E-Commerce KPIs Explained
Today I learned a very important concept — KPI, which is a set of quantifiable measurements used to gauge a company's overall long-term performance. 📈
Most common areas where KPIs are used:
🛒 E-Commerce
🏦 Banking / Finance
💻 SaaS Platforms
I have gone through the most important KPIs used in these fields. Now I want to explain every KPI used in their respective areas.
🛍️ E-Commerce KPIs
Following are the important KPIs 👇
1. 📦 GMV (Gross Merchandise Value)
Total value of all goods sold on a platform — irrespective of whether payment was successful or not, or if returned or not.
Formula:
GMV = Total Orders × Average Order Value
or
GMV = SUM of (Quantity × Selling Price) for all orders
🧾 Example — Flipkart Big Billion Day Sales:
1 Lakh orders placed
Average Order Value — ₹2,000
GMV = 1,00,000 × ₹2,000 = ₹20 Crore 🎯
2. 💰 Net Revenue
The total income a company receives at the end — the amount received after deducting all expenses from GMV.
Formula:
Net Revenue = GMV - Returns - Discounts - Cancellations - Seller Commission
3. 🛒 AOV (Average Order Value)
Tells the average value of one order. This metric shows how much customers are spending per order.
Formula:
AOV = Total Revenue / Total Number of Orders
💼 Business Use Case: If a company wants to increase their AOV, they can offer free delivery on orders above ₹499 — or suggest a "Frequently Bought Together" section to push cart value higher.
📈 Methods to Increase AOV:
| Strategy | How it Works |
|---|---|
| 🔀 Cross-Sell | Suggest related products |
| ⬆️ Up-Sell | Push premium version of same product |
| 🎁 Bundling Offers | Combo deals at slight discount |
| 🚚 Raise Free Delivery Threshold | Encourage adding more to cart |
4. 🎯 Conversion Rate (CVR)
Tells how many visitors actually placed an order. A critical metric for any e-commerce business.
Formula:
CVR = (Total Orders / Total Visitors) × 100
📊 Industry Benchmarks:
2–4% → Normal ✅
5%+ → Excellent 🏆
5. 💸 Customer Acquisition Cost (CAC)
How much money is spent to bring one new customer — includes marketing, ads, promotions, etc.
Formula:
CAC = Total Marketing & Sales Spend / No. of New Customers Acquired
6. 🌟 LTV / CLV (Customer Lifetime Value)
The total revenue a customer can generate for a company throughout their lifetime as a buyer.
Formula:
LTV = AOV × Purchase Frequency × Customer Lifespan
⚖️ Industry Benchmark — The Golden Ratio:
LTV : CAC ≥ 3 : 1 🏅
⚠️ If LTV = CAC, the company is likely heading towards bankruptcy.
7. 🛒😬 Cart Abandonment Rate
How many people added items to cart but never checked out. A very painful metric for any business.
Formula:
CAR = (1 - Orders Completed / Carts Created) × 100
📊 Industry Benchmark:
- ~70% abandonment rate is considered normal 😅
8. 🔁 Repeat Purchase Rate / Retention Rate
A high repeat rate indicates loyal customers and a healthy business — more customers are coming back to buy again.
Formula:
Retention Rate = (Customers Who Bought More Than Once / Total Customers) × 100
9. 📦↩️ Return Rate
A high return rate signals a problem with product quality or unmet customer expectations.
Formula:
Return Rate = (Returned Orders / Total Orders) × 100
10. 📣 ROAS (Return on Ad Spend)
How much revenue did you get back on every ₹1 you spent on ads.
Formula:
ROAS = Revenue from Ads / Ad Spend
📊 Industry Benchmark:
- ROAS > 3x = Generally Good ✅ 🚀