However, all measures should come with a warning label: What you see isn't necessarily what you get. Consider the most basic building block of Internet metrics: the "hit," a meaningless measure on its own. Every time a customer accesses a Web page, it counts as one page view. However, contained within that page are lots of different elements, such as pictures and panels of text, and each of those different element counts as one hit.
Put another way: just viewing a page automatically creates a hit for every element on that page. So, while a Web site with 100 million hits a month sounds impressive, it might mean that there were just 10 million page views, resulting from 1 million visits, made by just 100,000 different users, of whom only 10,000 actually made transactions.
"A lot of companies just focus on top-line numbers like hits and page views when they monitor their E-business, trying to build up the biggest numbers as if they're in a popularity contest," says Engel. Instead, she asserts, companies "need to take the covers off their Web site and look a bit deeper." In particular, she advocates customer-centric metrics, such as customer conversion rates — the number of visitors to a site who become customers. But again, definitions are important. While an online newspaper might consider somebody who has signed up for a free E-mail newsletter as a conversion, a retailer might require something more, such as an actual purchase.
As Engel observes: "The Web lets you gather data on your customers in a way that isn't possible for offline companies. Because of that, E-business is able to become customer-centric rather than process- or transaction-centric."
PwC's Pilkington concurs, and recommends that CFOs use a technique known as a "customer lifecycle funnel." "At the top [of the funnel] is the number of visitors to your Web site. At the bottom is the number of completed transactions," he explains. "It's essential to measure and visualize the shape of the funnel."
Water Works
One company that has developed a variation of the lifecycle funnel is ProXchange, a U.K.-based Internet hub where secondhand goods such as machine tools and IT equipment are bought and sold. Less than a year old, ProXchange has set up shop in five European countries already, and has notched up "several hundred" transactions with an average value of about $14,000 each. A large part of the reason for its success is its close attention to customers through a clever use of metrics.
Of greatest importance is what the firm calls its "seven-level waterfall", explains Michael Ogrinz, ProXchange's CFO. Each level corresponds to a certain part of the Web site's transaction process. At the top, level one is a first-time visitor, while level two is a repeat visitor and level three is a registered user. Moving down the waterfall, level four marks the moment when a registered user interacts with the site by asking a question about a piece of equipment for sale. Level five is where a potential buyer places a bid, while level six means the bid has been accepted. The final stage, level seven, is completed when ProXchange receives its commission from the trade.
"The idea is to get visitors to our site to move down the waterfall because that's what drives our bottom line," explains Ogrinz. "By monitoring each level, we can see where our customers get stuck in the system and take action accordingly." For example, towards the end of last year, Ogrinz and his colleagues noticed that visitors to the firm's French site weren't progressing beyond level two. To address this, they devised a direct marketing campaign, encouraging repeat visitors to register. "It was highly successful," boasts Ogrinz. "There was a lot of trickle-down."
Along with the waterfall, Ogrinz also watches the performance of every one of the 21 business categories on ProXchange's Web sites — be it heavy cranes or industrial cleaners — on a country-by-country basis. "Only those categories that earn a sufficient return will survive," he says. And like Culhane of Lastminute.com, Ogrinz feels his Web metrics let him make those sorts of decision at lightning speed: "I can see trends as they're unfolding and react immediately."
Calling All Information
However, when it comes to gathering and analyzing metrics in the new economy, there's more to it than harvesting Web-site data and splicing that with financial figures. For a complete picture, data from other sources should also be used. For example, information from fulfillment and call centers can shed light on how an E-business is performing. In the same vein, adds SAS Institute's Bull, CFOs should take a closer look at working capital performance. In a Web environment, he suggests, supply-chain relationships become much tighter, enabling companies to reduce inventory "to a bare minimum."
Another important source of data comes from other competitor Web sites. One company that can help to compile data such as how many visitors does a Web site get is NetValue, an Internet-monitoring firm. It does so by setting up panels of between 3,000 and 5,000 people in different countries and then observing how they surf the Web. With panels currently in seven European countries, NetValue believes it can give a fairly accurate indication of traffic flows across the Internet.
Bernard Ochs, vice president of business development at NetValue, says that the service is in big demand, and not just as a way to compare one firm's site with that of a competitor. "Increasingly, people want to know what the effect of a merger or an acquisition might be. If this company merges with that company, how much customer overlap is there?"
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