Wednesday, May 4, 2011

3 steps before you start measuring performance of an e-commerce site


Recently I came across one e-commerce site for a Web Analytic consulting assignment. To my surprise the website was doing more than one million dollar of business from online channel but have no formal web analytic reporting in place. Most of its online sale last year came from their offline customers choosing to order online.
There was a huge market potential which they felt they were losing just because of their lack of attention on web-commerce.

This was the reason they approached us and we started designing web analytic strategy for them. We decided to start from basics:

Step 1: Goal of the website

We interviewed their key stake holders, which in this case initially were mostly IT director and its team as they were the ones maintaining website, and there was no existence of a formal digital marketing team and not to mention least co-ordination with sales. (Sad, isn't it?)

Not too our surprise, the organization felt that site exists to sale but there was no defined profile for target audience. So we took a step back and interviewed some senior sales and marketing people. This helped us establish the overall goal of the website:

Goal of an e-com website:
1) Generate additional revenue by selling products from online channel
2) Attract more prospects engage them on site and convert them into customers
3) Increase revenue from existing customers


Step 2: Segmentation of visitors and setting the target

Based on discussion with senior management, we segmented the site audience into two categories:
A) 1) Prospect and 2) Customer

B) Sources of Aquistion:
1)Direct
2)Social campaigns
3)Affiliate
4)SEO/Organic
5)PPC
6)Display
7)e-mail
8)Offline channels



Step 3: Setting up Key Performance Indicators (KPI) for the site:

According to me, KPI setting is the most important exercise for the site.
I always love to draw an analogy of personal fitness to KPI: like your gym instructor has a chart for you where he notes down your weight , biceps, triceps, Blood pressure etc before you start your work out and then monitors it at regular interval, similarly KPI sheet is like that chart, which you need to monitor at regular interval

So for this e-commerce site we started identifying key questions which our KPIs can answer. (These questions have derived from Goals which we set up in Step 1):

Q1: what is the revenue generated from site; is it increasing or decreasing; who is buying?

-Revenue achieved v/s revenue targeted
-Percentage revenue generated from prospects v/s from customers
-Ratio of new v/s returning visitor to site

Q2: What is likelihood that a visitor on site will place an order; How much each visitor worth?
-Order conversion rate = Total number of orders taken/total visits
-Average order value= total value of orders/number of orders placed
- Average value of each visit= Total order value/Total visits

Q3: What is the success rate of my shopping process?
- Check out completion rate= Total orders /Total visits where product was added to cart
- Add to cart rate= Total visits when product was added to cart/ Total visits to site


These were the high level KPIs which we decided for the site after consultation with management. We then reported these KPI separately for Prospect and customers and each Source of Aquisition

One most important point any analytic person should keep in mind that any value in isolation is of no use, it need to have a context. To provide context to it we did collected some historical values for each KPIs for the same period so that we can compare performance. For many data point’s historic data was not available as reports were not set up, for such KPIs we decided to use industry bench mark value to have a context.

There can be 10 -20 more KPIs relevant for an e commerce site , but one should always avoid having laundry list of KPIs and should just stick to few relevant and actionable ones. Though we can have a separate set of KPIs for strategic level and tactical level managers or functional managers.

Many times I am asked how you identify which KPI should be reported to strategic manager and which one to tactical. To identify this, I always rely on technique of questioning and answering:

Q1 what kind of question is answered by a KPI. For e.g. a ratio of new v/s returning visitors answers question about loyalty (from returning visitors) or repeat purchase and new customer acquisition.

Q2 Who can take action on this information.
Strategic manager will  try to increase the conversion from new and repeat customer and will define strategy and budget for that. Tactical level manager will take that strategy, define the tactical moves, implement them  and bench mark the existing values against which it can monitor progress. e.g. if Strategic manager decide the goal of increasing new customer revenue, optimization manager will work on increasing conversion, campaign manager will work on increasing new customers and all will have their own set of KPIs which they will monitor


So this the way we started setting up analytic frame work of organization. I will cover next steps followed by us like setting up reports and dashboard, etc in subsequent posts.  What do you think about these steps? Share your feed back in the comment section

I will also try to touch upon other relevant KPIs for an e commerce site in a separate post. Kindly let me know your views on the approach we took for the site. I would love to receive your feedback. Thanks




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