eCommerce Marketplaces are the new normal, pan industries – contributing significantly towards the global economy.
No wonder many established eCommerce stores are moving towards the marketplace business model. For instance, Newegg, Walmart, Target, and many more have moved to the more lucrative marketplace business model. Moreover, new entrants also keep disrupting the eCommerce space with ingenious startups, adding new transactions to the ecosystem.
To navigate this rising competition, online businesses need definitive performance evaluation to define current and future growth strategies. These strategies need data analysis for assured predictable results.
Furthermore, these evaluative parameters will vary depending on the goals of the marketplace. Businesses not focused on the right KPIs run the risk of biting more than they can chew.
In this blog, let us understand Key Performance Indicators in an eCommerce marketplace.
Understanding eCommerce Marketplaces types
On a broader level, eCommerce marketplaces are online platforms that connect multiple sellers with consumers, but that is where the similarity ends. E-marketplaces can be modelled and strategised in multiple ways, meaning that, in essence, no two may be the same.
For instance, a highly specialized marketplace focused on a niche will generate less traffic and lesser conversions than a marketplace that operates in a broader industry. However, if the former deals in only high-ticket products, it will generate similar revenue with lesser conversions than the latter. Let’s consider Newegg and eBay.
Newegg is an eCommerce marketplace specializing in electronics and technology products. It offers a wide range of computer hardware, consumer electronics, and accessories. While Newegg may have lower conversion rates compared to some other marketplaces, it compensates for this through higher profit margins.
However, eBay is a well-known eCommerce marketplace that allows individuals and businesses to buy and sell a wide variety of products. It operates on an auction-style or fixed-price model, providing various products in various categories. While eBay has higher conversion rates compared to Newegg, it often generates similar revenues due to its commission-based revenue model.
Hence the analysis of the metrics data will be subjectively different for these two eCommerce marketplaces. In simpler words, the definition of “success” for a marketplace business will further depend upon factors such as operative business model, age of the business, business strategy, and so on. Based on this understanding, KPIs will vary according to the objective of what is being achieved.
In this blog, let’s read all about ecommerce marketplace KPIs, how they can drive business objectives, and the method to harness the full potential of these KPIs.
eCommerce metrics to measure KPIs
Discussed below are some of the key metrics that can give information to eCommerce marketplaces.
Gross Merchandize Value (GMV): GMV is the consolidated value of merchandize sold over a specific period of time. It includes products and services minus any returns during the specified period.
Notably, the GMV is calculated simply by multiplying the number of products sold by the Sales Price of the products/services. So, it does not include discounts, overheads, operational losses, and others.
Monthly Recurring Revenue (MRR): A revenue that is predicted to be added (every month)
Net Revenue: It is the total revenue generated from sales transactions after deducting any refunds, discounts, and commissions paid to sellers or third-party providers. It represents the actual income earned by the marketplace from its core operations.
Average Order Value: Calculate the average monetary value of each order placed by customers. AOV is determined by dividing the total revenue generated from all orders by the total number of orders within a specific time period.
Cart Abandonment Rate: The percentage of online shopping carts that are abandoned by customers without completing the purchase. In other words, products/services are added by the consumers to their shopping cart but not going through checkout.
Customer Acquisition Cost (CAC): The amount of capital invested on average to acquire new customers.
Customer Lifetime Value (CLTV): The predicted net profit an e-marketplace can expect to generate from a customer over their entire association with the business.
Conversion Rate: This metric measures the percentage of visitors who make a purchase.
Bounce Rate: The bounce rate measures the percentage of users who leave the website or specific pages without taking any further action.
Click-through Rate (CTR): CTR measures the percentage of users who click on specific elements, such as product listings, banners, or promotional offers.
Average Time on Page: Average time spent by users on a particular page before they move on to the next one.
Repeat Purchase Rate: This metric measures the percentage of customers who make multiple purchases within a specific time frame.
Seller Lifetime Value (SLV): The predicted net profit an online marketplace can expect to generate from seller activities over their entire association with the business.
Inventory Turnover Rate: It is calculated by dividing the cost of goods sold by the average inventory value during a specific period. So effectively, this metric indicates the time in which the inventory is sold.
Cost Variance: Ratio of predicted cost with the actual cost.
Order Fulfillment Time: This metric measures the time it takes for orders to be fulfilled, including processing, packaging, and shipping. A shorter fulfilment time indicates efficient operations – enabling quicker transactions.
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eCommerce Marketplace KPIs
Leveraging the data received from these metrics, one can measure the performance of the eCommerce business. These KPIs indicate a specific performance parameter of the business. With the metric data, insights can be gained, further giving analysis into the health of the marketplace business. Discussed below are the KPIs of an online marketplace.
