Why payment analytics is the key to smarter business decisions

*Editor's note: This article was updated on October 1, 2021 from its original publish date of May 9, 2019.

Every transaction represents more than a sale. It represents a satisfied new customer, the loyalty of a long-time fan, the desirability of a new product offering, the results of a successful ad campaign, or the effectiveness of your checkout process.

While you probably already use your payments data to understand business performance like profit, margin, and transaction volume, each payment also provides a deeper level of insight that you can use to make smarter business decisions–if you know how to analyze it.

Enter payment analytics, the process of reviewing and analyzing transaction data–across channels, and around the world–to help you run your business more efficiently and effectively. By analyzing payment transactions, your customers tell you through their purchase behavior exactly what they like and don't like about your business, so you can double down on what works and fix what doesn't.

Here are five ways to effectively use payment analytics as a key source for actionable business insight.

1. Determine your customer lifetime value

Not all customers are created equal. While some customers only buy once, others come back again and again on their own. By calculating your customer lifetime value (CLV), you can understand how much each customer is expected to spend over the length of their relationship with your business.

To calculate your CLV, simply follow this formula:

CLV= (Average purchase value) x (Average purchase frequency rate) x (Average customer lifespan)

Once you understand that number, you can better project future revenue based on your current customer base, measure the effectiveness of campaigns targeted towards repeat customers, and segment your customers to better understand why some spend more–and how to attract more like them.

2. Measure the impact of marketing campaigns, price changes, and market changes

A/B testing of email headlines, changes to your website, and price adjustments can all lead to increased traffic to your store and website. But if you're only tracking digital analytics, you'll miss a crucial data point you need to understand if that traffic converted to sales.

With payment analytics you can better understand your transaction data and evaluate the impact of broad marketing initiatives on your sales. You can assess targeted initiatives on specific products, or even the impact of a competitor releasing a new product or campaign in your market. To do so, analyze the period of time when your product or campaign wasn't in market and compare it to when it was in market. Year over year sales data works best if you have it.

What you learn will give you the rationale to test initiatives at different locations to predict how they will impact your overall business, or understand how localized factors like public health, weather, economic conditions, and local trends may impact sales at other locations.

3. Minimize your shopping cart abandonment rate

Imagine you operated a grocery store and that each day you found nearly 70% of your shopping carts filled with food abandoned in aisles throughout the store. For online retailers, that's the reality: customers abandon an average 69.8% of online shopping carts.

While many customers abandon items for reasons that are out of your control–they got distracted, were just browsing, or were placing items in the cart to compare later–your shopping cart abandonment rate can also indicate friction in your checkout process.

Use your payment analytics to divide the number of completed online purchases by the number of virtual shopping carts created to measure how your abandonment rate changes as you modify your checkout and payment process.

For example: 100 completed online purchases/200 carts created = 50% cart abandonment rate

4. Reduce chargebacks

A chargeback is a request by the card network to refund a customer due to a fraudulent transaction or a dispute, such as a customer who didn't receive their order. Chargebacks are especially disruptive because not only do you lose the money you have to refund, but you may also lose the product that you sold, the money you spent to ship it, and the business costs incurred in selling it.

While chargebacks are a cost of doing business, how much of a cost is up to you. Payment analytics can help you understand which transactions tend to lead to chargebacks so you know where to focus your efforts. Actions you might take with this insight include improving your security standards to reduce fraud, minimizing sources of friendly fraud, optimizing customer service to reduce customer disputes, or working with your shipping company to improve deliveries.

5. Improve your sales forecasting

Payment analytics can not only tell you how you did, but your sales performed in the past, but can also provide insight into how you will do in the future. By examining your transactions year-to-date and year-over-year, you can better understand why your current financial performance is the way it is and predict how it will shake out the rest of the year.

Forecast on a regular basis–monthly instead of yearly, for example–for a more accurate view of your future performance. This will allow you to proactively adjust your plans to take advantage of new opportunities or shore up the business if sales are slow.

Leverage payment analytics to grow your business

These are just a few examples of the valuable insights you can uncover once you incorporate payment analytics into your business planning. Keep in mind that with so much data at your fingertips, you'll need to determine upfront which metrics matter most to your business. This will help you stay focused on meaningful insights that help improve business performance and delight your customers.

One easy way to start working with payment analytics is through solutions like our data and reporting applications. We provide access to your payment data all in one place, so you can:

• Explore payment data — deposits, disputes, settled transactions and more.
• Quickly find or troubleshoot transactions.
• Measure your performance and develop actionable insights.

These days, making data-driven decisions is critical to business success. By leveraging your payments data, you can make smarter, more strategic decisions that can help you reduce costs, drive revenue and improve the customer experience. Learn more about how our data and reporting applications help you do just that.