Growing your eCommerce business is infinitely harder if you don’t have a firm grasp of your finances.
After all, how do you know where to invest in marketing if you don’t know your top traffic channels or customer acquisition cost?
These are just a couple of metrics that all eCommerce entrepreneurs should be tracking.
In this post, we’re going to look at the 9 growth metrics that all eCommerce entrepreneurs should monitor in their financial reports and/or dashboards.
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Top-line revenue – we suspect this is the one metric that every entrepreneur reading this post is already tracking to some degree.
However, focusing too much on top-line revenue can be problematic. You want to make sure you are also taking into revenue-related metrics like sales velocity, gross margin, and contribution margin.
For example, it is possible for an eCommerce business to grow itself into bankruptcy because they obsess over growing top-line revenue at the expense of running a sustainable and profitable business. After all, if you generate $1.1 million in new sales this year, but it costs you $2.1 million to run your business and fulfill all of the orders, you are going to run into trouble unless you are well-funded and can absorb a large burn rate.
Have you ever found yourself wondering why your sales are increasing, but your bank balance isn’t? This happens when you are focusing on revenue instead of profit.
Here is how you can calculate your business’s profit:
Revenue – cost of sales – customer acquisition costs – operating expenses = PROFIT
Pro Tip: If you use cloud accounting software, such as Xero, you can keep tabs on your business’s profitability through your P&L statement. And don’t forget about cloud backup.
Top Customer Acquisition Channels
How are people first hearing about your business?
What are the top traffic channels by sales volumes?
Are they converting right away? Or, did they have to hear about your brand from multiple channels before purchasing something?
Monitoring your top traffic channels can help you invest your marketing dollars more wisely. You can double down on channels that are already working.
eCommerce Conversion Rate
In a given month, how many people are buying something from your website as opposed to just browsing? This is your conversion rate.
In addition, how does your conversion rate change based on different traffic channels? For example, is your conversion rate higher for email traffic than, say, traffic from Facebook?
While your conversion rate will vary based on the industry you are in, a solid benchmark to shoot for is 2.58%.
Increasing your conversion rate by even 1% point can stretch your marketing budget further and lead to thousands of dollars in new sales.
Customer Acquisition Cost (CAC)
CAC is simply the amount of money it costs to acquire a new customer.
While it might sound obvious, you’ll want to make sure the cost to acquire a new customer is less than the customer lifetime value (More on that in the next section).
Just like with conversion rates, it is a good idea to track this sitewide as well as based on individual traffic sources.
This is another way to stretch your marketing budget further. For example, if you notice your storewide CAC is $15, but CAC from organic search is only $7, you might want to redirect more marketing dollars to SEO.
Customer Lifetime Value (CLTV)
Another metric to keep an eye on is CLTV. This is how much money the average customer spends with you in a given time period.
In our experience, this metric is more important to track for established businesses, who have been around for at least a few years. That’s because they have more insights and data around customer buying habits, how often they make repeat purchases, etc.
For newer businesses, this metric is inherently subjective since you don’t have enough data yet to know the true customer lifetime value. This can lead you to spend money acquiring new customers than you should because you are banking on making that money back later, which may or may not happen.
Pro Tip: If a newer business insists on measuring LTV, a more accurate way to do so is through cohort LTV.
Average Order Value (AOV)
This is why tracking AOV is super important – especially for newer businesses. This is the total amount of money that a customer spends each time they buy from you.
A simple rule of thumb is to keep your acquisition costs substantially lower than your average order value.
Return On Ad Spend (ROAS)
Tracking ROAS is important if you spend any money on paid ad campaign Facebook, Instagram, Google, etc.
This allows you to gauge what advertising metrics effects are most effective.
In fact, we found that 33% of eCommerce businesses have increased their advertising and marketing spend since the global recession and pandemic started.
Cart Abandonment Rate
This brings us to the final metric to keep a close eye on – cart abandonment rate.
This is the number of people who think about buying something but don’t end up going through the purchase.
From an abandoned cart email workflow to surveying prospects and customers alike, anything you can do to understand why someone buys from you is important. You can use this information to improve your brand positioning and turn more visitors into buyers.
As your business grows, monitoring these 9 eCommerce growth marketing metrics becomes more important.
Wayne Richard 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 contractor to equity partner.
When Wayne isn’t managing a global team and equipping 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.
Wayne is Bean Ninjas’ resident eCommerce expert.