In order to stay competitive, e-commerce businesses need to be able to track and understand their online store metrics, including revenue, conversion rates, customer acquisition costs, and average order value. The problem is that many e-commerce businesses don’t track these things. But you need to. If you want to be profitable, then you have to know the answers to these questions:
- Are we making enough money to cover our bills and expenses?
- How much money do I have on hand right now?
- How quickly can I get more inventory if I need it?
- Am I earning a profit today? What is my profit margin?
- Do I have enough cash flow to survive an unexpected expense?
These are the fundamental questions that will keep your business afloat. If you don’t have the answers to them – or a way to find them out – then you need to get started
In this article we will look at five essential metrics every e-commerce business should be tracking to stay on top of their game:
Customer Acquisition Cost (CAC): how much are you spending to acquire a customer?
The first metric is CAC (Customer Acquisition Cost). CAC is a very important metric for measuring your store’s performance. It gives an indication of how many customer acquisitions are needed to generate $1 in profit. For example, if you spend $10 on an ad source to acquire a customer and you are earning $5 per order, then the CAC is $10/$5 = 2.0 customers. If you are earning $10 per order, then it would take 20 customers to make $1 in profit. You can use this metric to understand which sources of customer acquisition are most profitable, and also to understand how the profitability of your store changes over time. Check out Mayple’s e-commerce marketing guide for more advanced methods.
Top-line growth: watch this closely to make sure you have a repeatable business model. You can optimize your marketing spend by looking at your ROAS (return on ad spend).
No matter how you run your business — whether it’s dropshipping or selling straight out of your own warehouse — your revenue is the most important metric of all. Everything stems from this number. Your revenue tells you how much money you’re bringing in through your online store, which allows you to calculate your profit margin at the end of the day. That said profit margin isn’t the most important metric to look at when it comes to store profitability. In fact, profit margin can actually be quite misleading if you take it out of context, what with your costs being as important as your revenue when it comes to determining how much money you’re really making.
Cash Flow: How Much Money do You Have on Hand Right Now?
Cash flow is one of the most important aspects of running a small business. Which means it is one of the most important things you can track in a spreadsheet. If you aren’t tracking how much cash comes into your business and how much money leaves, then you don’t really know what’s happening with your business. If there is no way to know how much cash is coming in and going out, then your business is flying blind. And when you are flying blind, bad things happen. The big secret is that if you can improve traffic, sales and conversion, then you can increase profit. And, if you can decrease costs – including things like supply chain costs, marketing costs, phone bills and customer support costs – then those savings will increase your profit as well.
Customer Lifetime Value (CLV): how much do your customers spend?
Customer lifetime value is a crucial metric to understand and use to your advantage. It can be calculated in several ways, but the easiest is simply adding up all of the revenue that you’ve made from a customer over their entire lifetime as a buyer on your e-com site.
The longer that you can keep customers on your platform and the more repeat purchases they make, the higher CLV can be. This is an incredibly powerful metric, because it allows you to set goals for future sales, profit, and growth based on the past successes of your loyal customers.
Example: You have a customer who buys $1000 worth of products across several months. They have since stopped making purchases, but you know that they spend about $250 per month on the average site they participate on. How should you market to them to get them back on your platform? First, you should identify what actions you want them to take next like newsletter signup or social share. Then, create some messaging that speaks directly to this goal. Finally, look at your data and test out some different variables so that you can increase your chances of success!
In an industry increasingly focused on metrics like these, it’s vital that business owners really understand their core numbers and how to use them.
Average order value (AOV).
Your AOV is the average amount of revenue you get from a single transaction. Your AOV is based on both your pricing strategy and the customer experience on your site.
Average order value (AOV) is one of the most important metrics for any online store. Here’s why: If your AOV increases over time, then that means you are likely pricing your products correctly to meet consumer demand
The common KPIs that every e-commerce store owner should track are revenue, total orders, average order value, conversion rate, and average customer value. Those five metrics can help you identify profitable sales and marketing opportunities.