9 Financial Metrics Every ECommerce Owner Should Monitor

9 Financial Metrics Every ECommerce Owner Should Monitor

This timely post is from our friends at Bean Ninjas

As an eCommerce entrepreneur, you have a ton of responsibilities on your plate, from sales and marketing to managing your team, vendors, and any suppliers.

This becomes infinitely harder if you don’t know your numbers.

When you don’t have a firm grasp of the financial side of your business, it is essentially the equivalent of boarding a plane without a pilot. You are going to be in for a rough ride. In this post, we’re going to look at the top 9 metrics that every eCommerce business owner should be monitoring on a monthly basis, including:

1. Revenue

• This is the one metric that even the most stubborn non-metrics-driven eCommerce entrepreneur checks.
• If it is going up and to the right, they might even be bragging about their top-line revenue growth.
• However, this is a dangerous move since top-line revenue doesn’t tell the whole story. You also need to consider revenue for each of your acquisition channels, sales velocity, and the big one – gross margin.
• In fact, many eCommerce businesses have grown their business into bankruptcy because they are obsessed over top-line revenue at the expense of everything else.

2. Contribution Margin

• Contribution margin is the selling price per unit less the cost of the unit.
• This is the fuel that funds your ability to acquire new customers, launch new products, pay yourself and your team, etc.
• Once you have multiple SKUs or are selling on multiple channels, we recommend separating cost of sales, which includes cost of goods sold (COGS), fulfillment, freight, pick/pack, and processing fees) from operating expenses.
• Then, you can take revenue minus cost of sales to get your contribution margin.

3. Profit

• One of the biggest issues that I hear is, my revenue is increasing, but my bank account isn’t.
• This happens when you are tracking and focusing on profit.
• Revenue – cost of sales – customer acquisition costs – operating expenses = PROFIT
• Or put another way, how efficiently are you turning that revenue into profit.

4. eCommerce Conversion Rate

• How many visitors are buying something when they get on your website? This is your conversion rate.
• A good eCommerce conversion rate benchmark to shoot for is 3-5%. Learn More
• If you increase your conversion rate by even a small amount – like 1-2% points – it could mean thousands of dollars in additional revenue.

5. Customer Acquisition Cost (CAC)

• This brings us to CAC – or the cost to acquire a new customer.
• This is pretty self-explanatory, but a good rule of thumb is to ensure that your acquisition costs are always far less than the revenue you are bringing in.

6. Customer Lifetime Value (CLTV)

• Customer Lifetime Value is the amount of money a customer spends with you in a given customer lifecycle.
• This metric is subjective, given that a customer lifecycle for a business might be 6 months or 10 years.

7. Average Order Value (AOV)

• A better metric for newer businesses to track closely is Average Order Value. This is the amount of money that a customer spends when they buy from you. So, you want to make sure that your acquisition costs are less than the average order value.

8. Cart Abandonment Rate

• Did you know that the average cart abandonment rate for eCommerce businesses is 69.57%? That means that nearly 7 out of every 10 shoppers think about buying something but ultimately doesn’t.
• Anything you can do to understand what makes your customers buy as well as strategies for recovering abandoned revenue will go a long way in making your business more profitable.

9. Customer Refund / Return Rate

• Another metric to keep an eye on is the number of refunds, exchanges, and credit card chargebacks.
• Refunds are not only a headache for your customer service team to manage, but it also gets expensive.

As your business grows, it becomes more important to monitor and analyze your data. When you are tracking these 9 metrics, it can help you spot trends, spot potential issues before they blow up, and make informed data-driven decisions to grow your business.

About the Author

Wayne Richard is the International Team Leader/Account Manager at Bean Ninjas. Wayne is a management accountant who forged a 15-year career with tech heavyweight Hewlett Packard before starting his own cloud accounting firm in Tucson, Arizona.

Fate (and the Internet) brought him to discover Bean Ninjas via a blog post. Two years later and Wayne’s involvement with Bean Ninjas had grown from a blog comment to a contractor and eventually equity partnership. When Wayne isn’t managing a global team and equipping eCommerce entrepreneurs with the financial tools they need to enjoy business success and lifestyle freedom, he’s being an everyday superhero to his wife and five children.