KPIs in eCommerce – Key Performance Indicators

“Customer acquisition in the online channel is often associated with considerable costs. Along with the increase in the number of online stores, competition and marketing costs are constantly growing. I mean mainly the costs of paid campaigns and the work put into running a blog, social media channels or SEO. Nothing hurts more than spending money, not knowing if the expenses are bringing an adequate return on investment. KPIs in eCommerce come to help in monitoring the profitability of sales channels. “Half the money you spend on advertising goes down the drain. The problem is, I don’t know which half. ” ~ John Wanamaker

What are KPIs in eCommerce?

As mentioned above, KPIs in eCommerce allow you to monitor the effectiveness of traffic sources in your online store. The most popular sources of traffic in eCommerce are paid Google Ads campaigns and Facebook Ads, SEO, email marketing, price comparison websites, social media, and direct. To successfully grow online sales, the online store owner or eCommerce manager should know what ROIs are getting for each channel.

Conversion rate as the main KPIs in eCommerce

It’s the most popular KPI in eCommerce for measuring online sales. It tells us what percentage of customers who visited our website made a purchase. The conversion rate can also be successfully used for newsletter subscriptions, e-Book downloads or a specific CTA on the store’s website.

Conversion rate = (Number of transactions made / Number of users) x 100%

How to calculate eCommerce Conversion Rate

The online store was visited by 10,000 unique users. The number of transactions that were generated was 500.

Global Conversion Rate = (500 / 10,000) x 100% = 5%

COS (Cost of Sale)

Another KPI in eCommerce that allows you to determine the cost of sales in a given channel and how they were generated. The lower the COS percentage, the lower the selling costs.

COS = (campaign cost) / (direct campaign revenue) x 100%

How to calculate the COS ratio

The cost of the Google Ads campaign was PLN 4,000 / net. The campaign generated a direct income of PLN 50,000 / net.

COS (Google Ads) = (4,000 / 50,000) x 100% = 8%

ROI (Return on Investment)

ROI (Return on Investment), an indicator that allows you to evaluate the effectiveness of your marketing activities and the profitability of paid campaigns. By calculating the ROI, we get precise information on the profit that was generated from all the advertising activities. Therefore, it is one of the most important indicators that should be taken into account when the budget for advertising campaigns is being adjusted and marketing investments are planned. In the case of investment costs, we take into account the price of both the product and the campaign.

ROI = ((Sales Revenue – Investment Cost) / Investment Cost) x 100%

How to calculate ROI?

The revenue from direct sales of Facebook Ads amounted to PLN 125,000.
Campaign expenses totaled PLN 7,000. Campaign servicing cost PLN 2,000. The net purchase costs of the goods sold, amount to PLN 55,000. Thus, the total cost of sales in the Facebook channel amounted to PLN 64,000. The ROI for Facebook is:

ROI (Facebook Ads) = ((125,000 – 64,000) / 64,000) x 100% = 95%

Thanks to ROI, we can estimate the profit generated for each zloty spent. In this case, each zloty spent generated 95 groszy of profit.

CAC (Customer Acquisition Cost)

KPI in eCommerce allows you to calculate the real cost of acquiring for each customer. The ratio is calculated as: the total cost of acquiring all the customers divided by the number of actual acquired customers.

CAC = Cost of acquiring all clients / number of clients acquired

How to calculate the CAC?

The total cost of acquiring unique users on the store’s website was PLN 10,000. As a result, we acquired 200,000 users. Thus, the cost of acquiring 1 customer is:

CAC = 10,000 PLN / 200,000 uu = 0.05 PLN ~ 5 gr

Average gross margin

It is one of the most important KPIs in eCommerce enterprise. It allows you to determine how much profit has actually been generated after deducting all costs related to the commodity, material, product, specialists’ wage and store operations. Importantly, the gross margin does not include administrative,office or storage costs, etc.

Gross margin = ((revenues – costs of products, goods, work of specialists sold) / revenues) x 100%

The average gross margin is the quotient of the profit earned and the total sales revenue. It allows you to determine the percentage of return on sales.

How to calculate the average gross margin?

The company obtained monthly revenues from the sale of goods at the level of PLN 1,000,000.

Selling costs incurred:
eCommerce service – PLN 15,000
paid media (facebook ads, google ads, seo) – PLN 50,000
warehouse operation and customer service – PLN 20,000
costs of goods and materials – PLN 450,000
total costs = PLN 535,000

Average gross margin = (1,000,000 – 535,000) / 1,000,000 x 100% = 46.5%

Average net margin – complete KPI in eCommerce

Contrary to the gross margin, all absolute and relative costs in the enterprise are taken into account when calculating the net margin. In addition to the above-mentioned costs, they include the following: management, offices, full staff, accounting, tax, Social Security and loans.

Average net margin = ((revenues – total costs of the enterprise) / revenues) x 100%

How to calculate the average net margin? (h3)
In this case, we will use the example above.
The company obtained a monthly revenue from the sale of goods at the level of
PLN 1,000,000. All other costs that have been incurred:

eCommerce service – PLN 15,000
paid media (facebook ads, google ads, seo) – PLN 50,000
warehouse operation and customer service – PLN 20,000
costs of goods and materials – PLN 450,000
office and warehouse rental costs – PLN 30,000
administration costs – PLN 20,000
tax costs – PLN 150,000
other operating costs – PLN 100,000

total costs = PLN 835,000

Average net margin = ((1,000,000 – 835,000) / 1,000,000) x 100% = 16.5%

How to distinguish between gross margin and net margin?

In the case of gross margin, only the costs related to the sale of the goods are taken into account. That is the costs of goods, packaging of goods, operating an online store, paid utilities, eCommerce specialists, warehouse management without administrative costs. The average gross margin is a good (not ideal) factor for determining the budget of a campaign or monitoring eCommerce profitability. The average gross margin includes much fewer components than the net margin, hence it is much easier to calculate.

On the other hand, if we want to calculate the net margin, all the company’s total costs will be needed, including administrative, office, warehouse, hiring and tax costs. The average net margin is an ideal factor determining the condition of the company and the real margin it operates on. All long-term activities should be determined on the basis of a previously calculated net margin. In the case of a Limited Company whether the JDG’s annual net margin can be calculated after the prepared annual balance sheet. Examples of calculations with an example table can be found in the article e-commerce in practice: here.

Summary of KPIs in eCommerce

In the article, I presented the most important KPIs in eCommerce to monitor the profitability and profitability of individual sales channels. In this article you found out what the eCommerce Conversion Rate is and how to measure it. What is COS, ROI, CAC, Average Gross Margin and Average Net Margin. We started the article with the coefficients for measuring basic activities in the store, to extensive formulas for measuring the profitability of the entire company. I hope you found this article helpful and will help you better manage finances in your online store.

See also categories: Social Media in eCommerce | PPC Campaigns | Shopify technologies | eCommerce SEO | E-mail marketing | eCommerce project management | eCommerce marketing | eCommerce management | eCommerce development | eCommerce b2b | eCommerce automation | eCommerce analytics | Content marketing | Case Study eCommerce | News | Other