Tracking the growth of your eCommerce business can be frustrating and challenging if you don’t have the assistance of an accounting department in your corner. Fortunately, there is a handful of KPIs that you can use to track how well your business is doing and spot areas where things can improve.
These key performance indicators require minimal math. However, you will need clear figures to help you determine the results, so be sure your books are up to date. If you want to keep your figures at the forefront of your business, here are the six KPIs that you need to be calculating right now:
1. Average Order Value
If you want to know how much the average client spends on your eCommerce website, then it is time to calculate your average order value. This lets you know roughly how much each customer is spending in a given transaction. While you will have some orders that are larger or smaller than this figure, the average order value is a great starting place to calculate revenue.
Average order value is calculated by dividing total revenue by the number of orders placed.
This is an important place to start because the average order value will be used to calculate other figures, such as the customer lifetime value. Knowing just how much a customer is expected to spend in a given transaction is essential to determine ROI.
2. Customer Acquisition Cost
How much money do you have to spend to facilitate a sale with a prospective customer? This customer acquisition cost is essential so that you know where your money is going in order to get to the average order value.
Tallying up your customer acquisition cost means having your finger on the pulse of all your marketing and sales expenses, though. To calculate this KPI, you will add up all of your sales and marketing expenses divided by the number of new customers.
Why is this metric one of the most important to keep tabs on your sales? Your customer acquisition cost measures how much money is being spent just to draw in one new customer. It can reveal areas where you might be able to cut costs or clue you in to whether you need to raise your prices.
3. Shopping Cart Abandonment Rate
You put a lot of effort into bringing customers into your eCommerce business. You present a great product, an awesome offer, and special perks for customers who purchase now. They add items to their cart and then abandon them without making a purchase.
Calculating this KPI is a bit more involved than average order value or customer acquisition cost, but it is still relatively easy if you are familiar with your figures. Here is the formula you would use to come up with a percentage of shopping carts abandoned:
1 – (completed transactions/shopping carts created) x 100
4. Conversion Rate
To know how effective your sales tactics are, you need to know how many of the customers you interact with are going to convert to sales. This makes it possible to roughly predict how much you will make in revenue when combined with other KPIs like average order value. If you aren’t sure how well your marketing and offers are going over with customers, your conversion rate can reveal valuable data.
All you have to do to calculate this is to divide your number of conversions by the volume of leads and multiply by 100 to get a conversation rate percentage.
From here, you can use this data to determine how much you are making off the number of leads you have. Take your conversion rate and multiply by the average order value that you calculated in an earlier step. This tells you how much revenue you are likely to bring in based on the current number of leads and conversions that you are receiving.
You can also use this KPI to determine what your sales would look like if you were able to improve that conversion rate by a modest amount. By writing a more effective call-to-action or presenting a new offer, you might be able to increase traffic by 0.5 percent or more which will result in more sales conversions and more revenue in general.
5. Customer Lifetime Value
If you want to know how much net profit each of your customers is expected to deliver to your company over their lifetime, you need to calculate the customer lifetime value. The CLV is an important KPI that tells you how much each of your customers is likely to bring into your eCommerce business over the length of their relationship with you.
Why measure customer lifetime value? The answer is simple: It helps you to better calculate your return on investment and allows you to make more plans for the future. It also shows you the clear benefits of maintaining a long relationship with each customer.
This calculation requires you to dig deep into your company finances. You will need to know the average order value, the number of times a customer buys per year, and how many years they typically are retained by your business. Multiply all three of these factors together to come up with your customer lifetime value.
Keep in mind that this is just a rough estimate of what your eCommerce business could make off of each individual customer.
6. Gross Profit Margin
It should come as no surprise that your gross profit margin is a KPI that you should always be tracking. As an eCommerce business, this is one of the simplest numbers to calculate, but it also tends to be one of the most overlooked. Low gross profit margins might indicate that it is time to raise your prices or to change your pricing structure altogether.
Calculate it with this formula:
Gross profit = Net Sales – Cost of Goods Sold
You should strive to have higher gross profit numbers because this means that each transaction will net more for the business. However, you have to find the sweet spot where your customers are okay with the price for the value that you offer them.
Hire a Professional
The truth is that keeping up with all of your books and your key performance indicators can be a real chore. You need to know how each number affects the others and areas for improvement. If you aren’t mathematically inclined, it might be time to hire professional eCommerce accounting in Winnipeg with Compass Accounting.
We have the experience you need to measure just how successful your eCommerce business is and could be. Give us a call today to learn more about how we can help your growing business.