7 Core Dropshipping Metrics That you Need to Track
The metrics and the data analysis tools that you must use to measure the performance of your store can be a touch overwhelming, especially when starting out. There are so many measurable factors and free and paid tools to choose from.
Where does one even begin?
First, let us recognize that the data that is collected from your store is a treasure trove of valuable information that reports on the health and progress of your dropshipping business. It reveals the behavior of your customers when they visit your shop and gives insight as to what works for your customers, and what doesn’t. More importantly, analyzing your store’s data can help you make educated decisions on how to improve the performance of your store.
You can bet that the most successful dropshipping websites today regularly keep track of their key performance indicators to monitor how well their business is doing. If you are not tracking this information, then you don’t have a way of knowing how well your strategies are working.
Even though there are tools available that help people analyze data from their stores, so many dropshipping businesses fail to use the data they have at their fingertips to improve their business.
A study found that 63% of companies aren’t using data analysis tools and are going by way of opinion and intuition to run their business instead. If you are one of the 63%, then you are making business decisions based on insufficient information.
If you want to improve your website, the effectiveness of your marketing campaign, products, and other aspects of running your online shop, you will have to analyze your store’s data.
Here are some examples of how you can use the data from your store to drive informed decisions that will lead to a more successful online store:
- Improve site traffic- You find that most of your website’s traffic is originating primarily from your paid social ads on Facebook. This will help you make the informed decision to double down on your ads on the platform where your marketing efforts are most effective.
- Increase conversions- You find that one of your products is selling particularly well, better than others, so you choose to feature this product on your site and social ads.
- Improve your services- You find that most of your visitors are viewing your site from their mobile devices, leading you to decide on improving your site’s mobile experience.
- Improve your website- You find that your potential customers are navigating away from your site as soon as they come to your homepage, indicating that you must make changes to the page to appeal more to your potential customers.
There are many free tools available for you to make use of. The Shopify app store alone has many helpful free and paid tools. Here are two examples of analytics tools that you will ever really need:
Shopify Analytics- Running your online store on the Shopify platform gives you access to your site's data from Shopify’s dashboard under Analytics. From there you will be able to view your total sales, online store conversion rates, average order value, online store sessions by location, and much more.
Google Analytics- Google Analytics is a free and powerful tool that you can add to your Shopify store. It can tell you how many people are on your site in real-time, and about their behavior. It can tell you how many visitors your store gets, how long they take on your site, where your customers are from, their age and gender, and so much more.
There are going to be numbers and charts for everything going when it comes to tracking your shop’s data, and it’s easy to get a little lost. In this article, we are going to help you take the first step, by letting you know about the most important metrics that you have to track to run a healthy and thriving online store. Let’s begin:
Site traffic is a key indicator of how well your dropshipping business is performing. Site traffic refers to the number of visitors to your online store, it is also sometimes referred to as “sessions”, and it is a common way of measuring an online store’s ability in attracting potential customers.
Keeping an eye on site traffic is important because the more website visitors you have, the higher the opportunity to convert them into your paying customers—in other terms, the more people visiting your website, the higher the chances of selling your products and growing your business. Improving site traffic is one of the many things you will have to work on as an online business owner.
The overall number of visitors to your online store also contains other key information that you must consider:
- Traffic Source- Traffic source refers to the origin through which people found your site. An example of a traffic source is search engines. Search engine traffic comes from people finding your link on the search engine results page like Google. Knowing the primary sources of traffic to your site will give you an understanding of how people are finding your store.
- Sales by Traffic Source- also known as revenue by traffic source, it refers to the total sales incurred from a specific traffic source, such as Google ads. Knowing which traffic sources are earning you the most in sales will help you understand which of your marketing channels are seeing the best results, and where you should be investing your money.
You can view your store’s traffic or online store sessions from your Shopify Overview dashboard or Google Analytics. The sources of your online traffic can be segmented to: Organic, paid, social, email, and whatever other marketing tactics you will be employing. So we advise that you keep track of all the relevant data related to your website’s traffic and note which methods are getting you the most online traffic and most sales. Being able to understand the source of your traffic will help you know where to invest your money to drive traffic to your store.
