The number of eCommerce marketing tools available at hand today and the possibilities they’re offering might be overwhelming for everyone who owns a dropshipping business, regardless of them being new or experienced in the field. Today’s business owners are provided with endless options and ways to measure their store’s traffic and track how their marketing efforts are performing. So, sometimes, it can be hard to pick out the most important dropshipping KPIs to focus on. All of the data that’s collected on your store can be a treasure when it comes to measuring the health and progress of your dropshipping store. It can show how you get traffic on your website and how your customers are behaving when they visit your store. These details can enable you to make informed decisions on improving your store’s performance thus increasing your sales.
To put it simply, if you aren’t tracking your performance based on the data that’s being collected on your dropshipping business, you can end up missing out on the opportunity to measure how well your strategies are working. Although most dropshipping business owners are utilizing the data that they’re collecting, there are still some that are missing out on this valuable information. In fact, studies show that up to 73% of data that is collected by companies goes unused for analytics. It’s important to know that, if you don’t read, understand, and apply the data you’ve collected properly, it can cost your business vast amounts in the long run. It can result in lower efficiency, lost business opportunities, and future issues with unhappy customers.
In this article, you’ll be introduced to the most essential dropshipping KPIs that you should be measuring, analyzing, and implementing in order to drive your store to success.
What are KPIs?
KPIs are Key Performance Indicators are a set of quantifiable measurements used to measure and represent the business’ overall performance in the long run. They help to determine the strategic and financial achievements and progress of your dropshipping business over time. KPIs can be viewed as milestones that help you identify and track the progress of your sales, marketing, or customer service goals. There are many types of dropshipping KPIs that you can measure, but they can be grouped into the following main categories:
- Customer service.
What makes a good KPI?
When you’re using tools like Google Analytics, you’re flooded with a wide range of different metrics that you can track for your dropshipping business. However, it’s crucial to keep in mind that not all of these are equally important, and not always everything counts. First, you’ll have to identify which metrics bring you value. In order to do so, you need to look at the main characteristics a KPI needs in order to provide actionable insights for you. These characteristics are the following:
- They should have an impact on your bottom-line and help you achieve your end-goals;
- They can be measured accurately over time;
- They can be accessed in a timely manner so you can track your progress in real-time;
- They should result in actionable improvements that you can implement.
In the next section, the most vital dropshipping KPIs will be explained in detail to help you decide which ones you should be tracking and keeping an eye on during 2022.
What are the most important dropshipping KPIs you need to track?
Now that you have an understanding of the nature of KPIs and the ways they can benefit your business, you’re surely wondering which are the ones you need to focus on.
Site traffic refers to the number of visitors your dropshipping store is capable of attracting. It’s helpful in measuring how appealing your website and business are for your potential customers. Naturally, the higher the number of visitors, the bigger your chances to turn them into paying customers and make a profit. For this reason, when you’re operating a dropshipping business, it’s highly important to work on improving your site traffic. The overall number of visitors might be a piece of crucial information, but it also holds other valuable clues, such as:
- Traffic source – it refers to where your visitors are coming from to your website or how do they find it. There’s a wide range of traffic sources that can drive visitors to your store’s website like direct and organic traffic. Additionally, there’s the traffic that comes through email marketing, influencer marketing, and social media platforms.
- Sales by traffic source – it serves as an indicator of how valuable a traffic source is for your business. It’ll allow you to reevaluate your marketing strategy while knowing which marketing channels and investments are bringing you the best results.
The most accurate tools for measuring and analyzing your store’s traffic are Google Search Console and Google Analytics. In these platforms, you can segment your sources of traffic into direct, paid, and organic categories or you can also segment by the type of device used to view your website. As mCommerce is becoming more and more relevant, it’s important to evaluate which device type drives the highest number of visitors and sales to your dropshipping store.
Although knowing how much traffic you’re driving to your store’s website is an important dropshipping KPI, it’s also vital to monitor how many of these visits are resulting in actual sales. Your conversion rate will show you the percentage of visitors that you manage to turn into paying customers on your website. Calculating your conversion rate is relatively easy, you’ll only have to divide the total number of visitors by the total number of buyers. If you’re using Google Analytics for tracking your dropshipping KPIs, the conversion rate will be automatically included in your report, and you can set up goals and events to measure it.
Tracking and monitoring are inevitable when it comes to understanding how your visitors are reacting to your dropshipping store and the products you’re selling. When you have a high number of visitors but a low conversion rate, it indicates that consumers are generally interested in what you have to offer but for some reason, they bounce and don’t make a purchase. Having data on your conversion rate over time will help you identify the reasons why you have a low number of sales despite the high number of visitors on your website.
