7 Key Metrics Every e-Commerce Owner Needs to Manage

7 Key Metrics Every e-Commerce Owner Needs to Manage

There’s no room for guesswork in the blood-shed arena like e-Commerce. To enjoy healthy growth and meet your long-term goals, keeping a close eye on your e-Commerce business metrics is essential. I know, keeping up with those numbers take time and effort, which often seems unaffordable for e-Commerce business owners like you who face up new challenges every day. But running your business without analyzing the numbers is similar to driving without checking the key information on your dashboard — it is dangerous to say the least. To look at it in a positive way—getting clarification on your business metrics could clear your doubt and help you to identify the best track to move forward. With insight based on metrics, it is easier to scale. Certainly, it does not mean that you should put aside your business tasks now and become a financial analyst today. But as the leader of your business empire in the making, you need to develop a sense of identifying the key metrics. Here, we listed seven indicators that we think all e-Commerce owner need to understand and manage. They drive the health and growth potential of your business. Let’s dive in.

1. Conversion Rate

Certainly a well-known metrics among e-Commerce owners, conversion rate is arguably also the most important metric to monitor. You probably know already, conversion rate is the percentage of visitors to your site who end up making purchases. A higher conversion rate means you have a higher return on your investments in traffic, whether it’s paid traffic or organic traffic. That also means you can afford to have higher cost of your paid traffic, as you’re more efficient in converting traffic into sales. If you have a lot of traffic coming to your site but your sales volume is low, it is better to invest in improving your conversion rate, rather than investing in more traffic.

2. Gross Margin Rate

All business owners should know what their “margin” is, but a positive margin figure by itself, in fact, does not say much about your performance. To know how profitable your business is—or to compare yourself with peers, it is essential to check your Gross Margin Rate. Your Gross Margin Rate is:
(Revenue – Cost of Goods Sold) / Revenue. Sale revenue is simple—you know—that is the total amount of money generated by selling your products. Cost of goods sold (COGS) is the total expenditure you made to sell these products. These include your costs of purchasing your products, shipping, fulfillment costs and import duties. The differences between sales revenue and COGS is your gross margin. Then gross margin rate comes up from your gross margin dividing by your sales revenue. Basically, you want your Gross Margin Rate as high as possible. The higher it is, the more profit you make and the more you can invest in acquiring new customers or expanding your product portfolio. There is not one golden benchmark for what a good Gross Margin Rate is – it differs between industries and product categories. You could compare your GMR with peers to see where you are in your industry. If your GMR is low or lower than your competitors, check your pricing strategy – are you charging too little? – as well as your purchasing price, warehousing cost and fulfillment costs.

3. Average Order Value

Your average order value (AOV) is the average amount of money each of your customers spends per order. You can determine your AOV by taking all your sales from a given period, adding them up, and then dividing the resulting sum by the number of sales made in the specified period. As one of the most important e-Commerce metrics, your AOV lets you know whether customers typically make large or small orders. Your Average Order Value multiplied by your Gross Margin Rate tells you your average margin per order. And this shows you how much you can afford to spend on new customers to keep their first order profitable for you. Here as well, there is no universal benchmark for what your Average Order Value should be, but in general: higher = better. Now, we’re no marketing guru’s, but in general we recommend using the following tactics to improve your average order value:

• Cross-sell / bundling your products
• Upsell to higher ticket items
• Offer discounts for bulk and high-volume orders
• Donate to non-profit agencies for each order over a certain minimum
• Offer free shipping for orders over a certain minimum
• Create a “Money-Back Guarantee” for pricey products and services

4. Customer Lifetime Value

The amount of revenue a customer generates throughout his/her entire business-to-consumer (B2C) relationship with you is the Customer Lifetime Value. Or, to put it simpler, it is how much the buyers contribute to your business from the first order they place to the last. If you aren’t converting one-time shoppers into repeat buyers, your LTV could be low. And, vice versa, if you tend to have repeated customers, your LTV would be higher. The more valuable your customers are over the course of their relationship with your brand, the higher your return on investments made in advertising and customer acquisition. While LTV is one of the hardest metrics to track, you can leverage this data against your cost of customer acquisition (CAC, see next point) to determine how long it takes to make back the money you spend on marketing and other customer acquisition efforts. It’s impossible to calculate LTV without a margin of error since consumers consistently surprise us. However, you can use your AOV, average purchase frequency rate, and average customer lifespan to get a pretty good idea of how much money each customer will net after they’ve been acquired.