e-Metrics

Experts have long considered e-metrics to be the key to helping online businesses grow profitably. But during the past year, the most important metrics have shifted from measuring site traffic to focusing on customer retention.

"Last year, everybody was in a rush to get eyeballs to their Web site, and they sometimes were spending absurd amounts of money on branding and advertising. But this year, the mantra is customer reactivation [bringing back former customers] and customer loyalty or retention,'' says Sam Kapreilian, a partner at PricewaterhouseCoopers in Boston.

The biggest problem with e-metrics is that there are too many areas in e-business that can be measured. Consequently, both IT and business professionals need guidelines about what to focus on, lest they get lost in a flood of e-metric data and fail to spot trends that affect profitability.

Choosing a Metric

Experts recommend focusing on a few key measures such as customer retention or abandonment rates. Alternatively, e-business executives may want to consider ways to combine several measures into an aggregate metric that can be tracked easily.

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Ten Common E-Metrics

1) Reach: The percentage of visitors to your Web site who are potential buyers.

2) Acquisition: When a prospective customer takes an overt action expressing interest.

3) Conversion: Turning a prospect into a customer through a sale, a sign-up or an act of participation.

4) Retention: Keeping existing customers, as measured by their purchases.

5) Loyalty: May be measured by the number of page views, how often people return to a Web site or the duration of their visits.

6) Duration: Total time spent viewing Web pages, divided by the number of visits.

7) Abandonment: When a customer leaves a Web site shopping cart without completing a purchase.

8) Attrition: The percentage of existing customers who have stopped buying and gone elsewhere.

9) Churn: The frequency with which a customer base changes, usually measured as attrition divided by the total number of customers.

10) Recency: The elapsed time since a Web site has recorded a customer action such as a visit or purchase.

Source: NetGenesis Corp., Cambridge, Mass.

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As Richard Hunter, managing vice president for consulting at Gartner E-Metrix, a unit of Gartner Group Inc. in Stamford, Conn., points out, "Most people can't monitor 50 things at a time." That's why it's important for e-business leaders to avoid getting drowned in too many metrics "or figure out a way to roll them up into a single number called something like 'customer profitability.' It's better to look at an aggregate metric,'' Hunter says.

Deciding which e-metrics to use can be difficult. There are traditional business measures that try to quantify business cycle time and inventory management. Then there are technical measurements that attempt to quantify things such as the speed of transactions. There are also Web marketing measurements that center on acquiring and retaining customers.

Hunter says he favors metrics that could apply to traditional businesses as well as e-businesses. For example, he says, e-businesses should measure supplier responsiveness (how quickly and effectively suppliers fulfill agreements), the quality of order fulfillment (the percentage of orders filled correctly) and documentation accuracy.

Hunter also recommends measuring customer responsiveness, or the extent to which an e-business responds to customers by filling orders on time, correctly and with accurate documentation.

What to Look For

These traditional business metrics are more important to e-businesses than measuring the quantity or quality of time people spend on a Web site, Hunter says.

"You can't measure success in cyberspace by the number of eyeballs you attract any more than you can measure success by the number of people looking in store windows on Fifth Avenue," Hunter says. "I would rather look for ratios that tell me what percentage of visitors are converted to buyers."

To measure loyalty, Kapreilian says, he favors tracking the effectiveness of promotional online marketing campaigns by measuring clickthrough rates (how many successive screens of information Web visitors click to reach a particular page). "Measuring the intensity of clickthrough is a big metric," he says.

He says he also favors measuring the abandonment rate of Web site shopping carts.

"We find that a lot of online organizations are now fixated on abandonment rates, with the idea that a simple series of minor changes to the site might bring at least half of those people back," he says.

Bob Chatham, an analyst at Forrester Research Inc. in Cambridge, Mass., says he favors sales-oriented measures such as the number of "proactive touches" with customers. This includes offering customers marketing messages or solutions to problems before they hear about them elsewhere, either by e-mail, direct mail or a phone call.

For example, Chatham points to an acquaintance who recently received a call from a credit card company explaining that an error had caused some customers to be double-billed for a transaction but that the problem was being resolved. Such proactive messages heighten an e-business' image, even if it's about correcting a mistake, he says.

"You want to measure your reactive vs. your proactive touches with customers," Chatham says. "Find out how many times customers contacted the company, forcing the company to scramble, vs. how many times the company contacted the customers."

Chatham also suggests measuring the number of self-service interactions customers conduct on a Web site, compared with their total number of direct interactions with a company. "Often, self-service is better than human-aided service, and it costs less," he says.

Hunter says he anticipates that e-metrics for security and privacy will become increasingly important.

"We might measure the resistance of the Web site to an outside assault, or the resistance of a database to unauthorized intrusion," Hunter says. "These things are not all that difficult to quantify, because the means hackers use have been well documented."

Alexander is a freelance writer in Edina, Minn. Contact him at sorion99@aol.com.

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