SEM KPI for e-commerce website
Before talking about SEM KPI it’s necessary to understand the meaning of this abbreviation and why it’s so important for e-commerce website.
KPI can be translated as “Key Performance Indicators” – a complex of metrics that help analyze the efficiency of advertising campaigns.
It’s impossible to talk about SEM results if KPI is not defined or analytics system is not set up on the website. The main advantage of e-commerce website is that all KPIs are quite clear and it’s easy to define them comparing with SaaS products, for example. For e-commerce website you always know that the main indicators of the business success are sales and general income. Therefore all KPIs are connected with these metrics.
The necessity of KPI is resulted from:
- KPIs help define the most effective source of traffic. All the investment to marketing channel should be based on statistics data. The more precise you define KPIs the more efficient source of traffic could be found and used.
- KPIs could help analyze users’ behavior and change the website, products or prices according to their preferences.
- It’s impossible to optimize advertising campaigns without KPIs. If the business doesn’t have KPI all the actions will be just a pathetic attempt of optimization: if you don’t know what and why is necessary to be optimized, you can’t optimize anything effectively. It’s easy to understand.
So, let’s discuss the KPI for e-commerce website in more detail!
Traffic (the number of users) — the easiest but important KPI: if your website doesn’t get enough traffic the number of transactions and revenue couldn’t be high.
Some products are seasonable and traffic fluctuations are normal for them but if traffic decreased dramatically it’s a reason to check all the campaigns.
The most common causes of traffic decreasing from SEM channel are:
- Ads disapproval;
- Changes in bid strategies;
- Turning off the keywords, ad groups or campaigns with high demand and the number of clicks;
- Changes in geo-targeting.
CTR (click-through-rate) — the percentage of the number of clicks on an ad comparing with the total number of its’ impressions.
This KPI could help to understand if the ad is attractive enough for users and relevant to the search term.
CTR depends on campaign type and can vary. But in general CTR for Search campaigns could be about 3-8%, Shopping campaigns – about 1%, Display Network – less than 1%.
If the ad has extremely high or low CTR it can be a sign to review the settings of the campaign more detail.
This KPI could help define the most effective ad for users. It’s necessary to mention that ads testing should be provided continuously.
CPC (cost per click) – shows the price which you pay for each click. This KPI could help understand which products have the most profitable CPC comparing with their cost. For example, we have two products: product A with a cost $100 and CPC $1 and product B with a cost $5 and CPC $0.7. In general, product A could bring more money than product B if the level of competition and conversion rate are approximately equal.
Also, it’s necessary to analyze this metric in connection with the competition level: the market for products with a high competition level usually has overestimated CPC by Google and the niche could not be profitable for advertising if you don’t have a special offer. Even if the ads account has perfect settings but CPC is too high it’s necessary to look for other solutions. One of them could be using long-tale keywords with lower competitors’ level but it’s necessary to pay into account that traffic could decrease. Also, you can set a bid limit but the ads could have a low average position.
Conversion – action you want users to take. For e-commerce website the main type of conversion is transaction (purchase).
The number of conversions is important to understand if the SEM efficient or not. If you invest money into SEM and have good CPC and CTR but no sales – you do need to change something.
Also, this metric could help to predict the demand for the next period and correct products supplies. Of course, it’s necessary to take into account not only SEM conversion for this purpose but the results of the whole website.
The change in traffic and in the number of transactions for some products could give you a clue about the possibilities for website optimization. For example, sales decreasing could happen because of the absence of some product’s colors or size.
Also, the number of transactions is closely connected with the amount of traffic and conversion rate. If you noticed transactions decrease you should firstly pay attention to these metrics.
And of course, it’s necessary to activate e-commerce tracking in Google Analytics account and don’t forget to import this type of conversion to Google Ads account.
CR (conversion rate) – this KPI depends on the niche but in general we can talk about 1% conversion rate for B2C products and about 0,3% conversion rate for B2B.
A wake-up call could be the situation when some products have CR below than average. In case when all the products on the website are from the same niche, it could be a reason the check the offer and your competitors. Maybe your price is too high or competitors have free shipping but you don’t, for example. Conversion rate could be low if you use irrelevant website pages for ads or there are some problems with a checkout.
Also, it’s necessary to control if the products in stock and turn off ads for products which were totally sold. You can use scripts for this purpose for Google Search campaigns, for Google Shopping and Dynamic Remarketing data will be updated from the feed.
CPA (cost per action) – the number of conversions (transactions) and CR are important but if the cost per conversion is higher than the cost of the product or you just don’t get any revenue – the business will fail.
You should know the cost which you’re ready to pay for conversion (usually cost per transaction for e-commerce) to define appropriate CPA metric. Desirable CPA calculations are based on all the expense of the business and marginality.
This metric is very important for campaigns optimization, its’ results help to allocate the budget correctly, scale the campaigns for the most profitable products and change settings for products with high CPA or even turn them off and exclude from the campaign.
ROAS (return on ad spend) — this metric shows how much units of money you got per one unit of spent money on advertising.
To calculate ROAS you can use the formula:
ROAS = (Revenue – Ad Cost) / Ad Cost
Actually, this KPI is one of the most important for e-commerce projects because it helps understand if the ads are profitable and how much money business earns due to advertising.
Even if other metrics (CTR, CPC, CR and others) are worse than average account results but ROAS is the highest for some product – this means that you should think how to scale campaigns for this product. On the other hand, a product with low ROAS can’t be defined as a successful one in advertising in any case because you lose money.
ROI or ROMI
ROI (return on investment) or ROMI (return on marketing investment) – this metric is quite similar to ROAS but shows the return of the all investments for ROI and of the all marketing investments for ROMI, for example, including salary for SEM specialist, payments to a developer for some work with website code, etc.
To calculate ROI you can use the formula:
ROI = (Revenue – Cost of Investment) / Cost of Investment
To calculate ROMI you can use the formula:
ROI = (Revenue – Cost of Marketing Investment) / Cost of Marketing Investment
It’s necessary to check ROI regularly to evaluate the efficiency of the business in general.
Products could be sold not only via the website, because users could also call directly to the company’s managers or write messages through the website chat and make orders. If the business has a lot of calls or chat is an active type of communication with clients it’s necessary to track CR, ROAS, ROI and CPA for these types of communication. Call tracking could help show the full picture of SEM promotion and the most website chats could be tracked in analytics.
For example, campaigns could have a group of keywords which doesn’t bring transactions via the website but there could be a lot of calls from them. In this case, turning off such keywords will lead to decreasing of the results.
So we took a look at the main SEM KPIs for e-commerce website. All of them are important and show different aspects of advertising efficiency. But each specialist should understand that any conclusions should be based on a complex of these metrics and this the only right way to optimize campaigns effectively.