By going deeper into measuring your conversion rate, you can not only set events that will look at the total numbers but you can also set ones that will allow you to calculate your conversion rate for each traffic source you have. Try to compare different sources of traffic not only based on the number of visitors they are driving to your dropshipping store but also based on how likely these visitors are converting.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost shows how much money it costs to turn a visitor into a customer. Oftentimes, acquiring a customer isn’t free as you have to spend time and money on your marketing strategies, whether they’re organic or paid. This is yet another dropshipping KPI that you’ll need to keep your eyes on as it shows you how effective your marketing campaigns are.
Formula for Customer Acquisition Cost (CAC)
Your Customer Acquisition Cost can be calculated with the following formula:
- CAC = Total cost of marketing / Total number of customers
Similarly to the conversion rate, CAC can be calculated not only for your overall marketing spend, but also your spend on each channel you’re using. This way, you can reveal the cheapest and most effective marketing channels that you can use to win customers.
Your total sales refer to the number of sales you’re making during a given time period. This is simply the number of units sold multiplied by the sales price of each product. The total sales amount is an important metric as it’ll serve as an indicator of the overall performance and growth of your dropshipping business. Also, it’s important to keep track of the periods when you are experiencing spikes and drops in your total sales. Understanding the reasons behind these can highlight opportunities that you can exploit by concentrating on improving your marketing strategies during times when your store’s performance drops.
Cart abandonment rate
Cart abandonment is a natural consequence of how people are browsing and shopping online. Adding items to a cart but not going through with the purchase can help consumers to compare the prices of products and shipping fees. Cart abandonment is an important dropshipping KPI to track for every dropshipper, as it directly affects the profits one is making with their store.
Formula for Cart Abandonment Rate
To calculate your Cart Abandonment Rate use the following formula:
- Cart Abandonment Rate = (Number of paying customers / Number of customers who added items to the shopping cart) * 100%
Although it’s relatively easy to calculate, it’s not always straightforward to understand why it’s happening. If you want to understand the reasons behind this, read more about the main driving forces for cart abandonment and ways to reduce them.
Average Order Value
The Average Order Value (AOV) is another dropshipping KPI that you’ll need to track in order to understand how your business is generating your income. This metric tracks the average spend per transaction performed in your store.
Formula for Average Order Value
Calculating the Average Order Value is simple with the following formula:
- AOV = Total Revenue / Number of Orders
When tracking your AOV, you’ll be able to see how much value each converted customer is bringing to your business. This will allow you to set reasonable goals regarding the future growth of your business. Also, when thinking about ways to increase your revenue, you have to consider ways to increase your AOV instead of increasing the number of paying customers.
Customer Lifetime Value
Customer Lifetime Value (CLV) is the dropshipping KPI that will show how much revenue you can expect from your customers throughout the relationship you’re having with them. Your CLV will depend on the length of the relationship and the repetitiveness of the purchases a customer makes in your dropshipping store. Measuring and averaging the CLV of each customer is beneficial in understanding if you can rely on returning customers, or if they’re more likely to purchase a single time.
Formula for Customer Lifetime Value
To calculate CLV use the following formula:
- Customer Lifetime Value = Average Order Value * Average Frequency of Purchase
CLV can be increased in a number of ways, with the intention of making your customers happy and giving them a reason to return to your store.
Gross profit margin
Every business’ end goal is to generate profit, so your gross profit margin will be a key dropshipping KPI that you don’t want to lose sight of. Your gross profit margin will represent the percentage you’re making on your sales. Having a high gross profit margin isn’t only important for your income stream but it also gives you the opportunity to reinvest and grow your business further. When your gross profit margin is low, you’re likely to end up with cash flow problems that can result in shutting your business down.
Formula for Gross Profit Margin
Gross Profit Margin can be calculated with the following formula:
- GPM = (Net Sales – Cost of Goods Sold) / Net Sales
Understanding your customers’ demographics is a key KPI for your future marketing strategy. Most more advanced traffic tracking tools will allow you to collect several kinds of data about your visitors, such as their geolocation, their age range, their sex, and so on. This information then will help you to create or reevaluate the buying persona you’ll be using as an example. Having the right buying persona defined can help you to easily put yourself in the shoes of your prospective customers and think about ways your marketing efforts can attract them.
At first sight, KPIs might seem confusing and time-consuming to keep track of but be sure that the time and energy invested will pay off in the long run. Now you know which dropshipping KPIs are the most important, so you can easily start with tracking them first. Learning about the above-mentioned KPIs will help you to better understand your business and your customers, so you can make more informed decisions in the future. Also, they’ll help you to measure how successful your store is and provide you with actionable steps to continue your growth.