Online Business Analysis: Six Important On-site Metrics (and How to Improve Them)

Posted on August 10, 2015 by in Resources | 11 comments

Online Business Analysis: Six Important On-site Metrics (and How to Improve Them)

There’s a well-known phrase in the business world: “revenue is vanity, profit is sanity.”

Because it’s a catchy quote, it’s easy to ignore the important point that it highlights – that most entrepreneurs prefer to chase eye-catching metrics that make them look good, rather than the metrics that truly matter.

In my opinion, we can tweak this famous phrase to make it more applicable to the internet marketing world: “traffic is vanity, profit is sanity.”

Whichever way you spin it, far too many marketers get caught up chasing relatively unimportant metrics. I don’t care if you’ve grown your website from one million to four million visitors, how has it impacted your bottom line? Profit is, and will always be, the most important metric for any business – online or offline. Profit gives you sanity.

Despite profit’s underlying importance, it isn’t the only business metric worth tracking. After all, you can interpret a lot about the state of your business from a wide range of metrics.

Today, I want to cut through the unimportant metrics and straight to the good stuff: six on-site metrics that all online businesses should be tracking. I’ll also be providing some quick tips on how to improve your performance for each one.

1. Conversion Rate

Let’s kick things off with one of the most important metrics, and one that I’m sure we’re all familiar with: conversion rate.

Why is your conversion rate important? Because it tells you how efficiently you turn traffic into dollars. A higher conversion rate is desirable as it means that, in theory at least, you will turn more of your visitors into paying customers.

Because of the importance of your conversion rate, whole businesses are dedicated to conversion rate optimization – KissMetrics and ConversionXL immediately spring to mind. Yet despite marketers relentlessly chasing after conversion rate improvements as if their life depends on it, I wouldn’t get too hung up on conversion rate. Sure, it is important, but it doesn’t paint the full picture of your business’s overall health. For example, there are a number of reasons why your profitability can drop, despite conversion rate improvements. Off the top of my head, these reasons includes:

  • Traffic figures fall significantly.
  • Average spend per customer falls.
  • You’ve spent a fortune on paid traffic.

In other words, take conversion rate for what it really is: an important website metric, but a single piece of a much larger puzzle. How do you calculate your conversion rate? Easy. All you need is this simple equation:

Total Conversions / Unique Visitors * 100 = Conversion Rate (%)

You can also set up Google Analytics to automatically track your conversion rate by configuring goals.

Quick tips for improving this metric:

  • A/B test different elements of your website.
  • Improve your website’s trust and credibility.
  • Simplify the buying process – only include essential fields, and offer multiple payment methods to reduce buyer objections.

2. Segmented Conversion Rates

Segmenting your visitors makes for far more meaningful conversion rate data. This is perhaps best illustrated with an example. Let’s say that I own a hypothetical eCommerce store that receives traffic from three main sources:

  • Social Media – 600 visitors, 2 conversions.
  • Organic SEO – 700 visitors, 21 conversions.
  • PPC Campaign – 200 visitors, 18 conversions.

Combining this data gives me a conversion rate of 2.73% (41 conversions / 1,500 visitors). If I calculate a conversion rate for each segmented traffic source, however, I’d get far more meaningful results:

  • Social Media – 0.3%
  • Organic SEO – 3%
  • PPC Campaign – 9%

Now this is information I can work with. By segmenting my traffic, I can instantly identify my strengths (PPC is doing great, organic SEO is doing reasonably well) and weaknesses (social media is converting poorly).

This puts me in a far better position — I can play to my strengths by expanding my PPC budget and targeting organic SEO, while cutting back on the time I spend marketing via social media.

Traffic source is just one of many ways to segment your traffic – you can also segment by demographics, mobile/desktop users, and first time/return visitors. You’ll find there are far more insights to be gleaned from a segmented conversion rate than your top-level conversion rate.

