In the latest in our series of 'all you needed to know but were too afraid to ask', Stuart Kerr offers guidance on monitoring e-commerce financials and performance
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This article was first published in the April 2018 UK edition of Accounting and Business magazine.
Accountants are used to the close monitoring of financial/performance-related metrics as part of their job. With the digital economy and e-commerce becoming a bigger part of companies’ revenue every year, web analytics software lets accountants easily access some metrics that lie just behind the more familiar ones and can help explain what a business is doing right or wrong online.
The right data
To start with, it is important to ensure you are looking at the correct numbers. Web analytics packages work by adding a tracking script to each load of a web page (that is, each time a user visits that page) and to certain interactive page events (such as changing an option on a product). If this script is loaded more than once – or not at all – or is reporting incorrect data, the basis for all your assumptions will be incorrect.
You also need to ensure your traffic sources are tagged correctly. To be able to calculate return on investment for a paid search advertising campaign versus a social media campaign, for example, you need to be able to correctly identify and split out users and sales from the two sources.
If you have any doubts about your data, an e-commerce consultant can relatively easily examine your site and let you know.
It’s all about conversion rate (the percentage of website visitors who buy something on the site). Simply put, the conversion rate is the number of sales divided by unique visitors to your website. A higher conversion rate is obviously better.
Conversion rates vary according to industry and time of year (even the weather can have an impact), but generally if your web team is doing a good job, you should expect to see this rate improving. If not, questions need to be asked.
Note that revenue can still rise even as the conversion rate falls; this happens when more traffic is coming to the site. However, acquiring more traffic will almost always cost money in some form. Conversion rate is therefore a good overall metric, as it measures how effective your website is as a sales tool.
Most analytics packages will allow you to split out your conversion rate by country, device (desktop computer, mobile phone, tablet, etc), traffic source and many other aspects. By doing so, it allows you to identify issues with, say, a particular traffic source that isn’t converting as well as others.
This leads us on to attribution – deciding which traffic source gets credited with the sale. Most analytics packages will default to ‘last touch’, whereby 100% of the value of a sale is attributed to the last channel that sent the purchaser to the site.
In the modern world of online retail though, things are rarely that simple. A customer may first arrive at your website through a pay-per-click advert on a search engine, then come back through a post on social media, before finally converting after going through a cashback website. Is it right that the whole value of that sale is assigned to the cashback site? Probably not, but it’s difficult to tell at precisely which point the customer decided on the purchase. There are several different models and technological solutions to track and attribute value across the entire customer journey.
Similar to conversion rate, another metric that can indicate how good a job your website is doing is its bounce rate. This figure tells you the percentage of people who landed on a page of your website but took no further action – they either closed the browser or went back to the search results.
While a bounce can sometimes mean that the user found what they were looking for on the page they visited and then went about the rest of their business, in the case of e-commerce the goal is to turn the visitor into a customer by making a purchase – and that isn’t something that will generally happen if they leave the website without any further interaction.
Again, while bounce rates vary by industry, traffic source and so on, as a mark of improvement you would hope to see the rate decreasing compared with a previous period; that would indicate that your web team is doing a good job in providing your customers with what they are looking for.
Conversion rate, attribution and bounce rate are just some of the key metrics reported on in analytics, but there are many more. If your analytics platform is properly configured, it can report on aspects including customer lifetime value, site loading speed, customer demographics and a great deal more. You’d be surprised at the value that one little tag on your website can provide.
Most analytics packages will also let you set up alerts to automatically notify you should your conversion rate plummet or your bounce rate skyrocket – something that could, for example, mean there is a technical problem with your website. While IT and technical teams should be keeping an eye on these things, often this is not the case.
Digital analytics is a growing field, and many larger organisations now have whole teams to monitor the metrics that the site generates. But when looking at revenue and return on investment, digging below the surface can really help to explain the overall online financials.
Stuart Kerr is managing director of HighPoint Digital
CPD technical article
"A plummeting conversion rate or skyrocketing bounce rate could mean there is a technical problem with your website"