In a career as an e-commerce specialist you can be involved with various projects and have to deal with managers, directors and CEOs of large companies. You can take part in Kickoff, Go/No Go, performance and restructuring meetings. This may lead you to the unfortunate conclusion that in reality people do not always manage operating indicators wisely or analyze KPIs. Too many managers take a narrow view of increasing revenues and are blind to opportunities for more sales. The lost opportunities can be referred to as vanish points.
Leakage points can be discovered when there is a very thorough analysis of KPIs. As an example: a store is showing a 10% increase in revenues, but with a lower conversion rate for version 53 of desktop browser X. This version generates a number of visits representing 27% of sessions, and has an overall effect of 2% on the store’s conversion rate. However, this 2% can be reversed by a surgical adjustment, making small improvements that over a 6 to 12-month period can be significant.
Analysis of KPIs: key entry KPIs (Impact Zone)
A virtual store has three entry pillars. These are:
Sessions: How many users access the store?
Conversion rate: What percentage of visitors to the virtual store actually place an order?
Average Ticket: What is the average value of all the orders placed?
This is called the impact zone for a simple reason: every occurrence will affect at least one of these measures.
Conversion rate: Orders closed vs. Orders invoiced
An analysis of KPIs will show a mismatch between orders closed by a store and those actually invoiced. A low rate of invoicing orders may be a symptom of serious problems:
Credit card approval rate
It is worth watching the performance of the purchasers and the payment facilitators. A ratio of less than 80% can indicate a problem of performance with the payment connector. In these cases, you should talk to the supplier or try out other connectors.
The closer you are to the purchaser the higher the approval rate. This is because adding other agents to this chain increases the risk analysis (of the intermediary), especially when the payment facilitator also supplies antifraud protection.
Bank payment form payment rate
In very general terms, only 55% of payment forms issued are paid. The amount varies according to the sector and depends on whether the store has a discount policy for this method of payment.
In extreme cases, where the payment rate is very low, you could try deactivating this form of payment for a week. Then check whether revenues have increased as purchasers change to other forms of payment.
This option is still not a good one for e-commerce, since the average approval rate is only 7%, due to the high level of risk for the banks. Think of it as a direct plunge into the customer’s bank account. Very high risk, wouldn’t you think? In some cases, this can cut revenues instead of increasing them.
Rate of antifraud rejection
This rate varies widely, depending on the segment. For publishing companies, the percentage of fraud can be zero (a very specific product) and for a smartphone store 1% (a very desirable product, with high value added and low transport volume).
The important aspect of measurement is to systematically monitor and benchmark the segment to discover the correct approval rate.
The 4 forces of the Digital Channel
There are 4 areas that offer the consumer the best possible shopping experience. These areas interact with each other and together are responsible for the channel’s performance and KPI analysis. The four areas give rise to a close monitoring of the following performance indicators:
The sales area defines the product mix, taking into account sales demand, potential products and low turnover products. In this context, revenues are monitored, after giving Marketing its mission.
Marketing responds to Sales, challenging the suggested mix. It is Marketing that takes the product to the customer. The capacity of Marketing to provide qualified shoppers and a satisfactory ROI, average ticket and revenues, must be analyzed.
Note: ROI is the return on investment. A product costs R$10 with net earnings of R$3. If R$1 has been spent to sell the product, the ROI is 3, i.e. for each R$1 invested there is a return of R$3.
Logistics is the pillar on which customer satisfaction rests. Once the customer has accepted the commercial proposal, now is the time to deliver the product punctually. Under logistics, we monitor the delivery SLA, the ratio of breakdowns and the stock coverage to meet demand.
IT provides the house with its foundations and ensures that the systems respond to an order from the customer. In this case, we analyze:
- A. The conversion rate and average page loading time in devices compared with browsers;
- B. Systems integration (Platform, ERP, WMS, TMS, etc.);
- C. Infrastructure (Availability).
Correlation between KPIs
Data is of no use if it is not compared with other data. It is by comparison and similarity that we can identify performance, trends and problems.
Once we have identified the four forces of e-commerce, we can cross-reference the indicators and see how people behave.
Suppose that in a particular month, the conversion rate falls from 2.28% to 1.99%. This affects revenues, and demands investigation.
In this case, we can analyze:
1- Whether the conversion rate has fallen for all types of traffic. If it has, the most probable cause is an IT problem.
2- If we look at IT, we find that the desktop conversion rate has fallen by 30%. Once we have established this, it is time to access the Logbook.
The logbook can be any method of recording events and activities of the 4 forces of e-commerce. A journal of campaigns realized, the record of a price adjustment in the sales area or a new configuration by IT of the versions control system.
In this example, we might suppose that the front-end development had made an implementation that affected the average page loading time and reduced the conversion rate.
Integration of the areas
In the previous section, we could see the synergy between the areas and how they relate to jointly meet the needs of the shopper. The closer they work together, the better the e-commerce results will be.
In e-commerce EVERYTHING is measured!
Information is power, and it can turn companies into major powers in the market, like Google and Facebook. Now, imagine the owner of a grocery with access to data showing the number of customers entering his store, the percentage that check a particular product and did not buy it (it aroused their interest, but something stopped them from buying), how many others left the shop because the queue at the cash desk was too long, and so on. In e-commerce, everything can be measured.
In e-commerce, you do not have customers coming in the door. But you know everything the customer does when accessing a virtual store. The possibilities are infinite.
In the e-commerce business it is very common to see people taking decisions based on the opinions of others, on what e-commerce gurus say and, lastly on the A/B test. Of the three, the last is the best option. But it is more prudent still to make a decision based on a conclusion.
For instance, you can justify lower sales in February because Carnival is held in Brazil and because the month has less days (justification based on opinion). However, there are better grounds for concluding that 30% of the reason for the fall was that the competition launched a major campaign during the month, 10% was because of IT implementation problems and 60% because of Carnival and that, compared with the year before (taking seasonality into account) the fall was only 5% in the same month.
Analogy of the Fighter Plane
Air force staff met to assess the state in which fighter planes were arriving back at base. The idea was to create a way of increasing their resistance in combat.
The above picture shows the areas of the planes that received most hits. From the picture, the engineers have to decide which parts of the fuselage should be reinforced. Where do you think this should be?
If you don’t look at the whole picture, you might tend to say that the wings and the tail should be reinforced. You could also suggest moving the fuel tanks, or that the pilot should lie on his side, which would not be practical.
Well, think about it: a bullet in the wing will not bring the plane down. The pictures do not show planes where bullets entered the cockpit, because these planes did not return to base.
An analysis of KPIs is fundamental for running an e-commerce business. Decisions always need to be taken jointly with the areas affected, with every detail checked and investigated.
Many virtual stores survive today because they have been in business for a long time, having started when e-commerce was still a novelty and not a necessity. This situation leveraged the brand and this has sustained the business till now. This is the blind spot where you can miss big opportunities.
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