The most important metric in ecommerce

No, it’s not conversion rate

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They call the practice conversion rate optimization, but that’s not really the whole picture. Conversion rate isn’t the only thing you want to optimize.

ARPU, or average revenue per user, is generally the most important metric for online stores. ARPU is calculated using a blend of two metrics: average order value (or AOV for short) and conversion rate. Put another way:

• If a higher share of people places orders at the same value, your conversion rate goes up, and your average revenue per user goes up.
• If the same share of people places orders, but they spend more per order, your conversion rate stays the same, but your average order value goes up, and your average revenue per user goes up as well.

Both conversion rate and AOV matter:

• Conversion rate matters because it’s a leading indicator of the health of the business. If people are coming to the store and not buying, something needs to be changed in the store.
• AOV matters because it takes a lot of effort to get someone to convert – and if you can get someone to convert at a higher value, then you might be able to capture more profit as well. As a result, upsells, subscriptions, and upgrades become of significant importance.

And most importantly, you can have a flat conversion rate, increased AOV, and still end up with significantly higher profit. So why do people call it “conversion rate optimization” if the actual goal is to work more holistically and increase the business’s profit? (The real answer is to call it simply “optimization” – or “value-based design” if you want to score points with us.)

The takeaway from this is that you should always think of more blended, subtle metrics that map to your own business’s needs. For example, if you run a subscription business, blending customer lifetime value (LTV) & conversion rate (CVR) is another good way to measure success – and calculating lifetime value is a factor of monthly recurring revenue and churn rate.

ARPU makes the most amount of sense for online stores because you usually have a consistent stream of visitors, some of whom place orders with you. And when they do place an order, they spend a certain amount of money in the process.

Google Analytics offers a similar metric called Per Session Value which is somewhat comparable to ARPU. If you’re just getting started, this may be a good place to begin.

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If you want to go a little deeper on ecommerce metrics, focus on reorder rate, upsell rate, and subscription percentage as a share of overall orders. All of these metrics matter, especially when you’re trying to win back customers.

About the Author

Nick Disabato is the founder of Draft, “making the numbers go up in a way that is hopefully not gross since 2012.” You can take a look at Draft’s recent work at https://draft.nu.

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Hero photo by Markus Winkler on Unsplash