For the smaller retailer without extra funds to spend on analytics, the advent of Google Analytics is a godsend. Google Analytics allows you to set up analytics for your site for free. Now, even the smallest retailer can afford a powerful statistics package.
It's a fact that roughly half of all online retailers don't know what their conversion rates are. Conversion rates are easy enough to calculate (customers/orders), but cart conversion can be a different story. Until now, only retailers with a complex tracking system could measure cart conversion.
Cart conversion is the percentage of customers that complete an order after visiting the shopping cart. It defines how many people start and finish the checkout process.
Cart conversion is important because it measures how effective your checkout process is at getting the sale. Google Analytics gives you a visual representation of your checkout conversion, one step at a time.
Enter the concept of a checkout funnel. A funnel is wide at the top and narrows as you go down, and an online checkout process tends to work the same way. The top of the "funnel" is the shopping cart (there's some controversy as to whether the cart is part of the checkout process, but we'll assume it is for this example). Only a subset of the people that hit the shopping cart will proceed to the shipping screen, and only a subset of those people will reach the billing page. At the end of the process is the order confirmation screen, which typically sees an even smaller number of people.
The ultimate goal, of course, is for 100% of your customers to drop through the funnel and purchase, but that doesn't happen realistically for a number of reasons we won't go into here. In a perfect world, the funnel would appear like a cylinder.
As long as you've added your Google Analytics code snippet in your pages to allow for tracking, you can create a checkout funnel. Google Analytics allows you to set up "goals," so you'll want to set up a goal called "Cart conversion" and paste in the URL for each step in your checkout process.
After you've set this goal up, you'll find the report under Content Optimization > Goals & Funnel Process > Defined Funnel Navigation. Once you have received data for the goal you've set up, you'll see the number of visitors that have hit each step and the success rate.
What you do with this information is up to you. Obviously, you want to reduce dropoff from one step to another. I've completed many checkout optimization studies, so if you're interested in how to use this information, drop me an e-mail.