Whether you already have an e-commerce business or are planning to launch one, understanding the following e-commerce vocabulary and e-commerce metrics can help you grow.
Whether it’s ROI, CAGR, AOV, or something else that doesn’t come with an acronym, metrics have been around since forever.
The world’s most successful businesses know what metrics they need to measure and follow and what to avoid. After all, you can’t measure everything because that won’t leave any room for the actual sales work.
By understanding which e-commerce metrics matter and using them, businesses can make better sales and marketing decisions.
However, not all metrics help online businesses.
In this article, we’re going to tackle the most-common vocabulary not just for e-commerce but for online marketing, business, sales, and social media.
Before we get to the e-commerce vocabulary, let’s first settle on some basics.
The first of those is metrics. What are metrics?
Put simply: A metric is a method of measurement.
A metric can be used for online and offline stores. But an example of an e-commerce metric would be average order value or return on ad spend.
The list of e-commerce metrics is ever-growing. Why? Because of social media.
Social media platforms are constantly increasing, which is bringing to life more opportunities for e-commerce marketing and automation.
At the same time, they’re creating new e-commerce vocabulary that businesses need to be aware of.
You see, your online store isn’t the only source of data. Your Facebook page, your Twitter account, and every place which drives traffic to your store or wherever you sell your products, is a source of data and opportunity to know more about your customers.
You’ve probably heard other businesses talking about key performance indicators (KPIs) and how they rely on them for measurement.
It’s therefore important to understand what KPIs are and how they differ from metrics.
Both metrics and KPIs are a form of measurement but a metric is the broader term. This means that a KPI is a kind of metric, one that’s often used to measure growth or the success (or failure) of an initiative.
Read These Are The Top 24 E-Commerce KPIs Every Business Needs To Know
For example, you can see the number of visitors to your site, but the KPI for your ads’ performance would be how many sales are achieved on your website.
First, let’s start with the vocabulary and metrics that relate to your website as a business.
This is the main page on your website. It’s what customers and visitors first see when they click your website on Google.
Your homepage should use easy-on-the-eye colors and should show what your brand name is, what your website does, and what you’re selling.
An e-commerce business with multiple categories can highlight the types of products they sell.
Your landing page can be your homepage. But it can also be another page.
Let’s say you’ve created an ad on Facebook. When people click the ad they go to a page, this page is called the landing page.
For e-commerce businesses, the landing page can be a page that directs to a specific product or category of products or that sends customers to a specific discount.
For software-as-a-service (SaaS) and B2B businesses, the landing page usually serves to highlight a specific offer or request for emails in exchange for a lead magnet. In some cases, a business would like their customers to fill a survey so they’d use a landing page for that purpose.
Traffic is the number of people that come to your website, whether organically or through paid ads.
The traffic source, on the other hand, is ‘where’ these people are coming from. Are they coming from Facebook, Twitter, or Instagram? Or are they coming from Google search? Or are they being referred by someone or another page on your website.
When you run an ad that requires people to click, the ratio of clicks coming from that ad are your click-through-rate. It shows the number of people who clicked on your ad or link and arrived at your site.
The CTR also applies to your emails. If you use email marketing to drive traffic to your site, an important and effective measurement would be the CTR of your emails.
The CTR results in a percentage. For example, the CTR from your email list is 1.5%.
When people come to your website, whether through Facebook or Google or any other platform, do they stay on the site and go through its pages? Or do they leave?
If visitors land on your page and don’t find what they are looking for and leave, then this is the bounce rate. The bounce rate results in a percentage. And unlike other rates, a high bounce rate is bad thing!
Try to keep your bounce rate below 70%.
This is the action your visitors take when they come to your website or online store.
For some businesses, a CTA would be ‘learn more’ or ‘buy now’ or ‘click here for more info.’ For e-commerce stores, a popular CTA would be ‘add to cart,’ ‘visit cart,’ and ‘checkout.’
Calls-to-action are all over the internet and social media. Any post you do, needs a CTA to tell the visitor what to do.
Here’s an example from Convertedin’s homepage
This section offers general and business-related terminology. Not all of them apply to e-commerce businesses but are worth going through.
A lead is a person who is interested in your service or product.
A visitor who comes to your website for the first time is a lead. Why? Because something about what they saw (your ad or they searched Google for ‘red fur stilettos’ and your site popped up) caught their eye and got them interested. So they clicked your online store to explore.
