How Measuring Key Performance Indicators Can Improve E-commerce Strategy – Part 3 1

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 the time on site KPI as another warning flag. Both of these articles discuss specific measurements that can be used to forecast site problems. There are lots of KPIs you can set up to warn you of impending doom, or to better show your successes; but to go through each one would take me ‘til 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, Venture Capitalist-led consortiums buying and selling companies based on their business plans and little else. No one measured success by ordinary standards anymore, 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. The normally cautious VCs 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 brick-and-mortar businesses survive the dot bomb when so many others 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 KPIs 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 all of those five metrics reported in most Web analytic systems simply because it’s not up to a Web measurement system to tell you what your profit margin or overhead is, although most good ones can manage average sale price, conversion rate, and visitors.

Why these five metrics?

Let’s take a look at these five 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 overhead 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. This is usually a good idea only if more of your visitors will buy due to a lower price, meaning that overall you can still have a higher net profit.
  • Overhead – By reducing overhead 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 the other KPIs mentioned above using good Web analytics tools, you can see how people are behaving on your website. Where you find problems (you undoubtedly will find some), fix them. This is how you can 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 number of visitors you get is a consequence of your marketing efforts, whether 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 level of traffic. The key is getting relevant traffic, rather than traffic that isn’t interested in your product range.

In summary

I have shown two uses of Web analytics, using KPIs 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.

  • enya

    how does the KPI allow Art.com to launch systems development projects that can improve sales

About the Author Steve Jackson is CEO of Aboavista, editor of the Conversion Chronicles, and a published writer. Read more »

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