Key Performance Indicators for a Successful Online Business

The Five Key Performance Indicators for Online Success

The BCG report, "Winning the Online Consumer 2.0: Converting Traffic into Profitable Relationships," which studied 3000 online consumers, advises online retailers to focus on five key performance indicators to gauge their growth trajectory. These indicators are:

• Visitor-to-buyer conversion rates
• Traffic, measured by the number of unique visitors
• The proportion of repeat customers
• Orders per customer
• Ratio of repeat-order revenue to first-time revenue

While these numbers will vary from business to business, successful companies tend to show a positive trend in these areas. Peter Stanger, BCG's vice president and leader of the company's Business-to-Consumer Topic Area, notes that few online retailers have mastered the art of converting traffic into profitable customer relationships. He warns that a business model that spends $100 to acquire a customer who places a $50 order and never returns is doomed to fail.

The Online Consumer Landscape

The online consumer base is ripe for businesses that get their online strategy right. By early 2001, the online purchasing population had reached 68 million. These consumers are spending in more categories than they did a year ago and are optimistic about their future online spending. One in five expects to move at least half of their spending online in each of six major categories over the next year. These categories include leisure travel, event tickets, music and video, computer software, books, and computer hardware.

However, many retailers fall short in serving these eager buyers. BCG found that 11 percent of consumers reported ordering and paying for a product they never received in 2000, double the 1999 rate. Forty-one percent reported they had stopped shopping at a site because of a purchasing failure. These experiences directly impact the amount of money consumers are willing to spend online. BCG found that the least satisfied customers spent an average of $428 online over the past 12 months, while the most satisfied customers spend $673.

The Need for Online Retailers to Keep Pace

"Today's online consumers are more technologically savvy, more impatient and most importantly, want to spend more of their shopping dollars online than they ever have before," says Michael Silverstein, senior vice president and global leader of BCG's Consumer Practice group. "Unfortunately, online retailers haven't kept pace. Consumer enthusiasm for the online channel is growing faster than online retailers' capabilities. Elusive profits will occur when the online retailers get the profit equation right."

Category Performance and Customer Satisfaction

The BCG report finds that some categories are doing a better job of satisfying customers than others. The books and health-and-beauty categories stand out as the best performers, with customers saying they are satisfied with their experiences 31 percent of the time. The leisure travel and computer hardware categories have the lowest numbers with only 20 percent experiencing satisfaction with their shopping. These last two categories are big-ticket purchases. Consumers naturally have higher service expectations when buying a $400 plane ticket or a $1500 laptop than they do when they purchase a $15 book. Yet the service at a book site is often better than the service at a travel site.

The Importance of a Comprehensive Approach

Web sites need to address the five critical benchmarks simultaneously to be successful. The report finds that a piecemeal approach will not bring positive results to the bottom line. All of these benchmarks are tied intrinsically to the buying experience. "Online retailers need to tailor their offerings for the high-value customer segment and cement loyal relationships by delivering a flawless consumer experience," says Stanger.