June 1, 2020

What is E-commerce Analytics?

Steven Toews

E-commerce analytics refers to the application of data analytics to an e-commerce operation. Involving a blend of web design, data science, and business planning, e-commerce analytics can unlock previously inaccessible levels of business performance for your e-commerce company.

In this article, we’ll take you on a high-level tour of:

  • What e-commerce analytics measures,
  • When e-commerce analytics is useful,
  • When e-commerce analytics is not helpful, and
  • Which e-commerce analytics tools are the most popular.

Continue reading below to find out if analytics can help you achieve success in your e-commerce operation!

What is e-commerce analytics used to measure?

E-commerce analytics can be used to measure almost anything. However, because time is limited and we all have only a certain amount of mental energy to go around, business owners tend to focus on the e-commerce analytics metrics known as the “AARRR metrics”:

  • Acquisition

Acquisition is a measure of how users find their way to your e-commerce outlet. Examples of acquisition methods include referrals from other sites or social media, paid digital ads, and direct visits.

  • Activation

Activation refers to a user engaging with your site in a meaningful way. For example, he or she might sign up for a newsletter, buy a product, or provide their email in order to be notified of an upcoming sale.

  • Retention

Retention measures how many users come back to your site after they leave the first time.

  • Referral

Referrals indicate when users have been referred to your website from another source on the internet. They may visit from a link you posted in a Tweet or from a popular blog that mentioned your website.

  • Revenue

Revenue, of course, refers to the money people spend on your site.

All of these metrics can be further subdivided and parsed. For example, revenue could be further segmented into recurring and non-recurring revenue. Retention could be subdivided into repeat weekly visits or repeat monthly visits.

What’s important to note is that, of the metrics tracked, only one refers directly to money. The rest occur further up the sales funnel and are just as important to track as the money users spend on your e-commerce site.

What is e-commerce analytics good for?

E-Commerce analytics is a perfect tool for a wide variety of circumstances. From supplementing and informing business strategy to managing your operations, analytics help you ground your decisions in the real world.

Informing Strategy

Crafting a business strategy without data-driven feedback is like writing a symphony without ever touching an instrument. Analytics will show you where your carefully created strategy is working and where it isn’t. It will help you refine and, if necessary, pivot to a new approach.

We don’t mean to suggest that you should rely entirely on your analytics platform to create your strategy. Your strategy should drive the decisions you make, including the data you decide to collect. In other words, your data shouldn’t determine your destination.

However, your data should certainly inform the route you take before you arrive at that destination.

Inventory Management

Managing your inventory is key to operational success. Ideally, you hold enough product to meet every single order and don’t end up with even a single extra product in stock.

Of course, you’re unlikely to ever hit that perfect ideal. But, along with techniques like just-in-time operations and 3PL outsourcing, analytics can help you to plan and organize your inventory management.

E-commerce analytics should reveal trends and patterns in your sales that you can use to inform your ordering and warehousing practices. It can show things like:

  • Seasonal distribution of sales

Do customers buy more of Product X in the winter and more of Product Y in the summer?

  • Geographical distribution of sales

Do customers on the east coast typically purchase more expensive products than customers in the midwest?

  • Surge trends

How variable or volatile are your sales numbers? Do they frequently surge and ebb, or are they relatively constant?

Closely analyzing what you sell, when you sell it, and where you sell it can lead you to profitable insights about how to maintain and store inventory.

Marketing Optimization

E-commerce analytics should heavily influence your marketing practices. These data can show you where and how your current marketing techniques are effective or ineffective. They can also suggest avenues for future exploration and experimentation.

For example, if you find that Facebook marketing is more effective for Product X than Product Y, you may be interested in testing out whether a similar product to Product X would do well on Instagram.

When is e-commerce analytics a bad idea?

E-Commerce analytics is not a panacea. You’ll encounter times when its application is a bad idea.

When you don’t have a strategy

The main reason to collect data for your company is to enable you to make good decisions. And you need a strategy before you can make good decisions. All the data in the world won’t amount to anything if you don’t know what you’re trying to accomplish with it.

For example, say you collect detailed information on the launch of your newest product. You track all the metrics we listed above and create a detailed report.

Now what? What should you do with the report? If you don’t have a clear business strategy, you won’t have any idea. Even if the report tells you exactly how the new product performed, you’ll be unable to use that information to your advantage.

On the other hand, if you know that your strategy is to rely on your new product as a loss-leader and a way to draw in repeat customers, you can apply the data you obtained from the analytics to decide how to proceed.

When you don’t know what the numbers mean

For you to effectively use e-commerce analytics you’ll need at least a basic understanding of statistics and how to apply data. You’ll need to understand the fundamentals of concepts like:

  • Statistical significance
  • Probabilities
  • Statistical features (like means, medians, and modes)
  • Sampling

Failing to understand ideas like these can lead you into erroneous conclusions and mistaken decisions.

For example, say you launch a product and find that, of your first ten customers, all of them were female. Using that as a foundation, you decide to target your marketing entirely at women from now on.

This would be a mistake. A basic understanding of statistical significance and sampling would help you to realize that there is a high probability that the initial results were just a fluke.

In other words, and as the old cliche says, “A little knowledge is a dangerous thing.” Make sure that you know what the analytics numbers mean before you try to apply them.

What are some popular e-commerce analytics tools?

There are more e-commerce reporting tools and analysis platforms online than can ever fairly be summarized in a single article. Popular tools include:

  • Kissmetrics
  • Crazyegg
  • Metrilo
  • Adobe Marketing Cloud

Rather than try to move through all of them systematically, we’ll focus on one of the most versatile and useful e-commerce analytics tools available today: Google Analytics.

Google Analytics: A (Very) Brief Overview

Google Analytics is a one-stop-shop for all your analytics needs. It’s versatile enough to work with virtually any e-commerce setup, and it’s powerful enough to work for almost any size company.

This versatility and power can put some people off, as they result in a fairly steep learning curve for new users. However, Google’s got you covered with their free online analytics courses made for beginner, advanced, and power users.

A full exploration of Google Analytics is beyond the scope of this article, but it’ll suffice to say that the platform allows you to track almost any metric you can imagine, including all the AARRR metrics we listed in the first section.

You can create a virtually infinite variety of views and reports that should suit your needs regardless of the vertical or industry you’re in.

If put to the right uses, the data you pull from Google Analytics is deep enough to allow you to substantially improve your e-commerce business. You should, however, keep in mind our earlier caution about ensuring you understand what this data means.

Google Analytics will provide you with more data than you know what to do with. What it won’t do is teach you what that data means and how to use it intelligently. For that, you’ll need to rely on your understanding of statistics and business intelligence. If those are lacking, you may wish to tap into other resources to develop them or hire someone who knows these subjects well.

Final Thoughts

Hopefully, we’ve provided you with some useful info that will guide your decision to implement (or not implement) e-commerce analytics into your operations. Remember that the decision of what you choose to measure with analytics will affect the course you chart. In other words, choosing what to measure can affect where you go.

Similarly, knowing how to use the information you get from your analytics platform is just as important as deciding which analytics solution to use. So, brush up on your statistical knowledge before you jump into the analytics pool.

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