Important E-Commerce Metrics
E-commerce has revolutionized how businesses go about the sale of goods and services. While it’s opened new opportunities and avenues for revenue generation, it has also come with a world of new complexities. With loads of different metrics, it is not always easy nor intuitive to track the success of your e-commerce business. In this article, we will break down the 8 most important e-commerce metrics worth keeping an eye on.
Conversion Rate: This metric reflects the number of people “converted” to actual paying customers out of the total number of people visiting your e-commerce site.
This figure can be crucial for tracking the success and growth of your business and can also point out pitfalls in your e-commerce strategy that may be losing you potential customers.
Gross Margin Rate: The GMR reflects the revenue retained after accounting for the cost of goods sold.
This metric allows you to assess the profitability of your e-commerce business and weed out potential inefficiencies in the production or sale of goods/services, ultimately saving you money.
Customer Acquisition Cost: As the name implies, the CAC measures how much money you spend on gaining new customers. The ideal CAC will depend on the unique circumstances of your business and its specific target market. However, it’s worth noting that your CAC should generally be significantly lower than the Customer Lifetime Value.
Average Order Value: the AOV reflects the average amount each customer spends on your e-commerce site. Reviewing the AOV can help you determine new sales and marketing strategies to incentivize customers to spend more.
Customer Lifetime Value: The CLV measures how much money a customer will spend at your business over a lifetime. As mentioned earlier, having a significantly larger CLV than CAC is generally desirable as this means that a customer adds more value to your business than it costs to acquire them, further speaking to the profitability of your business.
Return on Ad Spending: Marketing, particularly through online ads, is crucial for all e-commerce sites. The ROAS speaks to the success or failure of specific ads, which can speak to the validity of your marketing campaigns. An ROAS of 4:1 ($4 earned for every $1 spent) or higher generally reflects a successful ad.
Inventory Turnover Ratio: This metric reflects the number of times inventory is sold in relation to the number of times it’s replenished over a given period. Tracking this metric can help better understand the speed at which you generate revenue and can help reveal potential inefficiencies in your inventory cycles.
Contribution Margin: This metric reflects the portion of a sales revenue after accounting for variable costs. A variable cost is an expense that changes depending on the production output or sales quantity/velocity. Tracking the contribution can help reveal important details on the shifting costs associated with labour, production, transportation, and storage and how they may change as your sales output or velocity increases or decreases.
Tracking the contribution margin and studying the causes and implications are essential to understanding your business’s profitability.
For personalized advice and support, reach out to VN Accounting Solutions, a trusted accounting and financial services firm based in the Greater Toronto Area with locations in Brampton, Bowmanville, and Mississauga.