In the dynamic eCommerce ecosystem, understanding financial performance will be key to understanding success. Financial performance will display the current and forecast a predictive arising challenge. By employing the utility of metrics like GMV, AOV, Net Revenue, and Monthly Revenue, marketplace operators can make data-driven insights to measure overall financial performance.
Business scale can provide insights into the operative scope of the business. These insights can purpose-drive existing strategies, optimize or pivot if needed, and can play a significant role in solidifying investor relations. Metrics like GMV, net revenue, Inventory Turnover Rate, and others can help in arriving at this KPI.
It refers to the ease with which buyers and sellers can transact so that assets get converted into cash. It represents the availability of active buyers and sellers, facilitating smooth and efficient transactions. High liquidity attracts more participants and increases trading volumes, fostering a vibrant marketplace ecosystem. Some metrics that can help measure liquidity include Conversion Rate, Inventory Turnover Rate, and Order Fulfillment Time. These metrics indicate user engagement levels, how fast products are getting off the shelves, and the efficiency of eCommerce operations – helping businesses measure liquidity.
With this KPI, evaluate the level of interaction users make with your eCommerce marketplace. It reflects the platform’s ability to capture and retain user attention, indicating increased customer satisfaction. Also, increased interaction further indicates sustained customer loyalty. Some metrics that can be used to measure user engagement are Time on Page, Bounce Rate, Click-through Rate (CTR), Repeat Purchase Rate, and others. By monitoring these metrics and analyzing user behavior patterns, eCommerce marketplaces can assess the effectiveness of their strategies, identify areas for improvement, and enhance user engagement to drive business growth.
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Return On Investment (ROI)
A key KPI, ROI assesses the profitability and efficiency of investments made in the business undertaking. It quantifies the return generated from each investment unit and helps evaluate the overall financial performance. Marketplace operators can track metric data such as Net Revenue, CAC (along with CLTV), Cost Variance, Conversion Rate, and AOV – to evaluate the ROI of the business.
Business Objectives Powered with KPIs
So, now that you have data from metrics, and from that the key performance indicators have been evaluated, what next?
Marketplace KPIs are used to gauge varying business objectives. It helps the business to evaluate performance by understanding the efficacy of business functions and strategies.
Some of the objectives that can leverage KPIs are as follows:
- Increase Sales and Revenue: businesses can identify opportunities to drive sales growth, implement effective pricing strategies, and improve conversion rates – leading to increased revenue.
- Improve customer acquisition and user traction tactics.
- Optimise and enhance operations, based on analysis – eCommerce businesses can streamline the supply chain and enhance their operational activities.
- Identify impediments, bottlenecks, and pivotal factors affecting growth.
- Drive efforts during mid-cycle consolidation.
- Analyze existing strategies and test new implementations.
- Identify and drive the need for alliances, partnerships, and acquisitions.
These were some of the objectives that KPIs can help eCommerce businesses with.
Harnessing KPIs to full advantage
KPIs mentioned in this article are some key that can give pivotal information regarding the health of the business, but in no way are they the entire gamut. KPIs can be beyond this as well to measure intricacies that give significant information regarding their business goals.
Moreover, as discussed above, eCommerce businesses vary in many ways – factors such as the operative industry, age of their eCommerce lifecycle, scope, and others. Hence tracking all KPIs always can be counter-productive. The following few things can be kept in mind to harness the power from the KPIs to full effect.
- Be Selective: Identify the KPIs that are pivotal to your business. And make sure to arrange them in your line of sight.
- Regularity: Ensure that you’re regular in tracking the KPIs that are key to the success of your goals. Even if seemingly, things are moving in the right direction, preventive monitoring is key for a proactive business approach.
- Remove Existing Issues: Expedite solving any concerning patterns that come out of KPI analysis.
- Act prudently: KPIs are based on data. However, the solution to a problem needs a realistic assessment of the situation and the possible repercussions of an action.
- Set up realistic benchmarks and iterate.
- Measure→ Analyze→ Execute→ Analyze→ Improvise→ Repeat.
Data provides businesses with valuable insights and critical information that can be leveraged to drive actionable strategies. By analyzing data, existing businesses can analyze what has been going well, and what can be improved.
eCommerce metrics are the data that gives eCommerce businesses integral tools to measure and track Key Performance Indicators – and hence take data-driven decisions, and drive business goals.
Leveraging KPIs, marketplace operators can comprehensively understand their business’s strengths and areas for improvement, enhance operational efficiency or work towards higher sales and revenue.
Yo!Kart, a feature-rich, self-hosted eCommerce marketplace solution, gives marketplace operators access to extensive data to strategise precisely and thrive in the competitive eCommerce industry.