The Failed Transaction Rate (FTR) is a critical e-commerce metric that provides insight into the percentage of transactions that don't successfully complete.
This rate includes failures due to a variety of factors, such as payment processing issues, website glitches, or customers abandoning their shopping carts. Understanding and managing FTR is critical to improving the customer experience and increasing the efficiency of an ecommerce operation.
Key Takeaways
- Definition: Failed Transaction Rate (FTR) is the percentage of e-commerce transactions that fail to complete successfully due to various factors, such as payment processing issues or website glitches.
- Calculation: FTR is calculated by dividing the number of failed transactions by the total number of transactions and then multiplying the result by 100.
- Strategic Importance: FTR is critical to monitor because it impacts customer experience, revenue optimization, operational insights, market competitiveness, and data accuracy.
- Optimization Strategies: Reducing FTR can be achieved by optimizing the payment gateway, improving site stability, streamlining the checkout process, implementing effective error messaging, and continuously monitoring and analyzing errors.
- Limitations: FTR doesn’t capture the reasons for failures, can be influenced by external factors, doesn’t differentiate between transaction types, doesn’t reflect customer intent or satisfaction, is subject to seasonal fluctuations, isn’t directly linked to profitability, can overemphasize technical aspects, and requires complementary metrics for full understanding.
- Complementary metrics: FTR should be evaluated alongside metrics such as conversion rate, customer satisfaction score, and shopping cart abandonment rate for a comprehensive view of e-commerce performance.
Why does Failed Transaction Rate matter for your business?
For e-commerce businesses, monitoring and minimizing the FTR is crucial for several reasons:
- Customer Experience: A high FTR can frustrate customers, leading to a negative perception of the brand and deterring repeat business.
- Revenue Optimization: Each failed transaction represents potential revenue lost. Reducing FTR can directly impact and increase the business’s revenue.
- Operational Insights: Analyzing the reasons behind transaction failures can provide valuable insights into operational weaknesses, whether in the website’s functionality, payment system, or checkout process.
- Market Competitiveness: In a highly competitive online market, having a low FTR can be a significant differentiator, attracting more customers who seek seamless transaction experiences.
- Data Accuracy: High FTR can skew data analytics, affecting forecasts and strategic decisions based on transaction data.
How to calculate Failed Transaction Rate (FTR)?
Explanation of the parts of the formula:
- Number of Failed Transactions represents the count of transactions that were not completed successfully on the website. These include transactions that were abandoned, failed due to payment issues, or disrupted by website errors.
- Total Number of Transactions refers to the overall number of transactions attempted on the website. This total includes both successful and unsuccessful transactions, encompassing all activities from the initiation to the final stage of the checkout process.
- The ratio obtained from dividing the number of failed transactions by the total number of transactions gives us the proportion of transactions that failed in relation to all attempted transactions. This ratio is a decimal value typically between 0 and 1.
- Multiplying this ratio by 100 converts it into a percentage, making it easier to interpret and compare. A higher percentage indicates a higher rate of transaction failure.
The Failed Transaction Rate thus provides insight into the effectiveness of the transaction process on an e-commerce website, with a lower rate indicating a more reliable and user-friendly process.
Example Scenario
Consider the following situation over a certain period:
- On your website, a total of 2,000 transactions were attempted.
- Out of these, 300 transactions failed to complete successfully.
Inserting these numbers into the formula gives:
- Failed Transaction Rate = (300 / 2,000) × 100
- Failed Transaction Rate = 0.15 × 100
- Failed Transaction Rate = 15%.
This result means that, during this period, 15% of the transactions attempted on your website were not completed successfully, indicating areas for potential improvement in the transaction process.
Tips and recommendations for reducing Failed Transaction Rate
Optimize payment gateway
A reliable and efficient payment gateway is the cornerstone of any successful ecommerce platform. It’s important to ensure that this gateway supports a variety of payment methods, including credit and debit cards, digital wallets, and bank transfers, to accommodate different customer preferences. Seamlessly integrating your payment gateway with your website not only provides a smooth transaction experience for customers, but also minimizes the risk of transaction failures due to payment gateway issues.
Improve site stability
Website stability plays a critical role in maintaining a high transaction success rate. Regular testing and updating of the site can help catch errors and potential crash points before they affect customers. This is especially important during high-traffic periods, such as holiday seasons or sales events, when a spike in traffic can exacerbate existing issues and lead to increased transaction failures.
Streamline the checkout process
The checkout process can have a significant impact on the success rate of transactions on your platform. By making the checkout process simple and intuitive, with clear instructions and minimal steps, you can reduce the likelihood of cart abandonment, a common cause of transaction failure. A streamlined, easy-to-navigate process increases the likelihood of transaction completion, improving the overall user experience and increasing your conversion rates.
Implement effective error messaging
Error messages are often the only communication between the user and the system when a transaction fails. Providing clear, concise, and helpful error messages can guide customers on how to resolve issues that are preventing their transactions. This not only helps recoup potential lost revenue, but also instills confidence in the customer’s ability to resolve issues, improving overall customer satisfaction.
Monitor and analyze failures
Continuous monitoring and analysis of failed transactions can provide valuable insight into common problems or patterns that cause them. This information can help you take proactive steps to prevent future failures. For example, if a particular payment method is consistently causing transaction failures, it may be worth considering troubleshooting the issue with the payment provider or even evaluating other providers. Regular analysis can help keep your transaction success rates high and ensure a smooth shopping experience for your customers.
Examples of use
Enhancing Payment System
- Scenario: An e-commerce site experiences a high FTR during peak sales periods.
- Use Case Application: By analyzing the data, the site discovers that most failures occur at the payment stage. They upgrade their payment system to handle higher traffic and add more payment options, significantly reducing the FTR.