That said, not all leads are ‘qualified leads’ and not all of them translate into ‘conversions.’
A lead is any person who indicates interest in a company’s product or service in some way or form. A qualified lead is a person who has bigger potential of buying from you than others.
The term ‘lead’ is often used by SaaS businesses rather than e-commerce stores, with the latter using traffic and conversions instead.
Lead generation is the means of attracting leads. This usually doesn’t apply to e-commerce businesses and is often the case for SaaS companies and larger businesses.
That said, some larger e-commerce stores, like an online furniture store, can use lead generation (also called lead gen) to attract customers and get them to give them their email.
The top methods for lead generation include: blog posts, e-books, whitepapers, coupons, live events, and whitepapers.
This is where businesses attempt to drive demand for their services and products. The demand generation process is generally part of the business’s entire marketing process or strategy.
LinkedIn’s sales and marketing blog explains the difference between lead generation and demand generation as:
“Demand generation is the process of getting people interested in what you have to sell (creating demand); lead generation is the task of turning that interest into names and contact details (leads) that you or your sales teams can follow up with.”
LinkedIn sales and marketing blog
“Churn is the measure of how many customers stop using a product. This can be measured based on actual usage or failure to renew (when the product is sold using a subscription model),” explains Product Plan.
Churn is most often associated with online and subscription-based SaaS businesses rather than e-commerce ones.
Remember those people who ended their subscription? The rate in which these people are leaving is called a churn rate and it’s measurable.
You can measure the churn rate by dividing the number of total customers lost in a specific period (for example a quarter) by the total of customers at the beginning of that period. The result is the percentage which is the churn rate.
The churn rate also called ‘churn’ is more often calculated for subscription-based businesses. It’s not among the most commonly-touted e-commerce metrics but it’s worth noting in your arsenal of e-commerce vocabulary.
Now let’s talk about your customers and the terms associated with them. This list includes some customer-related terminology. More e-commerce-focused terms are available in the next section.
If you’re running an ad to attract customers, the process is called customer acquisition.
These customers have transformed from merely surfing your site or being aware of your brand to actual buyers.
There are several customer acquisition metrics to consider including the average customer acquisition cost.
Once you acquire a customer, you want to retain them. A retained customer is one that keeps coming back to your store and in time they become a loyal customer.
According to the book Marketing Metrics, existing (retained) customers are 60% to 70% more likely to buy your products than new ones. The chances of selling to a new customer drops to 5% to 20%.
Referrals are people who are referred to your store through others such as friends or family.
Imagine your customer Mark referring their friend Joan to your store. That’s a referral. And referral marketing, also known as word-of-mouth marketing, is a strong and cost-effective marketing tactic that you can use.
Many e-commerce businesses create referral programs inside their stores to get their current customers to refer others in exchange for some benefits.
We’ve mentioned what ‘leads’ are. The second part of the equation is ‘conversions.’ These are the people who move from being interested people or businesses to potential buyers.
Most businesses and people think of ‘conversions’ as sales. But they are more than that. A conversion can be a phone call from an interested buyer or a response to an email that results in a proposal or a ‘next step’ in the buying process.
Conversions can also be those potential customers who click on your Facebook ad. They are interested in what you have to offer and are expressing more interest in your service or product.
As an e-commerce business, you want to sell your products to customers. But there are two well-known e-commerce marketing tactics you need to know: Upselling and Cross-selling.
Upselling is convincing your customer to buy a higher-value item than the one they’re currently buying or considering.
An example of upselling would be showing your customer, who’s interested in a $200-pair of sneakers, another pair worth $250.
Cross-selling is convincing your customer to buy something extra, like a related product, to what they are currently buying.
An example of cross-selling is if your customer, who wants to buy a $200 pair of sneakers, gets a message saying “Customers who bought this pair of sneakers, also purchased two pairs of socks.”
Another example would be a customer wanting to buy a hair dryer and seeing a hair comb.
Cross-selling usually occurs with products that customers would have normally purchased at some point. As a tactic, cross-selling helps businesses increase their sales. It also helps customers see products they may not have been aware were available in your product catalog.
Though cross-selling is a common e-commerce tactic, it’s now used across multiple industries including bank and insurance companies.
E-commerce marketing is the process of creating awareness and driving customers to complete a purchase online.
it is what online businesses, like you, are doing to attract and retain customers and grow their sales.
