In ecommerce, the pulse of your business extends beyond the metrics of traffic and sales. Often overshadowed by these customary indicators, a whole host of much more useful, highly actionable metrics exists. Understanding and using the right metrics is the key to elevating your business strategy.
When it comes to analytics, venturing beyond the familiar is where the true gems lie - getting to grips with the nuanced data underlying sales and customer behavior will help you unlock better insights into your audience, enabling you to enhance customer experiences and ultimately drive more sales. We asked some of the top leaders in the ecommerce industry to tell us what they think are the most underestimated ecommerce analytics metrics. From CLV to RoR, get the inside track from the experts and begin transforming your business into a data-driven sales machine.
1. Customer Lifetime Value (CLV)
This is a big one. Customer Lifetime Value, or CLV, is a measure of the total value a customer brings over the length of their relationship with you, taking into account repeat purchases and overall spending over time. CLV is a powerful metric for understanding your customers’ long-term value to the business.
So why is this metric underrated? Jacob Ooi, a leader in strategy at Woolworths Group, shared his thoughts:
“Customer Lifetime Value is often overlooked because businesses tend to focus more on short-term metrics like conversion rate, average order value, and customer acquisition cost. While these metrics are crucial for immediate performance assessment, they don't provide a complete picture of a customer's long-term value to the business.
Understanding CLV is vital for several reasons, including:
- Profitability Assessment: CLV helps you determine the profitability of your customer base. If the CLV is higher than the cost of acquiring and serving the customer, it indicates that your business is on a solid financial foundation.
- Marketing and Sales Strategies: Knowing the CLV of different customer segments allows you to prioritize marketing and sales efforts accordingly. You can focus on retaining high CLV customers and tailor marketing strategies for customer segments with growth potential.
- Customer Retention Strategies: CLV highlights the importance of customer retention. Keeping existing customers happy and loyal can lead to higher CLV and reduce the need for costly acquisition efforts.
- Long-Term Growth: By focusing on CLV, you can build strong, sustainable customer relationships that lead to repeat business and positive word-of-mouth referrals. Resource
- Allocation: Knowing the CLV of your customers helps you allocate resources more efficiently. You can invest more in customer segments that bring higher lifetime value and adjust marketing spend accordingly.
Customer Lifetime Value is a powerful metric that provides a more comprehensive understanding of the long-term impact of your customers on your business. It enables you to make strategic decisions that lead to sustainable growth and increased profitability over time. So, while short-term metrics are essential, it's crucial not to underestimate the long-term potential of CLV in ecommerce analytics.”
2. CLV: CAC Ratio
Now you know how valuable CLV is, let’s take a look at CLV to CAC (Customer Acquisition Cost) Ratio. This pivotal but often overlooked metric compares the value a customer brings over their lifetime against the cost of acquiring them.
Calculating the CLV: CAC Ratio is pretty straightforward. Start by working out your Customer Acquisition Cost: this is the total acquisition cost divided by the number of new customers. Your Ratio is simply CLV / CAC for example, $400(CLV) / $100 (CAC) gives a ratio of 4, which indicates that the value a customer brings to your business is four times the cost of acquiring them.
Robbie Evans, Commercial Analytics Manager at eBay, shared his insights on this underrated acquisition metric:
“I find that one of the most underrated metrics in ecommerce analytics is the Customer Lifetime Value to Customer Acquisition Cost Ratio (CLV:CAC), and many professionals I've spoken to aren't in fact even aware of it! While both Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC) are important metrics on their own, the ratio between the two provides valuable insights into the long-term sustainability and profitability of an ecommerce business. For example, many businesses prioritize a customer acquisition strategy by focusing on the CAC. However without comparing this with CLV, they aren't really able to determine if the value of the consumer they're acquiring is worthwhile in the long term.”
3. Quality Score
If your business runs digital ads, you’ll be familiar with Quality Score - the metric used by Google, Facebook, Yahoo! and Bing to give an indication of how your ad quality compares to competitors’.
Stefan Gehlen, Digital Insights & Analytics Manager at Healthylife (part of the Woolworths Group) tells us more about this underrated metric and how you can use it to optimize your campaigns:
“A metric that is often underrated, particularly for businesses running Paid Search Ads, is Quality Score. Quality Score is a metric that assesses three critical components: Ad relevance, Landing Page Experience, and Expected Click-Through Rate. It plays a crucial role in determining your search ad rank, which is influenced by both your maximum cost per click (Max CPC) and your quality score.
