all of your customer acquisition expenses and divide them by the number of successful purchase conversions.
Lifetime Value (LTV)
Customer lifetime value is the amount of money the average customer will spend on your business over the course of their life. If your business has a lot of repeat customers and the products you sell are expensive, your LTV will be higher than a business that sells cheap products and has no repeat buyers.
The KPIs that your e-commerce firm will want to measure will depend on several factors. One of the most significant of these factors is where your business is in its lifecycle.
New E-commerce Website – Traffic
New e-commerce websites are overwhelmingly concerned with traffic. Because they’re new enterprises, these e-commerce firms start with no users and no engagement. They have to build from scratch.
Traffic is the first step to creating the other forms of engagement we talked about in the preceding sections. After all, you can’t convert a customer who’s never been to your website.
New e-commerce websites will track the number of users and sessions they attract each day, week, or month. They’ll also keep track of where these users are coming from. The latter metric allows them to finetune their efforts to grow their traffic, by focusing on those referral channels that bear the most fruit.
Growing E-commerce Website – Engagement & Return Rate
E-commerce websites that have some initial traction and traffic will likely be focused on user engagement metrics. Data like user bounce rates (the percentage of users who leave your site after seeing just one page), the average length of a session, the number of pages visited per session, and the number of returning users will all be of interest to growing e-commerce firms.
Established E-commerce Website – Client Satisfaction, LTV, CAC
Profitable e-commerce firms that have established a foothold in the digital sphere might focus on other, longer-term, metrics. These companies are fortunate insofar as they have more data to play with.
This additional data allows them to determine things like average client satisfaction, the lifetime value of the average customer, and average customer acquisition cost. While newer companies may find it difficult or impossible to determine these values, established e-commerce websites who have paid attention to creating a sizable pool of web analytics data should have little issue sorting this out.
E-commerce Web Analytics: Using The Principles
Now that we’ve explained three of the core concepts relied on by data analysts, we can move on to briefly describe how they might be of use to your analytics platform.
At its core, e-commerce web analytics is about helping your customers move through the customer or buyer journey funnel faster and more efficiently. You want to make people aware of a problem, help them consider possible solutions, and make it easier for them to choose your product as the solution they ultimately go with.
Your KPIs will serve as benchmarks and leading or lagging indicators of how well you’re doing at each stage in the process.
Your business lifecycle will determine which stage you’re most concerned with.
KPIs as Signposts
Key performance indicators are the tools you use to determine how well you’re doing at each stage of this process. For example, say your business runs a blog to drum up awareness and interest in a subject related to your products. You might keep track of what proportion of your readers subscribe to your blog after reading an article.
If you find that 5% of your readers are converting, and 40% of those people respond to email marketing and ultimately buy a product, you’ve gained valuable information. By comparing these numbers to industry standards you can learn where to focus your efforts to improve your product sales.
Keep in mind that it can help to rely primarily on relative KPIs, like growth rates, rather than absolute values. This is because your e-commerce web analytics should be remedial in nature. They should be designed to solve problems.
If all you’ve determined is that 10% of your visitors add an item to their shopping cart, you haven’t learned much. However, if you learn that changing the color palette on your website has increased that number to 18% you’ve confirmed a hypothesis about your web design.
In other words, linking design, strategic, operational, and other decisions to changes in your KPIs can tell you a lot about what your customers like and don’t like.
Adapting As Your Business Evolves
As your e-commerce business moves through different stages of growth, your approach to, and use of, e-commerce web analytics should evolve. Whereas you may once have been obsessed with traffic growth as the overall indicator of the health of your website, you may now be focused more on engagement or efficiency.
With that evolution may come a need to switch to a new e-commerce analytics tool. While the shift can be a hard one to make, ensuring that your analytics platform can handle the tasks that your business needs at each stage of its growth is an important task to keep in mind. Don’t be afraid to make the leap to a new solution if the need arises.
We’ve thrown a lot of information at you this week. But as long as you keep in mind that the end goal of e-commerce web analytics platforms is to assist you to move customers efficiently through the buyer funnel, you should be alright. Remember, also, to use well-selected KPIs that are appropriate to your business lifecycle’s stage. Do these things, and you should be just fine.