Growing a successful e-commerce business must be a data-driven venture. The key is identifying and acting upon the right metrics.
We live in an age where statistics and graphs can be surfaced and manipulated in an instant. E-commerce businesses have access to a wide range of figures available at the click of a button. That said, not all of these numbers are created equal. There is a distinct difference between vanity metrics and actionable metrics.
Vanity metrics are data points that may seem to tell an interesting story, but they are not directly tied to conclusive, useful ends. Social media followers, customer totals, and page views are classic examples of vanity metrics.
Conversely, actionable metrics are just that – actionable. They provide real value in that they can help your business take steps to grow, market, and self-correct. What’s more, these types of data can help you set and track critical goals. Net profits per transaction, revenue fluctuations over time, and sales conversion rates are all actionable metrics.
When examining your business’s data, it is essential to ensure that you are basing the most important decisions on actionable data rather than succumbing to attractive – but significantly less useful – vanity metrics.
How to Distinguish Between a Vanity Metric and an Actionable Metric
There are some simple factors that you can use as a litmus test to determine if a particular metric is of the vanity or actionable variety.
- Reliability – When it comes to data, the numbers you are relying on to make vital business decisions should be coming from sources and tools that you trust. In the world of e-commerce, developing reliable internal data collecting, tracking, and monitoring procedures is a must.
Ultimately, when the data is trustworthy, it opens up new pathways for generating actionable steps and leveraging powerful business intelligence tools; when the data is flawed or insignificant, you increase the likelihood of being led astray by vanity metrics.
Taking advantage of a comprehensive, omnichannel growth platform – rather than a patchwork collection of tools and apps – can increase your data reliability. With this type of unified infrastructure, you can pool and compare valuable sales and fulfillment data across all of the channels where you sell while also monitoring your end-to-end inventory and logistical efficiency from a single interface.
- Context – Numbers can paint a much prettier or gloomier picture depending upon how they are framed. For instance, increasing your ad conversion rate by 200% month-over-month might seem impressive, but if last month saw only a single ad conversion, that 200% number suddenly only represents 3 total sales. On the other hand, a 1% decrease in sales volume month-over-month is far less worrisome when the months in question are tied to a predictable post-holiday dip from December to January. Always pay attention to context when assessing a metric’s value.
- Reproducibility – One-off spikes or dips in your e-commerce sales performance are worth paying attention to, but these types of statistical outliers aren’t actionable unless you have the ability to identify and recreate the specific conditions that made them happen in the first place. Reproducibility is a defining characteristic of actionable metrics. After all, you can’t take meaningful steps to address an outcome that you don’t fully control and/or understand.
Ultimately, vanity metrics leave you without any clear path forward. They may look nice on paper, but they usually aren’t correlated to the most important elements of e-commerce success.
This is not to say that vanity metrics are entirely devoid of value. For example, data points like ad views, social media followers, and listing traffic can surface fluctuations in brand and product visibility. However, these figures should take a back seat to related but more significant metrics like ad clicks and sales conversions that are significantly more actionable by definition.
While some vanity metrics may identify an essential first step toward actionable ones (e.g., a customer must visit your listing before making a purchase) your decision making should almost always be focused on the figures that most directly correlate to your bottom line. Actionable metrics can and should inform your business decisions.
Use Actionable Metrics to Create and Track Your E-Commerce Growth Goals
So what are the numbers that e-commerce brands should be focusing on? Some of the most important actionable metrics to watch include:
- Cost of Goods Sold (COGS) – To maximize your profits, it is critical to know exactly how much it is costing you to sell a product. COGS is a time-based metric that takes into account all of the expenses associated with the inventory you sell: supply costs, labor, warehousing, shipping, etc. Finding ways to minimize your COGS (without sacrificing service or product quality) can help optimize your revenue streams.
- Total Orders – While vanity trends in social media interactions or page views may seem exciting, at the end of the day, e-commerce is about sales conversions. Tracking your total orders is one of the most important barometers for an e-commerce brand. Drilling down deeper with specifics like orders per customer, orders per channel, and orders over time can provide actionable data to help identify opportunities for growth.
- Profit and Loss (P&L) – By definition, P&L is a summary of the costs, revenues, and expenses over a specified period. It is a common, actionable metric for testing how business decisions are impacting a business’s overall profitability.
Sellercloud allows you to track P&L with summaries of transitions based on a variety of different criteria including date, date ranges, channel, company, manufacturer, product type, and product vendor.
- Inventory Turnover Ratio (ITR) – Your ITR is the ratio of your COGS to your average inventory value. A low ITR indicates slow-moving stock and high-carrying costs. A high ITR can be a sign that you aren’t carrying enough inventory to keep up with demand. Every e-commerce business needs to establish their own ITR “sweet spot.” As such, ITR is the definition of an actionable metric. For more, check out our guide to calculating ITR and several other actionable, inventory-related metrics.
- Customer Service Statistics – Paying attention to the root causes of customer dissatisfaction can help you get to the bottom of issues that are negatively impacting your customer service metrics. Customer response time, Order Defect Rate, and RMA statistics, can all serve as actionable metrics to track and improve your brand’s reliability and customer satisfaction.
We at Sellercloud know how important actionable metrics like these are in supporting e-commerce growth. These types of data bring your brand’s true strengths and weaknesses to the surface, giving you the support you need to make meaningful growth-focused decisions that lead to positive results. Whether it’s establishing S.M.A.R.T. goals (goals that are specific, measurable, achievable, relevant, and time bound) and tracking progress or refreshing your inventory management workflows, actionable data must lead the way.
Contact us directly for a free demo of how Sellercloud can help you track your own actionable metrics and make the most out of them.