KPI Metrics for B2B eCommerce Marketplace
The B2B marketplace is full of levers to push and pull. Therefore, it is critical to identify correlation-causation relationships to achieve the marketplace’s inherent potential. But how do you identify these relationships, and how do you objectively track marketplace health?
To understand if the marketplace is moving in the right direction, there are certain metrics that business owners can follow, proactively engage with and respond to quickly if things start moving south. First, it’s important to recognize what numbers are the most impactful. To avoid “data overload,” we recommend narrowing down the selection of important metrics to a few vital indicators that influence the marketplace the most. In this article, we’ll go over important B2B eсommerce KPIs for marketplace so you can choose those that are relevant to your business.
What Are B2B eCommerce KPIs for Marketplace?
With that said, marketplace KPIs will measure and track the company’s progress toward achieving specific marketplace goals. These could be anything from monthly recurring revenue, customer lifetime value or brand awareness.
How to identify KPIs
Below are three helpful questions that are often used to determine relevant data points that will gauge B2B software marketplace performance:
- What are your business goals?
- What short- and long-term objectives are you trying to reach?
- What are the biggest management priorities?
Once you identified the main business goals and priorities and looked at the industry benchmarks, you can further set your targets.
A few other issues to address at this point will include designating relevant time frames for tracking, identifying responsible individuals, and articulating a well-defined agenda for following those metrics to help motivate your team members.
Types of KPIs
Although there are different KPI taxonomies, KPIs are typically divided into the following types:
- Quantitative KPIs rely on numbers to measure business objectives (ex. the number of leads to achieve);
- Qualitative KPIs measure opinion-based data, such as brand awareness;
- Leading KPIs aim to predict future performance like estimated conversions;
- Lagging KPIs describe past performance, such as a sales turnover;
- Input KPIs measure resources required to complete a specific project, such as budget;
- Process KPIs evaluate efficiency within the organization, such as the average customer service response time.
B2B Marketplace Metrics & KPIs for B2B eCommerce Marketplace
Infographic:
|
|||
---|---|---|---|
Total revenue = (GMV)*(Take Rate) | |||
CAC = (Total costs incurred on acquiring a customer)/(Total number of customers converted) | |||
CLV = (CV)*(ACL) | |||
CLV to CAC Ratio = (CLV)/(CAC) | |||
Lead to CCR = [(Total number of qualified leads that results in sales)/(Total number of leads)]*100 | |||
AR = [(Number of users who took an action)/(Total number of users)]*100 | |||
Net MRR = (Average revenue per account)*(Total number of accounts in a month) | |||
ROR = [(Number of repeat orders)/(Total number of transactions)]*100 | |||
ARPA = (Total revenue generated over a period of time)/(Number of accounts during the same period) | |||
Churn Rate = [((Number of customers at the beginning of the period)–(Number of customers at the end of the period))/(Number of customers at the beginning of the period)] *100 | |||
Customer Retention Rate = [((Number of customers at the end of a period)–(New of customers acquired during the period)/Number of customers at the start of the period]*100 | |||
Buyer-to-seller ratio = (Number of transactions per buyer)/(Number of transactions per seller) | |||
NPS = (% Promoters)–(% Detractors) |
B2B marketplace business metrics are primarily measured to estimate the company’s revenue, profitability and customer acquisition. The three most important metrics you’d want to track for your marketplace are GMV (gross merchandise volume), CAC (customer acquisition cost), and CLV (customer lifetime value).
Take rate
Gross merchandise volume (GMV)
Customer acquisition cost (CAC)
(Total costs incurred on acquiring a customer)/
(Total number of customers converted)
For example, if you spend $1,000 on marketing and advertising to acquire new buyers, 10 of whom end up buying products on the marketplace, then your CAC is $100.
Customer lifetime value (CLV)
Average order value (AOV) = Total revenue/Number of orders
Average order frequency rate (AOFR) = Number of orders/Number of customers
Customer value (CV) = AOV*AOFR
Average customer lifespan (ACL) = (Sum of customer lifespans)/(Number of customers)
To calculate CLV, you need to take customer value and multiply it by the average customer lifespan like so:
Customer lifetime value (CLV) = CV*ACL
For example, if the marketplace’s total revenue is $1,000 and the number of orders placed in June equals 50, then AOV is $20. If the marketplace serves five customers, then the average order frequency rate is 10. Having arrived at those two numbers, we can now calculate customer value: $20*10 = $200. To arrive at an average customer lifespan, we have to look at the number of years each customer buys on the marketplace. For example, for Starbucks, the ACL is 20 years. However, if you don’t have so much data and can’t wait 20 years to arrive at such a number, then you may use the shortcut formula: 1/Churn Rate percentage (we’ll discuss Churn Rate in more detail below). For simplicity’s sake, let’s assume that your ACL equals three years, then CLV will be $200*(12 months)*3 = $7,200.
