4 Metrics You Must Know to Grow Your WooCommerce Store
If you want to make sure that you’re getting the most out of your e-commerce business, then you have to track a variety of metrics on your site. All too often, entrepreneurs aren’t analyzing their numbers as carefully as they should, which means that they don’t know how well they’re performing – specifically, what’s working and what isn’t.
Today, we’re going to look at the top four metrics you should focus on with your e-commerce company. Although there are plenty of other measurements you can look at, these four are going to assist you the most when figuring out how to make your business more profitable and run smoother. Let’s break them down.
#1 Customer Acquisition Cost (CAC)
If you want to grow your business (whatever it may be), you need to invest in marketing. However, it can be tricky to understand your return on investment (ROI) when it comes to things as intangible as advertising.
CAC is an excellent way to see if your marketing methods are having the right impact, as well as determine if they are cost-effective to continue. Essentially, if you have a relatively low CAC compared to the lifetime average of a customer (more on that next), then you know that your methods are profitable.
How to Calculate Customer Acquisition Cost
To put it simply, all you have to do is take the amount you’re spending on marketing and divide it by the number of new customers acquired during that period.
For example, if you started a new campaign that cost $1000 and ran it for three months, you want to see how many customers came in as a result. Let’s say that you had 500 new customers during that time frame, meaning that your Customer Acquisition Cost (CAC) is two dollars.
Obviously, if you have multiple campaigns running simultaneously, breaking down this metric by individual tactics will be trickier, although not impossible. One method you can use is to have certain ads link to a specific landing page and then track the user count and conversion rate for each page.
Overall, CAC matters because it enables you to determine if you’re getting the most out of your marketing budget. If not, then it’s time to make some changes.
#2 Customer Lifetime Value (CLTV)
As we mentioned, knowing your CAC is only half the equation. If your CAC is two dollars, that won’t mean much if the lifetime value of a customer is just three dollars. However, if your Customer Life Time Value (CLTV) is $100, then that means you’re getting a fantastic return on investment.
Simply put, CLTV measures how much money you can expect to make from a customer once he or she buys from you. Ideally, customers will come back over and over again, thus inflating this value with each new purchase. If people only buy one item and never return, then your CLTV will be whatever your average order value is (more on that next).
To calculate your CLTV, you need to determine a few critical numbers.
Average Order Value – this is the average price of the products that people are buying. Let’s say that your AOV is $15.
Purchase Frequency Rate – how often are customers buying products from your e-commerce store? Is it once a week? Once a month? We will be breaking it down per year, meaning that once a week is 52, once a month is 12, etc.
Average Customer Value – if your AOV is $15 and the frequency rate is once a week, then you know that a customer will generate (on average) $780 per year ($15 x 52).
Once you have a yearly number, then you will have to determine how many years a customer will shop at your store for life. If you’re still new, then this metric can be hard to figure out, but if, for example, it was 10 years, then you could determine that your CLTV is $7,800.
For the most part, CLTV is a rough estimate, as some customers will be more loyal than others. Be sure to update your numbers regularly so that you get a better idea of what to expect in the future.
#3 Average Order Value
We covered this somewhat in the last section, but let’s break it down in more detail right now. AOV is the average of all of your purchase orders, so it’s imperative that you have an accurate estimate, as it will influence other metrics, like CLTV.
Realistically, the best way to determine AOV is to divide your total revenue by the total number of orders. For example, if you made $10,000 off of 100 orders, then your AOV would be $100. Fortunately, calculating this price is relatively easy, but, as with everything else, you want to measure it regularly in case it fluctuates up or down.
#4 Checkout Conversion Rate
According to Baynard Institute, almost 70 percent of online shoppers abandon their carts before finalizing a purchase. As an e-commerce store, this common occurrence can be extremely frustrating, as the customer has gone through the shopping process, only to leave before you make your money.
Thus, because the abandonment rate is so high, you want to optimize your checkout conversion rate (CCR) to ensure that it doesn’t happen as frequently.You may also check this related post:
Calculating this percentage is as easy as seeing how many customers fill a shopping cart compared to the number who actually make a purchase. For example, if 1000 people have items in a cart but only 400 of them buy products, your CCR is 40 percent.
While we won’t get into too much detail on how to improve this metric, it’s imperative that you measure it, especially when testing different conversion rate improvements. A/B testing is an excellent way to see what works the best so that you can make your CCR as high as possible.
Bonus: Retention and Churn Rate (for Subscriptions)
Ideally, customers will buy from your e-commerce store regularly. However, the reality can be far removed from this possibility. Nonetheless, if you can understand and calculate your retention and churn rate, you can make adjustments to improve these numbers.
Customer Retention Rate (CRR)
The way you calculate this metric is to find out these three numbers first:
Total number of customers at the start of the period (i.e., one quarter) = S
Total number of customers at the end of the period = E
Total number of new customers acquired during the period = N
For example, let’s say that you had 100 people subscribed at the beginning of the quarter, and you wound up with 80 at the end of the quarter. During that time, you acquired 50 new customers. The formula looks like this:
E-N/S, or 80-50/100. When you plug in the numbers, you get a CRR of 30 percent.
Churn is when you lose customers while acquiring new ones. Most of the time, businesses are focused on new customers, meaning that they aren’t paying attention to how many are leaving, never to return.
While your churn rate can fluctuate, an easy way to calculate it is this formula:
Total Customers From Last Period + New Customers This Period – Total Customers at the End of This Period. Using our same numbers as before, (100, 50, 80), the result would be 70. (100+50-80).
Use WooCommerce for Conquering Your Metrics
If you want assistance in tracking these numbers and figuring out how to improve them, WooCommerce can provide all of the tools and expertise necessary to make the most from your e-commerce business. Contact us today to find out more.