What makes Quality Score significant is its ability to level the playing field in auctions, allowing smaller e-commerce businesses to compete not just based on budget (Max CPC) but also on the quality and relevance of their ads. It serves as a key metric for optimization efforts, as improving it can yield remarkable benefits such as a significant decrease in Cost Per Click (CPC) and ultimately an increase in return on investment (ROI).
By focusing on enhancing your Quality Score, you can achieve a more favorable ad position while paying less for each click. This optimization strategy empowers businesses to stretch their advertising budget further, increase their visibility, and drive better results.
In addition, it's important to note that the concept of Quality Score (QS) extends beyond just Paid Search Ads. The three components of QS can serve as a framework applicable to various marketing channels for optimizing overall performance.”
4. Rate of Return (RoR)
If you’re focussing on metrics such as checkout completions and add to cart rate but not paying attention to your return rate, you’re missing a big part of the picture. This metric offers a wealth of opportunity for optimization, as a high or increasing return rate can highlight and enable you to respond to issues relating to product quality, shipping, cash flow and so on.
John Bowman, advanced analytics lead for Returnalyze, offers his insight into this underrated metric:
“Return rate is rarely considered in the online retailers I speak with. It is difficult to bring the return rate signal back into your ecommerce optimization, because returns often occur well after the sale and are tracked in systems which can be difficult to tie back to web activity and order fulfillment. Precisely because they are seldom considered, return rates offer substantial optimization opportunities.
Retailers are likely to be allocating too many marketing dollars to high return items. They may be unaware of spikes in returns due to damages, shipping errors, and supplier quality issues. Capturing these signals and responding to them can dramatically improve customer experience and customer loyalty.”
5. ACV (Average Customer Value)
Next up is Average Customer Value, which measures the total amount a customer has spent over a certain period. Unlike average order value, this metric measures the total spend within the time frame you’re looking at, allowing you to take a more holistic view of performance and customer value.
João Rodrigues, Head of Data and Analytics at Mercadão, explains what this underrated metric can do for your business:
“In my experience, the most underrated metric in ecommerce analytics is the "Average Customer Value" (or Average User Spend). While ecommerce businesses often prioritize metrics like "Average Order Value", they may overlook the deeper insights that the Average Customer Value can provide. While Average Order Value is undoubtedly important, relying solely on this metric can lead to misinterpretations. A decrease in average order value might not necessarily indicate a decline in business value; it could be a result of customers making more frequent purchases, thereby increasing the overall volume of sales in a given period. The Average Customer Value, on the other hand, offers a more comprehensive perspective on customer spending behavior. It represents the total value that an individual user generates within a specific timeframe.
By monitoring the evolution of this metric on a monthly or periodic basis, we can better understand whether our customers are driving more value for the business over time, irrespective of changes in their average order value.
Analyzing the Average Customer Value allows us to uncover patterns in customer spending habits, identify loyal or high-value customers, and tailor our strategies to better serve their needs. It also helps us track customer retention and loyalty, as customers who consistently contribute higher value over time are more likely to be loyal to the brand.
Furthermore, the Average Customer Value complements other key metrics like customer lifetime value (CLV) and customer acquisition cost (CAC). By considering these metrics together, we gain a more holistic view of customer profitability and can make informed decisions regarding marketing investments and customer acquisition strategies.”
Wrapping Up
In the fast-paced ecommerce industry, where the competition is fierce and customer expectations are ever-evolving, it's essential to look beyond the obvious metrics and delve into the depths of analytics. As we've learned from industry leaders, metrics like Quality Score, Return Rate, and Average Customer Value are the unsung heroes of e-commerce analytics. They provide the tools to refine your advertising strategies, address hidden issues, and uncover valuable insights into customer behavior. By incorporating these often-overlooked metrics into your analytics arsenal, you can unlock the full potential of your e-commerce business, ensuring not just short-term gains but long-term success and customer loyalty.
Next Steps
Unlock more analytics insights from ecommerce leaders here: https://www.incendium.ai/resources/26-ecom-analytics-experts-top-metrics-measures.
Read our ultimate guide for ecommerce businesses: “Actionable Ecommerce Measurement: The Incendium Blueprint For Rapid, Profitable Growth”.
Head to the Incendium blog for the latest industry insights, tips and more - or learn how Incendium could transform your ecommerce business into a data-driven machine.