Quick tips for improving this metric:

  • Create targeted landing pages for different traffic sources.
  • Increase marketing budget for campaigns with the highest conversion rate.
  • Display adverts in places where they’re most likely to be seen by your target demographic.

3. Customer Retention Rate

In business circles, it’s common knowledge that existing customers convert more easily than new ones. It’s also noteworthy that if a business can retain an extra 5% of their customers, they can increase profits by somewhere between 25% and 125%.

Despite these impressive statistics, most businesses invest the bulk of their marketing budget in customer acquisition. Although customer acquisition is important, your marketing budget should primarily target the opportunities that generate the biggest returns. Studies show that returning customers are 70% more likely to convert and cost 90% less to retain than brand new customers.

With this in mind, it seems to me that customer acquisition is one of those “vanity” metrics – businesses obsess over it as it looks great on paper. Customer retention, on the other hand, sits firmly in the “sanity” category, and improving it can make a big difference to your bottom line.

To calculate this metric, all you need to do is work out what percentage of your customers go on to buy from you again.

Quick tips for improving this metric:

  • Run promotions targeting existing customers – for example, loyalty schemes or exclusive discounts.
  • Provide an exceptional service so that customers want to keep returning to you.
  • Implement a subscription-based business model.

4. Cost per Acquisition

It’s almost impossible to have a discussion about allocating your marketing budget effectively without first talking about Return on Investment (ROI). ROI lies at the heart of all business investments. For every dollar I spend, I want to earn more than a dollar back – this is my ROI.

For example, when I spend $100 on a PPC campaign and my campaign generates $200, I’ve earnt a 100% ROI. If I generate $250, my ROI is 150%.

If you’re looking to invest your marketing budget wisely, one of the most important metrics is your cost per acquisition. This tells you how much you’ve spent on average to attract each new customer – If I spent $500 attracting 20 new customers, my cost per acquisition is $25.

If you can reduce your cost per acquisition, you can stretch your marketing budget further. This means that you’re far more likely to earn a positive ROI and boost profitability.

Quick tips for improving this metric:

  • Run different types of campaigns as some traffic converts better/costs less.
  • Create dedicated landing pages and perform A/B tests to boost conversion rates.
  • Segment your marketing campaigns so you can increase spend on the top performers and pause campaigns generating a negative return.

5. Customer Lifetime Value

Customer lifetime value is another fundamentally important metric that businesses need to understand. The metric tells you how much, on average, a customer is worth to your business over the duration of the customer life cycle. But why is it so important? As always, this is best illustrated with an example. Two scenarios:

In scenario one, I know that my average customer spend is $50. I also know that customer acquisition costs $50 on average. In other words, I’m breaking even. It makes little business sense for me to continue pursuing an unprofitable campaign.

In scenario two, however, I have an extra snippet of information. My average spend and my cost of acquisition are both still $50. This time, though, I know that my average customer will buy from me four times. In other words, my customer lifetime value is $200. In such a scenario, a $50 acquisition cost isn’t looking so bad, is it? In fact, I’m smarting from a fantastic 300% ROI – this is a campaign I’m going to pump money into.

Projected ROI should dictate all your financial decisions, and without knowing your customer lifetime value, it’s impossible to accurately estimate the ROI on a marketing campaign.

Of course, calculating customer lifetime value is easier said than done. This is especially true for fledgling businesses, who haven’t yet reached the end of a customer life cycle – in other words, the business doesn’t know what the average customer will ultimately spend. In this situation, you’ll just have to work with the data you do have, and update the customer lifetime value figure as more data becomes available.

Quick tips for improving this metric:

  • Follow the strategies listed above to improve customer retentions.
  • Give customers a reason to come back to you over competitors – for example, new product ranges, excellent service, aftersales support.
  • Up- and cross-sell products to increase average spend.

6. Top Exit Pages

We’ve focused a lot on conversion metrics so far. The reality of online business, however, is that most visitors will not convert — even juggernauts like Amazon have a conversion rate way below 50%. And for every customer that leaves your site without converting, there has to come a point where things break down.