2. Conversion Rate
Following website traffic, you have to track the percentage of the visitors who complete a purchase, because not everyone who visits your website will be making you money. To calculate your conversion rate, you simply have to divide the number of visitors to the number of buyers. The formula to calculate conversion rates is fairly simple: Conversion Rate = (Conversions / Total Visitors) * 100%
For instance, you have had 1000 visitors to your site this week, and only 89 people have made a purchase through your site. This means that your conversion rate is 8.9%. The higher the conversion rate, the better your dropshipping business is doing.
Tracking your conversion rates alongside your site’s traffic is important because it tells you so much about how your customers are reacting to your site and its products. Let us say that you are getting high traffic to your online store. This indicates that your potential customers are interested in what you have to offer. But for whatever reason, these site visitors are not converting. Customers are navigating away from your site instead of making a purchase.
By tracking your conversion rate, you will be able to identify problems when the conversion rates are too low. You can figure out what’s going on—maybe your prices are too high for your target audience, or maybe your product description didn’t match what was being advertised, and so on. Keeping track of the numbers will help you quickly make an informed change that will ultimately improve your conversion rates.
To get deeper into tracking your conversion rates, you should look into how your traffic is converting by your different traffic sources. For instance, try to compare the conversion rates between two sources like Google versus Facebook advertising, and see which one is producing more quality traffic that converts. This will help you understand which source has been the most beneficial.
You must also look into conversion rates by product. Conversion rate by product sounds pretty self-explanatory, it is the percentage of people who view your product and complete a purchase of the said product. When it comes to dropshipping companies that are selling more than just a handful of products, tracking your conversion rate by product is going to be very useful.
It is useful because it lets you know which among your products people seem to click on and favor by ultimately buying, and you will know what products to eventually feature to improve conversion.
3. Customer Acquisition Cost
Customer acquisition cost or CAC refers to the amount of money spent to acquire each new customer. Much of the time, acquiring a new customer is not free. You had to pay to acquire that customer through your paid ads and by employing other marketing strategies.
Calculating your CAC is important because it helps you keep track of overall cost and the effectiveness of your marketing campaign. It also tells you which of your strategies have been most effective. CAC is the cost of marketing expenses divided by the numbers of customers that you acquired through your paid efforts. In other terms: CAC = Marketing Cost / Customers Acquired.
For example, let us that that last month you went and spent $200 on online ads, and acquired 100 new paying customers for your store. We divide both figures and come up with your customer acquisition cost for last month, which is $2 per new customer.
Knowing your CAC is important to any dropshipping store owner because it helps you allocate your marketing expenses in the right place, where your money will be most effective at acquiring new buyers. You want to be able to track how effective your marketing campaign is, and the best way to improve it is to conduct regular tests and promotions and to keep track of their effectiveness. Remember, the lower the CAC, the better.
4. Total Sales
Your total sales refer to the total amount of sales under a given period. Total sales are calculated by taking the selling price of each unit and multiplying it by the total number of units sold. For example, you sold 100 items worth $5 amounting to $500 in total sales.
Total sales is a very important metric for all online store owners because it provides an accurate projection of your business’s growth and performance.
Tracking your total number of sales can be pretty satisfying, especially when the ball starts rolling and you are seeing more sales. These numbers are valuable in more ways than just to gloat over, however. You want to be able to understand the spikes and the drops in your total number of sales over a period of time.
You can look at your sales data in the last few months and weeks to identify trends. For instance, if you notice that sales are usually low on certain days of the week, try to understand what influences this drop, and what makes other days more profitable. Ask yourself what are the variables that contribute to these trends. Identifying the lows and highs of your total sales and the factors that influence their fluctuations can be a good cornerstone for improving your online campaign, and optimizing your strategies and online store for better overall performance.
5. Shopping Cart Abandonment Rate
Shopping cart abandonment is a reality and natural consequence of how online shoppers browse online shops. Many shoppers are just looking around, exploring, and making price comparisons. Some of them are adding items to their carts for later because they’re not quite ready to make the purchase just yet.