Customer lifetime value (CLV) to customer acquisition cost ratio (CAC)
For example, if your CLV is $1,000 and CAC is $100, then CLV is 10:1.
Lead to customer conversion rate (lead to CCR)
The customer conversion funnel essentially tracks the path that a customer goes through to complete a purchase. Identifying areas where customers have difficulties can have a remarkably positive effect on improving conversions.
For example, if prospective buyers look through catalogs but don’t proceed further in their shopping journeys, you might need to address several bottleneck issues, such as an ineffective search engine that’s unable to return relevant results, lack of assortment, weak catalog representation and so on.
Similarly, if you discover that many buyers click on the “buy” button but do not follow through with the transaction, there might be a transaction flow problem, such as a lack of convenient payment or fulfilment options.
To calculate lead to CCR, use the following formula:
Lead to customer conversion rate (lead to CCR) =
[(Total number of qualified leads that results in sales)/
(Total number of leads)]*100
Activation rate (AR)
Activation rate (AR) =
[(Number of users who took an action)/
(Total number of users)]*100
Monthly recurring revenue (MRR)
Monthly recurring revenue (MRR) =
(Average revenue per account)*
(Total number of accounts in a month)
Repeat order ratio (ROR)
Repeat order ratio (ROR) = (Number of repeat orders) /
(Total number of transactions)*100
Average revenue per account (ARPA)
Average revenue per account (ARPA) =
(Total revenue generated over a period of time)/
(Number of accounts during the same period)
Churn rate
Churn rate = [((Number of customers
at the beginning of the period)
– (Number of customers at the end of the period))/
(Number of customers at the beginning of the period)]*100
Customer retention rate (CRR)
Customer retention rate (CRR) =
[Number of customers at the end of a period –
New of customers acquired during the period /
Number of customers at the start of the period]* 100
Monitoring CRR is important because it helps quantify the efficacy of the B2B marketplace marketing strategy and customer service.
Buyer-to-seller ratio
(Number of transactions per seller)
Net promoter score (NPS)
One method to measure user satisfaction is to use the net promoter score (NPS), which was popularized by Frederick F. Reichheld in the 2003 issue of Harvard Business Review. The score is obtained by asking your customers one single question: “How likely is it that you would recommend [product] to a friend or colleague?” The answer can be anything from zero to 10, where zero is highly unlikely and 10 is highly likely.
The recommendation question is believed to be a more accurate representation of user satisfaction than simply asking whether they like your product or not.
Based on answers, respondents are segmented into the following groups:
- 9-10: Promoters. Promoters are loyal customers who will keep buying and will refer your product to others.
- 7-8: Passives. Passives, although not enthusiastic, are satisfied with your product.
- 0-6: Detractors. Detractors are unhappy customers who will most likely share their disappointment with others, thus affecting your business.
Net promoter score (NPS) =
(The percentage of customers who are promoters) –
(The percentage of customers who are detractors)
The positive NPS is considered good, and the NPS +50 is considered excellent. The rating should be followed over time to see if customer satisfaction has increased or suffered. Although NPS is considered one of the best indicators of customer loyalty and satisfaction, it has received a fair bit of criticism for being culturally insensitive and not a very good predictor in the long term.
KPI Reporting: Useful Resources
KPI reporting is a visual dashboard that can be incorporated into your B2B ecommerce platform to track your pre-determined metrics and analyze how your B2B marketplace performs against the targets. KPI reporting generally comprises charts, graphics, tables, diagrams, and all sorts of data visualization tools that make it easier for your team members to track important indicators over time. Having a KPI reporting widget is beneficial on many levels since it allows you to:
- Track the most impactful data and filter out irrelevant information
- Have a snapshot of your teams’ performance across the board
- Make the data easily and visually accessible to stakeholders and partners
- Set goals and motivate your team members
Below are a couple of spreadsheets that could be helpful when choosing the metrics to track:
- B2B ecommerce KPIs for marketplace Spreadsheet # 1 (from the authors of the Version One Marketplace Guide)
- KPIs for B2B ecommerce marketplace Spreadsheet # 2 (by venture capital firm dahni)