E-commerce automation is software that helps e-commerce stores with their online processes in a way that saves them time, effort, or money.
Marketing automation is part of e-commerce automation as it focuses on automating marketing processes including ads automation.
Convertedin works in marketing automation as it takes away the hassle of creating lookalike audiences for your online store, segments your customers and targets them through ads.
Further reading: Marketing Automation for Agencies: What Do You Need To Automate?
If you have an online store with a number of products, you can use Convertedin to segment your customers and create audiences based on the people who come to your website or store. It will then create ads for them and target them for you, which saves you time and hard work.
Dropshipping or drop-shipping is the process of shipping goods or products “from a manufacturer or wholesaler directly to a customer instead of to the retailer who took the order,” according to a definition from the Merriam-Webster.
In other words, the retailer doesn’t keep or store the products they are selling.
“When a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly,” explains Shopify.
In other words, the retailer or seller buys the inventory they need (or when they get an order for it) from a third party, like a manufacturer or wholesaler. The seller then ships the order or product directly from that third party.
These are the types of audiences businesses sell to. There are many such types but for the purpose of this article, which focuses on e-commerce vocabulary, we’ll focus on the above three.
B2B means business-to-business. This means that a company sells its products to another company. When Microsoft sells its products to Xerox or Hewlett-Packard, this is a B2B situation.
B2C means business-to-consumer. An example would be retailers and supermarkets. The business, which is the supermarket, sells to consumers.
Wholesalers are both B2B and B2C. Although some may just be B2B, opting to sell to other businesses and avoiding working with consumers.
B2B2C is an advanced form of B2B. This type of business sells to another business, and the latter sells to a consumer.
A sales methodology used by businesses, BANT stands for Budget, Authority, Need and Timeline.
Brands use the BANT equation to see if the leads they are getting are qualified leads.
“BANT is a sales qualification methodology that lets salespeople determine whether a prospect is a good fit based on their budget, internal influence/ability to buy, need for the product, and purchase timeline,” explains HubSpot.
A sales cycle is a number of actions or stages that salespeople go through or follow to close a deal.
The sales cycle is not the same as a sales methodology, which is the bigger picture. A sales methodology is a framework that involves executing the sales cycle.
Now that we’ve covered the most commonly-used e-commerce vocabulary, it’s time to move onto the metrics.
Some of the following are e-commerce-specific metrics, while others are just marketing metrics but that can be used by online businesses.
ROI stands for return on investment. It’s a metric that measures the performance of your investment.
For example, if you invest in software for $200 a month, measuring the effectiveness of this investment over a period of time, translates into ROI.
ROI is different from return on ad spend (ROAS), which we’ll get to in a second.
ROAS stands for return on ad spend. It’s used to measure how well your ads are performing compared to how much you’re spending.
By calculating ROAS, also known as the ROAS formula, you’ll be able to measure and decide if you’re getting a bang for your buck – or if you’re wasting money.
Average order value (AOV) is the average amount a customer spends at your store every time they come in.
To calculate your store’s AOV, divide your total revenue by the number of orders you have in a given month, quarter, or year. AOV can be for any time frame.
The average basket size is the number of items you sell in a single purchase.
To calculate the average basket size of your business, you’ll need to divide the number of units or items sold by the number of invoices you have.
It’s important to remember that AOV measures the amount of money, while the average basket size focuses on items sold.
Customer lifetime value (CLV or CLTV) measures the length of your business relationship with a customer.
It also helps you estimate how much you’re generating from a customer during the length of their relationship with you.
CLV is helps businesses in general to make money-related decisions such as how much to invest on customer acquisition and customer retention.
The conversion rate, sometimes abbreviated to CR, is the percentage of visitors who come to your online store and complete a desired action such as making a purchase, opting into an email newsletter, or even calling your business.
To calculate the conversion rate, you’ll need to divide the number of conversions by the number of visitors and then multiply the result by 100 to get the percentage.
Businesses generate revenue. But the annual recurring revenue (ARR) is a metric used mostly by subscription-based businesses.
ARR helps businesses see the money they generate annually for the length of the subscription they have with a customer.
The Corporate Finance Institute defines ARR as “revenue, normalized on an annual basis, that a company expects to receive from its customers for providing them with products or services. Essentially, annual recurring revenue is a metric of predictable and recurring revenue generated by customers within a year.”