58.6% of online shoppers in the United States alone have reportedly abandoned a cart in the last 3 months. Not a great overall number, considering that shopping cart abandonment reduces the number of total sales your store is generating, and all you’re left with are abandoned shopping carts.
The first thing you must do as a store owner is to calculate the rate of abandonment, and then figure out why this is happening.
To calculate cart abandonment percentage you must calculate: Cart Abandonment Rate = (Number of Buyers/ Visitors who Used Shopping Cart) x 100%
For example, let us say that you had 200 shop visitors who added products to their shopping carts, but only 100 of them completed the purchase, your shopping cart abandonment rate is at 50%.
While shopping cart abandonment rate is fairly easy to calculate, the hard part is in finding out what you are doing wrong and how to lower instances of cart abandonment on your site.
One of the most common reasons for cart abandonment is a lengthy process, requiring an account, and hidden charges. The best way to reduce cart abandonment is to make sure that you streamline the checkout process as much as possible and not to spring anything extra on the final bill of your customer.
6. Average Customer Order Value
The average order value or AOV tracks the average amount spent each time a customer buys something from your shop. AOV is an important metric to track because it allows you to understand your customers’ purchasing habits in your shop. Like any other key metric, you can measure your AOV over your chosen period.
Calculating AOV is done quite simply by dividing your total revenue by the number of orders: AOV= Revenue/ Number of Orders.
For example, let us say that last month your dropshipping store made $10,000 and you had a total of 1000 orders. We divide $10,000 by 1000 orders, amounting to $10 for last month’s average order value. This means that the average amount spent in your shop per customer is $10.
Keeping track of your dropshipping business’s average order value means that you are measuring the value that each customer is bringing to your business. Being aware of AOV also helps you set reasonable goals, you'll know what strategies are working, and what areas to improve.
Setting your sight on increasing AOV is also typically less expensive than acquiring new customers and in driving traffic to your site.
7. Customer Lifetime Value
Customer lifetime value or CLV is the metric that measures the total revenue a business can expect from their customer throughout the business relationship.
The longer the relationship and the more frequent a customer makes purchases from your online business, the greater the lifetime value of the customer.
This metric is important because it lets you know how much money you can expect to make from each customer. The CLV of each business can vary, of course, and some businesses can rely on repeat purchases, while others can only expect single purchases per customer.
Customer lifetime value is fairly easy to calculate: CLV= Average Order Value x Average Purchase Frequency
For example, let us say you get an average order value of $25 and the average customers in your shop will make a purchase with you 8 times, your customer lifetime value will be at $200.
The goal is really to increase your customer lifetime value, and this is done by improving the rate of customer satisfaction and customer retention. Pleasing your customers and making them happy as a result of being a customer of your store is an important factor in garnering repeat purchases and improving CLV.
Acquiring new customers can cost you as much as up to 5 times more than customer retention. This makes it important for your business to nurture the relationship that you have with your current customers by improving their experience, and increasing customer lifetime value as a result.
Back to You
We talked about 7 of the most basic and the most helpful metrics for dropshipping that you can focus on first. We made this article primarily as an attempt to clear up some of the confusion when it comes to analyzing your store’s data, and now you know what counts, especially when you are starting out in your first dropshipping venture.
Remember that when you are tracking and measuring your store’s data, you are tracking your store’s success. You don’t have to track every conceivable metric or number out there, and now that you know which ones to focus on first, it will help you build a more successful business based off of the valuable information garnered from your online store—and not primarily off of intuition and guesses.
As you become more familiar with the metrics you need to monitor to run your business, you can get into the deeper details and the new, more nuanced information that will help you grow.
What methods have you used to track your business’s success? Are you looking to improve your online store’s ability to grow, increase your revenue, and reach more people? If you are, and you find yourself with questions regarding this article and your online store, please feel free to start a conversation with us today. At Ecommerce Pro, we love to discuss the future plans of your online business ventures and to share practical solutions that help you meet your eCommerce and dropshipping business goals.
The E-Commerce Checklist
We have listed down the best practices in a checklist to ensure that your online business is ready for launching.