The ultimate goal of any business is to succeed by growing exponentially. Well, the first step to achieving success is to know your current performance.

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Assessing your business performance should be an ongoing process. It can help you identify areas where your business is strong and the areas that need to be improved before they become major issues.

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To access the performance of your ecommerce business, you need a set of quantifiable metrics—Key Performance Indicators (KPIs). These metrics can help you initiate improvements and focus on the future direction to achieve the key targets and objectives proactively and efficiently.

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In this blog, you will learn what is a key performance Indicator (KPI) in ecommerce and the top 10 Key Performance Indicators (KPIs) that can help ecommerce businesses to evaluate their performance.

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What is a key performance Indicator (KPI) in an ecommerce business?

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Key Performance Indicators (KPIs) are the metrics used to measure the performance of a business. These KPIs can help online businesses evaluate their performance, set benchmarks, and take corrective measures to steer their business in the right direction.

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Top 10 Key Performance Indicators (KPIs) for ecommerce brands

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Here are some KPIs that your ecommerce business could use to monitor its future plan:

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1. Sell-through rate

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‍Sell-through rate is a KPI which measures the amount of inventory that is sold within a given period, relative to the amount of inventory received within the same period. Sell-through rate is calculated by the following formula:

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Ecommerce businesses need to keep a track of sell-through rate to:

• Make pricing decisions
• Avoid the risk of inventory becoming obsolete
• Plan production and supply

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2. Shopping cart abandonment rate

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Shopping cart abandonment rate is a KPI which denotes how many online shoppers add items to their shopping carts but abandon them before completing the purchase. Shopping cart abandonment rate is calculated by the following formula:

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Shopify business owners need to analyse their shopping cart abandonment rate to:

• Understand the shopping behaviour of your website visitors and customers
• Analyse how intuitive and trustworthy your checkout process is
• Examine the reasons why customers don't convert

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3. Return Rate

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Return rate is a KPI that refers to the frequency that customers return their online orders. Ecommerce return rate is an important metric as it highly impacts customer satisfaction and revenue. Return rate is calculated by the following formula:

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Ecommerce brands must keep a track of their return rate to:

• Measure customer satisfaction
• Identify the reasons that drive returns
• Take corrective measures to minimise ecommerce returns
• Retain revenue

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4. Inventory Turnover

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Inventory turnover is a KPI used to measure the number of times inventory is sold completely in a given time period. It helps you understand how well are you turning your inventory into sales. Inventory turnover is calculated by the following formula:

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Ecommerce businesses should measure their inventory turnover to:

• Determine in how much time inventory is sold over a period
• Analyse blockage of working capital (inventory)
• Predict and manage accurate inventory levels
• Prevent high maintenance and carrying costs
• Evaluate the risk of inventory becoming obsolete or expired
• Implement an effective sales plan

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5. Conversion Rate

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Conversion rate is a KPI that measures the total number of visitors on your product listing or online store who made a purchase i.e. convert. The conversion rate is calculated by the following formula:

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Ecommerce brands must track their conversion rate to:

• Analyse the shopping behaviour of casual visitors and customers
• Assess the reasons why customers don't convert

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6. Average Order Value (AOV)

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Average order value (AOV) is a KPI which measures the average amount of money spent each time a customer places an order on your website or on any online channel. Average order value (AOV) is calculated by the following formula:

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Online businesses can calculate their average order value (AOV) to:

• Understand purchase patterns and trends of online shoppers
• Analyse conversion costs and advertising costs
• Choose a pricing strategy
• Quantify revenues and profits

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7. Gross Profit Margin

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Gross profit margin is a KPI used to assess a company's financial health  by calculating the amount of money left over from product sales after subtracting the cost of goods sold (COGS). Gross profit margin is calculated by the following formula:

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Ecommerce brands can keep a track of their gross profit margin to:

• Understand the profitability of the business
• Adjust pricing strategy and reduce expenses

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8. Customer Lifetime Value (CLTV)

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Customer Lifetime Value (CLV or often CLTV) is a KPI that predicts the net profit a customer is expected to generate for your business throughout their lifetime. Customer lifetime value (CLTV) is calculated by the following formula:

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Ecommerce brands can calculate customer lifetime value (CLTV) to:

• Understand marketing and sales expenditure
• Analyse product development costs
• Need to enhance customer experience

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9. Order accuracy rate

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Order accuracy rate is a KPI used to determine how many orders are fulfiled and shipped to the customers with no errors. These errors include, mis-pick of an item, wrong item quantity, damaged or malfunctioning item, and more. Order accuracy rate is calculated by the following formula:

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Ecommerce businesses can track their order accuracy rate to:

• Measure the effectiveness of ecommerce fulfilment operation
• Identify error-prone processes
• Take corrective actions and improve order accuracy
• Enhance customer experience and customer retention

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10. Customer Acquisition Cost (CAC)

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Customer acquisition cost (CAC) is a KPI used to measure the total cost related to acquiring a new customer. In other words, CAC refers to the resources and costs incurred to acquire an additional customer. Customer acquisition cost (CAC) is calculated by the following formula:

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Ecommerce businesses should measure their Customer acquisition cost (CAC) to:

• Improve business’ marketing return on investment, profitability, and profit margin
• Reduce sales and marketing expenses

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Bottom line

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KPIs serve as a guidepost to help you measure your business progress toward achieving your strategic goals. They give you a realistic look at the long-term health of your business, from risk factors to financial visibility. By tracking your KPIs, you can know where your ecommerce business is lacking so that you can streamline your processes for better efficiency and ensure that your business grows for years to come.