Website analytics are a crucial component for any eCommerce website. Visitors to an eCommerce website leave a virtual trail of breadcrumbs that can be followed to increase the site's stickiness and conversion rates.
However, in order to follow this trail and tap in to the vast amount of data they leave, it is imperative that the website have a functional analytics program. The cost and complexity of the analytics program will vary mainly due to the amount of traffic and/or amount of revenue an eCommerce site generates. Regardless of the cost or power of the analytics tool, all analytic tools' primary function is to identify, store, and clearly present the change of critical metrics or key performance indicators (KPI).
Running an eCommerce website without an appropriate analytics tool would be akin to finding the way out of a maze while blindfolded; while possible, it couldn't be done without numerous wrong turns, bad decisions, and probably a bruise or two. Conversely, a good analytic tool will act as a compass that guides the site towards its ultimate goal with a minimum of heartache and backtracking.
Google Analytics is both a simple and powerful analytics tool that comes at no cost to the user. There is no reason that any website should be without an analytics tool given that Google is willing to give away a perfectly good one for nothing. This is not to say that Google Analytics is the end-all of analytics tools. In fact, there are more complex and more powerful analytics tools on the market (Omniture, Core Metrics, Web Trends), but for the vast majority of websites, Google Analytics is a more than adequate tool. As an eCommerce site grows and revenues increase, justification can be made to pay for a more powerful tool, but probably 90% of all websites could function efficiently using only Google Analytics.
While analytic tools can allow website owners to gain insight to a vast array of data and insight, the primary function of all analytic tools is the same. An analytic tools' primary function is to identify, calculate, report, and track changes in critical website metrics or KPIs. Simply put, a metric is a measurement. That measurement can be in a variety of units. For example, total visits are a numeric measurement. Bounce rates are typically measured as a percentage. Return on Investment (ROI) is measured in dollars. Even though each measurement is in a different unit, they are all measurement and hence they are all metrics. Key Performance Indicators are metrics identified as being bellwethers of positive or negative changes in a website. KPIs are metrics that identify trends and can be predictors of future events. The analytic tools' primary function is to make tracking these metrics and KPIs simple. While every website may have a different set of KPIs, identifying the KPIs for a particular website is a critical step. Once identified, changes in these KPIs will be the cornerstone for determining whether a change to a website resulted in a positive or negative end result.
Website Analytics are the programs or tools used to track and record the data for your chosen metrics. Choosing the correct analytic tools can be a daunting task. Many of the most popular analytics tools are capable of measuring the same general core of relevant metrics, but analytic tools can vary widely in their cost and their method of displaying the data they collect. Furthermore, each analytic tool has features or capabilities specific to that tool, features that help set them apart from other analytic tools. The amount of data a good analytic tool can collect can be literally overwhelming. This is why choosing the correct metrics for your website is vitally important. Analytic tools will allow you to collect so much data that you can end up wasting a lot of time analyzing data and recording metrics that have little to no impact on your website's profitability.
Once you have captured data on these visitor interactions, you can analyze this data using a web analytic tool and determine how to make improvements to your web site. By measuring, analyzing and improving how your web site engages its customers online, you create a dynamic feedback loop. Every change you make to the web site can be measured for its effectiveness using web metrics. Deciding which metrics are most important becomes the next critical step.
Examples of Website Metrics:
- Page Depth - (Page Depth = Totals Pages Viewed / Visits) Page depth is a key metric for determining site stickiness. Stickiness is a term used to describe how engaging a website is to a visitor. The higher the page depth, the more relevant the website is to the visitor's search. Typically, there is a direct correlation between page depth and conversion rates. The more pages a visitor sees, the better the chance the visitor converts.
- Average Value - (Average Value = Revenues / Visits) Average Value is a significant Key Performance Indicator. Average Value is a companion to ROI in that it measures the value of keywords, sources, and mediums and can be used for comparison within these subgroups. For example, if Adwords created $10,000 from 2000 visits, Average Value is $5.00. Similarly, if Google Organic results created $8000 from 2000 visits, the average value for Google organic would be $4.
- Cost per Acquisition - (Cost per Acquisition = Cost / Visits) How much does it cost to bring a visitor to your website? CPA answers that question and can help identify efficient and inefficient traffic sources/mediums. The ratio between Average Value and Cost per Acquisition is also another way to figure ROI. Therefore, ROI = Average Value / Cost per Acquisition.
- Conversion Rates – (Conversion Rate = Transactions / Visits) What percentage of customers bought a product, subscribed to a service, or filled out a form? This is the very essence of eCommerce and a vital statistic. Raising this metric even a tenth of a percent can reap huge profit returns. For content sites or non transactional sites, Conversion Rate = Goals / Visits where Goals are sign-ups, forms, or downloads.
- ROI - (ROI = Revenue / Cost OR ROI = (Revenue - Cost) / Cost) It doesn't matter which equation you use to calculate ROI, as long as you consistently use one or the other. However, the latter equation is a better reflection of true ROI since it removes the cost of the conversion from the revenue before calculating final ROI. ROI is the Holy Grail of Key Performance Indicators for any campaign that has an associate cost. If you can accurately measure the cost in time and/or man hours involved in an SEO campaign, ROI can be used for organic conversion as well.
Lower ROI Equals Higher Profits?
Due to economies of scale, sometimes a lower ROI can be more profitable since some fixed costs of doing business do not change with an increase in the amount of transactions. For example, the rent of a building or cost to host a website does not change if conversion rates increase. Therefore a lower overall ROI that creates more transactions may be more profitable than a highly efficient campaign with high ROI that limits the amount of customers/visitors.
Let's assume that your Cost of Goods Sold (COGS) is 50%, and your fixed costs (salary, rent, utilities, etc...) are $1000/day.
Suppose on a given day you spend $1000 to create $7000 in revenue for an ROI of $6:$1 [($7000-$1000)/$1000] with net revenues of $6000.
Factoring in COGS, selling $7000 worth of products costs $3500 + $1000, so Net Profit = $6000 - ($3500 + $1000) = $1500
If you could spend $1500 to create $9000 without incurring addition fixed costs, the resultant ROI would be $5:$1 [($9000-$1500)/$1500] with net revenues of $7500.
Factoring in COGS, Selling $9000 worth of products costs $4500 + $1000, so Net Profit = $7500 - ($4500 +$1000) = $2000
Hence, a lower ROI resulted in a more profitable campaign. This is the very essence of analytics and clearly demonstrates how a metric that at first glance is getting worse, can actually be resulting in a better bottom line.
These metrics are some of the most common and represent just the tip of the metric iceberg. WebLinc can help develop and choose a set of metrics that are specifically tailored to your web site and its products or services. Choosing the correct set of metrics empowers your business to make decision on how best to improve the customer experience on your website. By failing to analyze and review such critical data, your web site is effectively operating in the dark, oblivious to the feedback your own visitors are giving you every day.