Key Performance Indicators (KPIs) are the metrics used to measure the performance of a business. Similarly, ecommerce metrics are the KPIs that can help online businesses evaluate their performance, set benchmarks, and take corrective measures to steer the business in the right direction.
In this ecommerce metric refresher, you will learn what is sales velocity, how to calculate sales velocity, why should businesses calculate sales velocity, benefits of increasing sales velocity, and the strategies to increase sales velocity.
Sales velocity is the measurement of how much revenue your online store generates within a given timeframe. It helps brands accurately forecast revenue generation so that they know where they stand today, where they will stand tomorrow and where they would stand sometime in the future.
The typical sales velocity equation is composed of four variables:
The following illustration shows the sales velocity formula:
Let's see how to calculate sales velocity with an example,
Knowing the sales velocity allows businesses to accurately forecast revenues and when they would reach a certain threshold.
It also helps you understand how quickly customers transition from website visitors into paying customers; so that you can identify stages with inefficiencies and take corrective actions with laser-focus. This is especially true when you're trying to measure the impact of a new product or sales strategy. For instance, a brand with quality products and an ample number of website visitors with low conversion rate should work on optimising their checkout process or developing a better website.
If you want to unblock bottlenecks and boost your sales velocity, there are various approaches you could take — tweaking strategies to modify different variables in the sales velocity equation.
This means that you can either increase the number of website visitors, conversion rate, and average order value — or decrease the time it takes visitors to make a purchasing decision. To attain maximum sales velocity, you would need to achieve all of this concurrently.
Having a lot of visitors to work on is a great problem to have, however, you should screen and segment visitors that are an ideal fit for your brand. For instance, if you're selling high-end luxury products, you would want your audience to have a minimum threshold income. Once you're done with researching your audience, you can think about ways to increase the number of website visitors. This can be done by:
One of the most effective ways of generating traffic on your website is running a flash sale. You can promote the sale ahead of time; this will act as a catalyst, bringing more visitors to your online store.
Another proven strategy to increase traffic for your online store is to run social media ad campaigns. Using paid social media advertisements, you can create highly-targeted and tailormade ads for customers who are most likely to purchase your merchandise.
Search Engine Optimization, or SEO, is the process of fine-tuning your website to increase its chances of ranking highly in search results for relevant keywords.
When customers search for products online, you want your store to be one of the top results for that search. It is estimated that a third of all clicks go to the first organic result on Google. These prized spots are key ingredients for generating sustained traffic to your online store.
Increasing your average order value can be tricky and complex. In some ways, you would be limited by business decisions made pertaining to the product and pricing. For instance, if the average selling price of your merchandise is INR 500, you cant inflate your average order value by deciding to charge INR 1,000 instead — it just wouldn't make sense. The key is knowing how to connect price to value, and to do that you need to:
You can use merchandising techniques to create various product kits which would cost lesser than the purchasing every item in the kit individually.
By kitting multiple items together, you can increase the perceived value of a purchase. Frequently used strategies include offering all-in-one solutions for different customer problems.
If you're selling merchandise which needs to be repurchased frequently—consider building a loyalty or rewards program.
Loyalty programs are proven and effective customer retention strategies, helping you foster personalised relationships with your customers and caressing their tendency to repurchase.
You can offer various incentives to customers who are ready to spend a defined minimum amount. These incentives could be free shipping, coupons, samples, or even direct discounts.
One of the most common misconceptions in sales is that deals are lost to competitors. Whereas, in reality, deals are lost to the existing state of your product (status quo). To improve your conversion rate, you must:
Thanks to Amazon, free shipping has become a fundamental customer expectation in modern times. If your store does not offer free shipping, customers are bound to look for an alternative.
Keep in mind that offering free shipping is often a psychological game. If you can't afford to offer free shipping directly, consider increasing your product prices to incorporate the shipping cost.
Since it isn't possible to touch or feel products when you're shopping online, the best alternative to showcase your products is using high-quality images from all profiles on your product page. This allows customers to know exactly what they are buying.
It's much easier to double your business by doubling your conversion rate than by doubling your traffic
- Jeff Eisenberg, President of Eisenberg, Vital & Ryze Advertising
Increasing your sales velocity is key to long term business health and success. Since sales velocity is directly related with your revenue and profits, a high sales velocity allows you to generate more income which can then be reinvested into high priority business objectives such as customer acquisition, product development, brand outreach, customer retention, and more.