How Measuring Key Performance Indicators Can
Improve E-Commerce Strategy. Part three.
The first article of this series discussed
page views per session as a kind of early warning system key
performance indicator (KPI) for your website. The second discussed
time on site as another warning flag. Both
of these articles show specific measurements used to forecast site
problems. There are lots of KPI’s you can set up to warn you of
impending doom or better show your successes but to go through
each one would take me till the end of next year. So to wrap up
this series, this article will discuss the general metrics you
should be looking at as an ‘e’ business and more importantly why
you should be looking at them.
‘e’ Business metrics
The term ‘e’ business was coined by Ogilvy and Mather for IBM in
November of 1997 and has stuck around ever since. Great
advertising, of course it came from e-commerce which was a general
term, but I can still remember the IBM jingle and the ads showing
IBM’s vision of networked computing. There was nothing wrong with
the IBM idea or their adverts. However, one problem with this ‘e’
part is that for some reason people decided that the Internet was
not like other marketing mediums.
Everything became “e or i something”, it became associated with
the brave new world of fast moving VC led consortiums buying and
selling companies based on their business plans and little else.
No-one measured success by ordinary standards any more, you didn’t
need to pay rents, have credit history, loyal customers or
reliable revenue, just a great idea and guts.
Great ideas aren’t measurable and neither are guts!
We all know what happened next of course. The normally cautious
VC’s realized they had made some really stupid moves and pulled
their money out before they went bankrupt. This starved the
companies that they actually helped to mismanage and put a lot of
otherwise talented individuals on the dole (sent them down the
river, took away their jobs, you get the picture!).
So why did ordinarily savvy business men and women jump on this
particular bandwagon? And why did IBM, Dell and other notable
bricks and mortar businesses survive the dot bomb where so many
failed?
Survival was down to ‘e’ business as usual
IBM, Dell and the likes simply developed their businesses by doing
what they already knew worked and applied what new business
intelligence they could glean from the Internet to help them with
their existing strategies. In other words they used new
information from web analytics in combination with real business
metrics to develop online business plans. There wasn’t anything
particularly clever about it, it was common sense and all the
metrics had one thing in common, they were controllable.
Web business metrics you can control
There are hundreds of reports you can get from web analytic
systems and if you know what you’re doing they can really help
you. Things like bounce rates, entry and exit pages, scenario
analysis, first time versus repeat buyers etc. are all extremely
important to measure and build upon. They are individual KPI’s I
mentioned at the beginning of this article.
However the only metrics which you as an e-business can directly
control are average sale price, profit margin, overhead,
conversion rate and visitors. You probably won’t see 2 or 3 of
those 5 metrics reported in most web analytic systems, simply
because it’s not down to a web measurement system to tell you what
your profit margin or overhead is, though most good ones can
manage average sale price, conversion rate and visitors.
Why these 5 metrics?
Let’s take a look at these 5 metrics and explain how you can
affect them.
Average sale price – You can directly alter your product
prices to be higher or lower thus affecting the average sale
price.
Profit margin – You can reduce overheads or increase sales
prices to improve profit margins. You can also reduce your margin
if it’s strategically a good idea to reduce sales prices and you
have no other way to reduce price other than eat into your margin.
The idea being that more of your visitors will buy due to a lower
price meaning overall you have a higher net profit.
Overhead – By reducing overheads you can improve profit
margins, or affect the product sales price. One of our clients has
sold a lot of one kind of product. Now he has a very low overhead
for that product range meaning he can reduce the average sale
price of the product while retaining the same profit margin.
Because his overheads are low his prices are very competitive and
he continues to do well with this product category.
Conversion rate – Believe it or not it is possible to
control your conversion rate! By measuring other KPI’s mentioned
using good web analytics tools you can see how people are behaving
on your website. In a nutshell if you then fix the problems you
will undoubtedly find, you improve the chances that people will
buy your products. It’s not really that simple but that's the way
it generally starts.
Visitors – The level of visitors you get is down to your
marketing efforts whether that is paid or unpaid. You can engage
in search optimization for critical keywords or PPC marketing to
drive traffic for keywords you can’t rank for organically. You can
pay affiliates to send you traffic that buy your products. You can
put out press releases. You can engage in banner advertising or
behavioral marketing. Or you can do nothing and hope that your
content alone provides enough traffic from websites that point to
you. All of these methods affect the levels of traffic. The key is
getting relevant traffic rather than traffic that isn’t interested
in your product range.
In Summary
I hope to have shown 2 uses of web analytics, using KPI’s to serve
as warnings when things are going wrong and using web analytics in
conjunction with metrics to help you start thinking of your web
commerce as a business. By using the warning flags as indicators
of where things might go wrong you can identify problems and
figure out whether your website is visitor centric enough. By
exercising control over the five metrics discussed here you can
improve your bottom line.
Author: Steve Jackson, Editor - Conversion Chronicles
Steve Jackson is CEO of
Aboavista,
editor of
The
Conversion Chronicles and a published writer. You can get a
free copy of his e-book sent to you upon subscription to the
Chronicles web site
www.conversionchronicles.com.
Three Part Article:
How Measuring Key Performance Indicators Can
Improve E-Commerce Strategy, Part One. ----
Part Two ---- Part Three
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