This article describes performance metrics that are used by internet-based businesses and, in particular, looks at some of the metrics available in Google Analytics, the most widely used analytics tools for website traffic.
We are living through the digital revolution where the traditional business landscape is being pushed aside by internet based companies. Large well established retail businesses are going into bankruptcy as consumers switch to buying online. Businesses use the internet to connect with new suppliers offering better prices and quicker delivery times. Many service businesses no longer have a physical high street presence but use their websites as their shop window.
Performance management in e-commerce
In the world of e-commerce, the focus of performance management is on measuring the online experience, and focuses on the following facets:
- Customer acquisition: getting visitors to the company’s website and converting those visits into sales.
- Customer retention: persuading first time customers return again. According to Reicheld and Schefter, retaining 5% more customers can increase profits by between 25% and 95%. This is due to the fact that better established customers usually buy more, and are a valuable source of referrals.
- Customer extension: Selling additional goods or services to existing customers.
Much of the information needed to evaluate performance in these areas can be gained by recording data about visitors to the businesses website.
Google analytics provides website owners with a range of information and analysis about website visitors. Users of Google Analytics install a tracking code on their website. When users visit the website, the tracking code is activated on the visitors’ browser. This collects information about the visitor and their visit, which is collected by Google Analytics and used as a basis of the analysis. A weakness of this process is that visitors may use Ad blockers in their web browser that stop the tracking code from working, so information is not collected about all visitors.
The programme provides a large amount of standard data and analyses, and users can also customise it to provide their own reports or metrics. This article looks at the highlights of Google Analytics. Readers are encouraged to visit the Google Analytics website (2) and view the demonstration reports.
Audience reports provide information about the visitors to the site. The high level overview report includes the percentage of visitors that are new, their location and language. This can be useful marketing information, for example to identify whether a marketing campaign in a particular territory was useful, or identifying territories where interest in the company’s products appears to be growing. Analysis of visitors as new or returning enables businesses to measure customer retention rates.
In addition to this a host of demographic information, such as age of users, gender and even their interests is produced. This information is most useful when combined with other information such as visitor behaviour (see below). Marketers may be interested for example not only about what percentage of their visitors fall into a particular demographic group, but also what percentage of that group actually make a transaction (the conversion rate) when they visit the website. Google Analytics allows data from these different ‘dimensions’ to be combined in reports.
Such marketing data is invaluable as it enables the company to identify much more accurately what their target market segments are, and to monitor the success of new products or marketing campaigns aimed at such groups.
Acquisition reports show how visitors arrived at the website, and provide information about the effectiveness of the different channels that the company uses to attract visitors. Organic visitors are those who came to the website via a web search engine, such as Google, Bing or Ask.com. An important element of e-marketing is search engine optimisation (SEO), which involves strategies to ensure that the businesses website comes near the top of the list when users do a particular search. A small accounting practice for example, would want its website to be visible in search results for ‘accountants near me’ or ‘tax advice’ or any other key words that are appropriate to that business. The number of organic users gives an indication of how effective SEO strategies are.
Other visitor types includes direct, which refers to visitors who simply typed the website address into their browser. Referrals and affiliates are visitors who arrived at the website by clicking on an advert on another website. When viewing the high level reports, users can drill down to more detailed analysis of each of these, such as an analysis of visitors by search engine or by advert type.
While the acquisition reports show how many visitors each channel has attracted to the website, they do not provide information about the quality of the visitors. Visitors who are simply surfing the web with no intention of buying are obviously much less useful than visitors who place regular orders for the websites products.
Statistics about visitors numbers may also be distorted by bots and spider programmes. These are programmes that scan web pages, ‘reading’ websites to find out what the content is of the web pages. The Google search engine uses bots to identify content in web pages which is then used by the search engine to help users find relevant pages.
Behaviour reports analyse what visitors actually do while on the website. This provides feedback to the designers of the site about how well it encourages users to engage with the site, and ultimately to achieve a goal, such as contacting the company or buying a product or service from the website.
A prominent statistic in behaviour reports is the ‘bounce rate’. This is the portion of users who land on the website, but do not interact further. They may move onto another website, or remain inactive. A high bounce rate is often seen as a sign of poor performance, as it means that the website has failed to engage users. However, some information websites may not require users to interact – users may open the home page and see the information they need straight away, and not interact further, in which case they would be included as a bounce, but the business would be happy with the visit.
The conversion rate is a key statistic on an e-commerce website, and measures the portion of visitors that buy something from the site during their visit. A low conversion rate might suggest, among other things, that the prices are too high, the selection of products available is poor, or that the presentation on the website is poor, meaning that visitors are not tempted to transact.
Behaviour flow shows how visitors progressed through the website. Which page was the landing page? What pages did users progress to from the landing page? How many people ‘dropped off’ after the landing page, or each subsequent page? The drop off rate indicates how good a particular page is at maintaining the interest of the visitors. A high drop off rate might suggest that visitors’ interest was not maintained, or perhaps links to other pages were not displayed prominently enough, or did not actually work.
Impact on the role of the management accountant
Traditionally, business managers relied on management accounts to enable them to monitor the performance of their business and plan for the future. Much of the information provided by management accountants was financial in nature, and focused on improving efficiency so that costs could be reduced. For an online business, the focus of management attention is on customer acquisition and costs. Information provided by the likes of Google Analytics is likely to be considered far more relevant than tools such as variance analysis. Data analytics are usually updated in real time – all a manager needs to do is log in and see up to the minute information.
Large organisations will utilise the services of data experts; data scientists who have advanced data mining skills and the ability to create predictive algorithms. This is a highly specialised field and the determination of the inputs and the translation of the outputs from this area are vital. Management accountants are in the ideal position to determine the data needs to support an organisation as they have a holistic view of the organisation and its existing information systems. It is essential to establish what areas an organisation should be monitoring to direct the focus of the data experts.
The first implication for management accountants is that they must be aware of metrics such as those included in Google Analytics and be able to explain and interpret them. Knowledge of big data analytics and website analytics should be considered a key skill for any accountant.
One traditional role of management accountants has been to interpret and explain data, having the ability to see the big picture, and communicate this to senior managers. This role is just as relevant today as it was in the past, so management accountants have to be able to understand the data analytics, and be able to communicate that. Management accountants should have the business knowledge and commercial acumen to interpret the results of data analytics in order to provide meaningful commercial analysis and supply recommendations.
While managers may wish to focus on acquisition and retention of customers, ultimately those customers must lead to profits, so management accountants will still have a role in evaluating the overall financial performance of the business. Controlling costs is also as important today as it has always been. Management accountants will have a role in calculating profits per product, or profits per customer, controlling the marketing spend and looking for evidence of return on marketing expenditure.
Management accountants will use data analytics to support value creation, which can be through increasing efficiency, improving profitability and cash flow but also through customer management, innovation and intellectual property. All of this data is not just about focusing on new opportunities which can be targeted but also about internal drivers of value. Examples of activities where management accountants can utilise data analytics (depending on the size and scope of the organisation, could be inventory management, production planning, error rates, quality assurance, logistics, market segmentation, price optimisation, resource management and so on.