The retention rate used to measure the percentage of customers you have retained over a period of time.
The retention rate can be used across multiple industries and fields but is an important e-commerce metric that helps businesses see how many customers they’ve successfully retained during a given period.
One of the most important e-commerce metrics is the shopping cart abandonment rate. It measures the percentage of shoppers who have added items to their cart but didn’t complete their purchase.
The people who add products to their cart but don’t buy are considered window shoppers, or virtual window shoppers for e-commerce businesses. They’re considering the purchase but are unable to make up their mind.
Data by Barilliance shows that 78% of buyers abandon their carts. This percentage differs from one industry to another. For general retail, the cart abandonment rate stands at 72.8%, whereas for fashion, the rate is roughly 68.3%.
Returned products are a business’s nightmare, but even worse are refunds.
The return rate measures the percentage of customers who bought a product and returned it.
Data from Narvar and Return Magic Survey shows that 41% of shoppers buy product variations with the intent to return the items they bought. Moreover, 42% of buyers returned an online purchase within a six-month period, while 89% returned an online purchase between 2015 and 2018.
As an online store, e-commerce metrics like the return rate and refund rate can help you understand what your customers looking for and why they are choosing to return products they bought from you.
A tip: Explain your return and refund policies on your websites because research by Walter Sands found that free returns or exchanges ranked second in the reasons consumers considered when shopping online.
We’ve mentioned how a first-time customer moves from awareness to making the decision to buy, making them an acquired customer.
The process of calculating the cost associated with this customer’s acquisition is called customer acquisition cost (CAC).
It’s important for a business to calculate its CAC because it shows them how much they are spending to acquire new customers.
If a store pays $50 to acquire a customer who spends only $20, then be sure that this store is making a big loss.
It’s worth mentioning that the average customer acquisition cost in e-commerce differs from other industries. So, businesses need to consider what their industry average is.
The Compound annual growth rate (CAGR) measures the annual growth rate of an investment over a specific period of time that usually extends over one year.
CAGR is “one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time,” explains Investopedia.
The compound annual growth rate helps investors and businesses understand what they will have or get at the end of their investment period.
The Net Promoter Score (NPS) “measures customer experience and predicts business growth,” explains netpromoter.com.
NPS helps businesses measure their customers’ perception of their brands.
As an e-commerce store, social media likely plays a major role in awareness, branding, and, of course, selling your products.
In this section, we’re moving away from e-commerce metrics and vocabulary and focusing more on digital marketing and social media-related terminology.
Google Analytics is possibly the most widespread analytics tool on the internet and across the globe.
Why? Because it’s free and it’s by Google. To activate Google Analytics, you’ll want to embed the Google Analytics code into your website.
Google will then start tracking data like traffic, bounce rate, number of unique and regular visitors, average time spent on a page and more.
You can even compare different periods of time to see how they fared. Like comparing the first week of April 2021 with the first week of April 2020. You can also compare whole months, quarters, and years.
However, the data only becomes available once the code is embedded into your website. Before that, Google wouldn’t have access.
This is an advertising service by Google. It helps businesses set a budget and run ads. Google AdWords allows businesses to determine which keywords they are likely to rank for when creating content or Google Ads.
It’s also a Search Engine Optimization (SEO) tool.
As for Google Ads: You know those search results that appear at the top of a Google search with the word ‘Ad’ next to them? These are ads created by businesses to promote their products, services, or even blog posts on Google.
Another method of measuring store visits, traffic, clicks, and other metrics is the Facebook Pixel. This works with businesses who have a store or page on Facebook and use it to direct customers to their website.
The pixel also tracks “user-generated events, such as sites visited, products added to cart, checkouts initiated and purchases made. So much as submitting a lead form on a website with a pixel gets thrown into the mix,” says Adage.com.
A Facebook product catalog is a catalog of products or services available in your store. You either have a website and you upload your product catalog to Facebook or you’re using the catalog directly on Facebook.
Most businesses use the Facebook product catalog in order to create dynamic ads that direct customers to their e-commerce store.
We’ll touch up on dynamic audiences and ads in a minute.
Advertising on Facebook offers businesses a variety of ad options and targeting methods. One of those is the Custom Audiences feature, which “lets you find your existing audiences among people who are on Facebook.” This is how Facebook explains it.
