When looking at e-commerce data, whether in Google Analytics or AdWords, one can quickly become overwhelmed by data. The sheer volume of metrics and stats for assessing E-commerce performance in both platforms can easily leave you scratching your head as you try to sift through the data in search of actionable insights.
This post will identify some helpful metrics for gauging e-commerce performance, as well as provide a number of tactics for translating this data into action.
Focusing on the Right KPIs:
My last post touched on the importance of optimizing to profit as a whole number, as opposed to a ratio. This is the most significant metric for measuring ultimate e-commerce success, and optimizing to profit should be the primary aim of your digital advertising efforts.
To get total profit, you only need two numbers: Total revenue and total advertising cost. You simply divide the latter into the former to get your total profit.
Now, how do we make this actionable?
1.) Use “Value per Click”
One handy metric that AdWords provides is Value per Click (VPC). This is exactly what it sounds like—the average revenue per ad click. VPC allows for a quick comparison to cost-per-click at virtually every level of your account, which means quick insight into the direct profitability of of account elements. This can also be done with value-per-conversion against CPA.
|Keyword||Clicks||Cost per Click||Value per Click||Total Profit per Click||Action|
|Keyword 1||176||$0.41||$2.32||$2.18||Good margin = raise bid|
|Keyword 2||32||$0.83||$4.25||$3.42||Be cautious of potential statistical insignificance|
|Keyword 3||456||$1.02||$6.25||$5.23||Good margin = raise bid|
|Keyword 4||234||$0.56||$0.31||-$0.25||Lower bid / consider pausing keyword|
2.) Factor “Assist Conversion Value”
Keep in mind that both AdWords and Analytics allow you to see the indirect revenue associated with your clicks. This refers to clicks which didn’t directly result in a conversion, but represent one touchpoint in a user’s path to conversion. When making bidding decisions based on profitability, it’s always a good idea to check the indirect conversion value of your keywords to see if they represent more value to the account than first meets the eye. I’ll be writing a separate post on this topic soon.
3.) Don’t Forget About “LifeTime Value”When Assessing Profitability
LifeTime Value (CLV) is the average amount of revenue generated during a customer’s lifetime. Multiply AOV by the average number of purchases per customer, per year. Then, multiply that by the average number of years you keep your customers. This will give you your customer lifetime value. This is important because gives more perspective into the true value of a customer, as opposed to merely looking at the customer’s immediate value.
Average Order Value X Number of Orders per Customer per Year X Number of Years per Customer = Customer Lifetime Value
4.) Consider Using Contribution Margin To Establish Advertising Revinestment
Contribution Margin is the percentage of revenue you’re willing to reinvest back into your advertising. The ideal margin depends on your business. If you’re just starting out and need to increase awareness along with sales, you may want to reinvest a higher portion of your advertising revenues than an established business with strong brand recognition. Generally speaking, a 25% contribution margin is a good place to start.
Calculate Ad Spend Reinvestment:
Revenue per Conversion X Ideal Contribution Margin (25%) = Ideal Advertising Reinvestment
This is another great way to strategize for profitability. Experiment with different contribution margins to find the ideal percentage of profit to reinvest back into your advertising channels for maximum profitability.
- Total profit is the Golden metric for assessing e-commerce success
- Use “value per click” for a quick cost / benefit analysis of account elements
- Check for significant amounts of indirect conversion value before assessing value of account elements.
- Factor in LTV for a more macro perspective of customer value
- Use Contribution Margin as a guide when planning budgets and bidding strategies