Optimizing Website Performance
- Scenario: Customers report frequent website crashes during checkout, leading to a high FTR.
- Use Case Application: The e-commerce business invests in better hosting solutions and optimizes the site’s performance, which leads to a smoother checkout process and a lower FTR.
Streamlining Checkout Process
- Scenario: Analysis shows that a complicated checkout process is leading to a high FTR.
- Use Case Application: The business simplifies the checkout process, making it more user-friendly, which results in a lower FTR and higher customer satisfaction.
Proactive Customer Support Integration
- Scenario: An e-commerce platform notices that a significant number of transactions fail due to customer confusion during the checkout process, contributing to a high FTR.
- Use Case Application: To address this, the platform integrates a proactive customer support system, such as a live chat feature, that activates during the checkout process. This tool offers immediate assistance to customers who might be facing difficulties or have questions. As a result, the business sees a decrease in failed transactions as customers receive real-time support, leading to a reduced FTR.
Regular System Testing and Feedback Loops
- Scenario: An online retailer identifies that periodic spikes in FTR are correlated with updates to its e-commerce system.
- Use Case Application: The retailer implements a rigorous testing protocol for any new system updates and establishes a feedback loop with its customers. This approach includes pre-release testing, monitoring immediately after updates, and actively seeking customer feedback on transaction processes. By identifying and fixing issues more quickly, the retailer manages to lower its FTR and enhance overall transaction success.
Failed Transaction Rate SMART goal example
Specific – Reduce the Failed Transaction Rate (FTR) by 30% (from the current 15% to 10.5%).
Measurable – FTR will be monitored and measured using analytics tools, and the rate will be compared monthly to track progress toward the goal.
Achievable – Yes, by optimizing the payment gateway, improving site stability, streamlining the checkout process, and implementing effective customer support.
Relevant – Yes. This goal aligns with the business objective of improving the customer experience and increasing successful transaction rates, which directly impacts revenue and brand reputation.
Timed – Within the next four months.
Limitations of using Failed Transaction Rate
While the Failed Transaction Rate (FTR) is a significant metric for assessing transaction success in e-commerce, it has its limitations in business analysis:
- Doesn’t Capture Reasons Behind Failures: FTR indicates the rate of transaction failures, but it doesn’t provide insights into why these transactions failed. Understanding the reasons, whether they’re technical glitches, payment issues, or customer decisions, is crucial for effective problem-solving.
- Can Be Influenced by External Factors: FTR can be affected by external factors beyond the control of the e-commerce platform, such as payment gateway downtimes, bank issues, or network problems, which might give an inflated view of the actual transaction issues on the website.
- No Differentiation Between Types of Transactions: FTR treats all failed transactions equally, without differentiating between high-value and low-value transactions. The impact of failing a high-value transaction might be significantly more critical than that of a smaller one.
- Doesn’t Reflect Customer Intent or Satisfaction: A high FTR might not always indicate a problem with the transaction process. For example, customers might abandon carts as a way of bookmarking items for future consideration, which could be misconstrued as a transaction failure.
- Subject to Seasonal Variations: Like many e-commerce metrics, FTR can fluctuate during sales, holidays, or other seasonal events, potentially leading to misinterpretation of the data if not contextualized properly.
- Not Directly Linked to Profitability: A low FTR is desirable, but it doesn’t directly correlate with profitability. Other factors, such as the value of transactions and operational costs, also play a significant role in determining overall business success.
- Potential Overemphasis on Technical Aspects: In efforts to reduce FTR, there might be an overemphasis on technical solutions, neglecting other important aspects like customer service or user experience, which can also significantly impact transaction success.
- Requires Complementary Metrics for Full Understanding: FTR should be analyzed alongside other metrics like conversion rate, average order value, and customer feedback to get a comprehensive picture of the e-commerce performance.
In summary, while FTR is a useful indicator of e-commerce transaction efficiency, it is not a stand-alone metric and should be used in conjunction with other KPIs and qualitative insights for a balanced and comprehensive analysis of business performance.
KPIs and metrics relevant to Failed Transaction Rate
- Conversion Rate: This measures the percentage of visitors who complete a purchase. A low conversion rate along with a high FTR could indicate significant issues in the transaction process.
- Customer Satisfaction Score: This metric assesses customer satisfaction. High FTR often correlates with lower customer satisfaction scores.
- Shopping Cart Abandonment Rate: This indicates the percentage of customers who add items to their cart but do not complete the purchase. It often intersects with FTR, especially in cases of cart abandonment at the payment stage.
By improving the FTR in conjunction with these metrics, an e-commerce business can improve customer satisfaction, increase sales, and strengthen its market position.
Final thoughts
The Failed Transaction Rate (FTR) is a key indicator of the health and efficiency of an e-commerce operation. By identifying and addressing the root causes of failed transactions, companies can improve the customer experience, optimize revenue, and maintain a competitive edge in the e-commerce marketplace.
Failed Transaction Rate (FTR) FAQ
What is Failed Transaction Rate (FTR)?
FTR measures the percentage of e-commerce transactions that fail to complete successfully, covering issues like payment failures and website errors.
Why is FTR significant for my e-commerce business?
FTR offers insights into operational inefficiencies and customer experience issues, directly impacting revenue and brand perception.
How can I reduce my business’s FTR?
Improving payment systems, ensuring website stability, streamlining the checkout process, and effectively communicating error messages can help reduce FTR.
Are there other important metrics related to FTR?
Yes, metrics like Conversion Rate, Customer Satisfaction Score, and Shopping Cart Abandonment Rate are closely related and provide additional insights into your e-commerce performance.
Does a high FTR always indicate a problem?
While a high FTR often points to issues in the transaction process, it’s essential to analyze it in context with other metrics and customer feedback to understand the underlying causes fully.