The Facebook Custom Audience are those people you know and who, in turn, know you and your business.
To use custom audiences, you’ll need to upload information like customer lists and website and mobile app traffic on Facebook to create a custom audience.
Another audience type on Facebook is the Lookalike Audience.
This audience type is similar to your current audiences.
Lookalike audiences are your way of asking Facebook to show your ad to people who similar to your current audiences.
For example: John likes red sweaters so Facebook will show your sweater ads to people who are similar to John.
The last audience type is the Dynamic Audience.
The Dynamic audience can only be used by stores or businesses who have uploaded their list of products or services to the Facebook Product Catalog.
If you haven’t done the Facebook Product Catalog step, then you can’t create a dynamic audience or use dynamic ads.
The Dynamic audience is specifically used to create dynamic ads.
When you create ads, you’ll need to notice their frequency. That’s the number of times your ad appears to your customers.
Do customers your see your ads once a day for 7 days or 3 times a day for 2 weeks. Managing ads frequency differs from one platform to another.
In the past, Facebook allowed advertisers to control their ad frequency. But it no longer does that. There are now other ways to look at your Facebook ad frequency and determine when your ad is no longer effective.
If you’re an e-commerce business who’s using e-mail marketing as part of your online marketing mix, then here are a few more terms and metrics you need to know.
These terms are generic and not limited to e-commerce business. But the metrics will give you a general idea about what to expect if and when you embark on this form of advertising.
This is a form of marketing that relies on emails through email automation platforms such as ActiveCampaign, HubSpot, MailChimp, GetResponse, among others.
Did you know that email marketing has an average ROI of around $38 for each $1 spent? (Source)
There are also over 5.6 billion active email accounts worldwide. Of these, around 3.9 billion are checked each day! (Source)
If you’re using emails to market your services and products to customers then you need to be aware of the email opt-in rate.
The email opt-in rate is the percentage of people who have signed up to your email list (or newsletter) in a given period of time.
As its name suggests, the email open rate is the percentage of people who opened your email.
This percentage differs from one industry to another but the general average is 15% to 25%, according to CampaignMonitor.
When it comes to measurement, there are few points and ideas to consider.
You should first know ‘what’ you want to measure.
It can be a list. But make sure what you’re measuring is relevant to your business and translates into actual data that you can use to enhance your website, your ads, or your designs.
You’ve seen the list of e-commerce metrics and relevant e-commerce vocabulary, go through them again and decide what you’re going to measure.
Once you’ve picked a few, decide ‘how often’ you’re going to measure these items.
Power up your performance and learn more about your customers through these 34 e-commerce quotes by industry experts
Are you going to measure the traffic on your website and your conversion rate daily? Or weekly or monthly? Maybe even quarterly or annually?
Perhaps you’d like to measure them based on ad campaigns you’re running – which would be a good idea to see how well your ads are performing.
Once you know the ‘what’ and the ‘how often,’ decide on the ‘how.’
How are you going to measure this data? Are you going to rely on clicks or your CTR, impressions, engagements, shares?
If you’re using email marketing, you’ll need to look at more than one metric to measure the effectiveness of your email campaign. For example, email open rates are an important metric but opens without clicks means something is wrong.
These are lots of questions to consider and take in, yes. But they will help you understand and decide what’s useful for you and what isn’t.
It’s important to note that the bigger your business becomes the more metrics you’re likely to consider.
If you’re just starting out or you’re considering an e-commerce business, you now have a good number of terms and e-commerce metrics in your arsenal.
If you already have a business, then you may have gotten few ideas about metrics you’d like to try out or measure.
The e-commerce industry is growing more rapidly now than it ever was before.
“In June 2020, global retail e-commerce traffic stood at a record 22 billion monthly visits, with demand being exceptionally high for every-day items such as groceries, clothing, but also retail tech items,” Statista reports.
With more people staying at home across the world and more businesses growing their online presence, competition is going to get tougher but there will be more opportunities as well.
Moreover, data from IBM’s U.S. Retail Index indicates that the pandemic has fuelled physical stores’ shift to online by 5 years.
New shopping habits as well as the increase in the number of online marketplaces are but a few of the e-commerce trends for 2021.
As an e-commerce business, you should remember that you have a target. Terminology, tools, and metrics are all means to achieve that target.
Got questions? Come across terms not on this list but that you’d like to learn more about? Tell us in the comments.