This could be as soon as they land on your homepage, after viewing your prices, or on step 3- of a 5-step checkout process. Either way, by identifying the point that things turn sour, you have the opportunity to shore up the weaknesses in your sales funnel. And, best of all, this information is automatically tracked in Google Analytics by navigating to Behavior > Site Content > Exit Pages.

When you know which your top exit pages are, you can start digging deeper to uncover why the page might be causing visitors to abandon ship. For example, you might find insights like this:

  • Homepage – your website makes a bad first impression or is too difficult to navigate.
  • Pricing page – your prices are uncompetitive.
  • Checkout form – your checkout form is too complicated or has too many steps.

With this information in hand, you can make site improvements to encourage more sales.

How to improve this metric:

  • Again, A/B tests are a great way to improve your worst performing pages.
  • Keep your checkouts as streamlined as possible – only request necessary fields.
  • Make sure your website is easy to navigate and uses strong CTAs to direct visitors.

Final Thoughts

Although I’ve listed six important website metrics for businesses in today’s post, you should focus on one metric above all others: profit. That being said, the six business metrics we’ve discussed today all contribute to a more profitable website.

By keeping your traffic figures, prices, and costs constant, improving any of today’s metrics will result in a healthier bottom line. That’s why they’re all so important — if the end goal is to make your website more profitable, it’s improving metrics like these that will get you there.

Of course, today’s list is just the tip of the iceberg when it comes to business metrics worth tracking. Now, though, it’s over to you as I’d love to hear which on-site metrics you think are the most important for online businesses. Share your thoughts in the comments below!

Article thumbnail image by Cifotart / shutterstock.com

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11 Comments

  1. Hey Shaun,

    Solid article. It’s so easy for companies to focus on vanity metrics and forget what they should actually be optimizing for: profit. #5 is an especially neglected metric I’ve noticed.

    Best,
    Alex

    • Sure. But for companies that exist for 1 year of two years, CLV is not established and difficult to measure.

      Because, theoretically, the CLV is 1 on the first day of business. One can only calculate the value after quite some time.

      • I completely agree that CLV is difficult for new businesses to measure accurately. If the information isn’t available, well, it just isn’t available. If you’ve been in business for some time, though, it’s definitely a metric to track.

  2. i’d love to see a SOLID ab testing plugin from elegant themes. would make my (any?) lifetime subscripzion even more worthx. please!!! (this is a request 🙂 )
    best,
    oliver

  3. I check average time spent on a page also. I recently had a page with minimal design which I loved. But the average time on the page was only 12 seconds compared to 1-3 mins on the other pages. So I removed the page and redesigning it.

    • Time on page is definitely of interest. If you’re using substantially different designs (as it sounds like you are) then you can use a comparison to see which design your visitors prefer.

  4. I’m spending a lot of time trying to improve my page speed to help keep users interested before clicking out of the site. It’s proving more difficult than I thought.

    • James: I had the same problem when using Divi. I finally utilized the free cloudflare.com caching utility. It has helped out in page load speed dramatically! https://www.cloudflare.com/plans

    • Well, actually I’ve overcome this problem with Divi+W3TC. Divi is giving much better scores than most of the themes out there. I usually start around 75-80 according to google pagespeed and when I add W3TC it goes up to 90s.

  5. Wrong measure of ROI!
    “For example, when I spend $100 on a PPC campaign and my campaign generates $200, I’ve earnt a 100% ROI.”

    Real ROI:
    * I spend $100 on PPC
    * Generates $200
    – BUT the Revenue is only $40 (example)

    = MINUS $60 for PPC

    🙂

    • I’m not sure I follow. If my revenue is $200 and profit is only $40, then sure, ROI is negative. In the example, I was just looking at the overall return for simplicity. I deliberately didn’t quote separate revenue and profit figures.

      It’s a fair point though. Even if your $100 PPC spend generates $10,000, if the profit portion of that is less than $100, your campaign is running at a loss.

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