Key performance indicators (KPIs) are a mode to measure and monitor the performance of an organization, business unit, department or specified activity on a short-term basis - daily or weekly 1). They are focused on activities that are critical to the success of the business and indicate their success/improvement or failure.
KPIs have to be chosen carefully in order to give valuable information. On one hand, the target has to be defined clearly to choose the correct measure. Once, this has been defined, the adequate KPIs have to be chosen. These should be defined in a way that is understandable, measurable and meaningful. So, there must be a strong link between the activity measured and the input factor observed. This depends very much on the department and the specific activity in question, because a KPI should tell the manager in the end, what actions need to take place. It may also give insight on whether a Marketing campaigns or CRM efforts are successful or not. Generally, it is recommendable to work with percentages, averages or numbers set in a relation to others. However, in order to show a drastic development with emphasis, it can be helpful to demonstrate this with absolute numbers 2).
To give an example: The number of parts rejected due to low quality would not serve to indicate performance in Marketing, but might be very valuable to quality control or supplier evaluation. They might give information whether new frame agreements with the suppliers give a positive impulse on the delivered quality or if more drastic actions have to be considered. Also, 50 pieces rejected might be a high number in one context, and a very low one in another. <note tip> SMART objectives as known from project management also apply in this case. Ideally, KPIs should be Specific, Measurable, Achievable, Relevant and Timely. These modes of performance measurement are often linked to performance improvement projects. Usually, the objective of measuring the performance of a certain activity is not only to indicate the status-quo, but to measure actual improvement or effectiveness and efficiency over a period of time. The number of visitors of an online store could indicate the effectiveness of a Marketing activity, a mailing, for instance. </note>
The Average order value (AOV) is a very simple and meaningful indicator for the performance of a website 5). It indicates how much money a customer spends when buying something on the website in question. As opposed to the number of items, the number in question here is refering to the total value of items purchased in one visit. The average is calculated as follows:
Sum of Revenue Generated / Number of orders taken
The value generated by this indiciator gives insight on the shopping behavior of customers. It allows to segment visitors according to their order manner shown in the past. Then, Marketing campaigns can be targeted directly at those customers who seem to have potential to buy certain products or tend to spend a certain amount of money.
The AOV is also a very good indicator for the overall performance. It provides a direct link to revenue generated and indicates growth or reduction in sales. However, this number has to be seen in relation to the total number of customers.
<note>Yet, performance in E-commerce is not only linked to visitors and customers and their purchase behavior, but also to system availability, for instance. Measuring total availability of a website or an online shop gives information on the quality and reaction time of IT services. Meantime Between Failure or Meantime To Repair are popular indicators in IT, but also frequently used in production and other departments. </note>