Accurate and
Key financial metrics help business owners make business decisions that directly impact the bottom line. Fortunately, you don’t have to be a financial guru to understand the KPIs that help your business run.
Let’s discuss the key financial metrics that every eCommerce entrepreneur should grasp to keep their business ship afloat.
What are financial performance metrics?
Keeping a close eye on business metrics in any eCommerce business is
So what are financial performance metrics? Let’s talk.
Financial metrics, or KPIs (key performance indicators), are used to determine the performance and overall health of an e-commerce company. These metrics take into account revenue, expenses, sales, profits, and other key financial metrics that are typically reviewed weekly, monthly, or quarterly.
These metrics can help business owners understand necessary costs such as acquiring new customers, profitability over time, and much more. With these critical metrics in mind, business owners can do
Wondering what KPIs are in business besides financial metrics? Read this article that covers basic business KPIs for online stores:
Key Financial Metrics for an E-Commerce Business
E-commerce businesses have a number of important metrics that should be tracked weekly, monthly and annually. Let’s discuss the best financial metrics to evaluate a company here.
Revenue growth rate
Sales growth rate is a powerful metric that helps businesses understand how much their sales have grown over a period of time.
It is measured in percentages and can help entrepreneurs and business owners measure how fast their business is growing. It’s also helpful to go back to when a company introduced a new product or initiative to understand its impact on that change, whether positive or negative.
Calculating the rate of income growth:
Sales growth rate = (Sales Month B
Cost of customer acquisition
Customer Acquisition Cost (CAC) is the amount of money a business spends to acquire (or acquire) a new customer. It helps businesses understand the effectiveness of their sales and marketing process and how profitable customers create business.
Calculation of customer acquisition costs:
CAC = cost of marketing campaign/acquired customers
Average order value
Average Order Value (AOV) calculates the average amount a customer spends on each order. It helps to understand the buying behavior of customers and how much they are willing to spend on your products.
Most e-commerce companies track this metric monthly to get a complete picture of customer spending and shopping habits.
Calculation of average order value:
Average Order Value = Sales/Number of Orders
Average revenue per customer/visitor
Revenue per visitor is a useful metric for measuring online sales performance. It accurately evaluates the average amount of revenue per visitor to your website. It’s important to note that revenue per visitor counts unique visitors to a website, not total visits.
Calculation of sales per customer:
Revenue per visitor = total revenue/number of visitors (during a certain period)
Gross profit margin
Gross margin is calculated by subtracting cost of goods sold (COGS) from your total net sales. It helps measure production efficiency and can provide insight into product pricing. Gross profit margins also help evaluate cost control and overall pricing strategies in the market.
Gross profit margin calculation:
Gross Profit Margin = (Net Sales – COGS) / Net Sales
Net profit margin
Net profit margin shows a company’s profitability by showing how much profit it makes as a percentage of its revenue. It is a valuable metric for businesses to evaluate the effectiveness of generating profit from sales and monitor whether operating and overhead costs are under control.
Calculating Net Profit Margin:
Net Profit Margin = (Net Income/Revenue) x 100
working capital
Working capital is the difference between a company’s operating assets (cash, customer invoices, current inventory) and its liabilities (payables, debts).
Working capital measures the company
E-commerce companies usually require lower working capital because they deal with a larger customer base compared to businesses in other industries.
Calculation of working capital:
Working capital = current assets — current liabilities
Inventory turnover rate
The inventory turnover rate describes the period from when a company buys a product to when a customer buys it. Simply put, it is the number of days it takes to sell inventory in stock.
This metric helps businesses understand how their products are selling and make better strategic decisions about production, pricing and purchasing.
Calculating inventory turnover rate:
Inventory Turnover Rate = Days in Period / (COGS / Average Inventory Value)
How to track financial performance metrics
Calculating and understanding important financial performance indicators is not as difficult as it sounds, and there are tools and software that can help. Popular tools include SimpleKPI and GeckoBoard. These tools offer monitoring and management features that help business owners make smart financial decisions.
The best part is that some e-commerce platforms come with
Ecwid’s revenue reports provide an overview of some of the key financial metrics we discussed above:
- Average order value
- Average revenue per customer
- Average revenue per visitor.
Checking average revenue per visitor in Ecwid reports
But that’s not all. Ecwid’s revenue reports also give you data on the following:
- Store revenue: the total amount of money your store makes from sales
- Costs and expenses: how much money you spend to make money from sales
- Taxes: the total amount of taxes charged for all orders in your store
- Shipping Cost: The sum of all the shipping rates you entered for your shipping methods
- Handling Fee: If you enter handling fees for your shipping methods, you will see the total amount of fees for all orders
- Cost of Products Sold: the sum of the cost prices of the products listed in your store settings.
Tracking financial metrics will help your eCommerce business maintain healthy growth over time. You will be able to track and project your sales over time and improve the customer journey to better profits.
Here’s what Ecwid Marketer Benjamin Dorner of BraveBrew has to say about Ecwid News:
The new Reports feature helps us track the most important KPIs without obstacles: when purchases are made, how often they are purchased, and on which devices they are purchased. All in all, it’s great and more fun thanBenjamin Dorner of BraveBrewthird side application.
Start tracking your store’s financial metrics
Are you overwhelmed with all the examples of financial metrics you should be tracking as an online business owner? Don’t stress! You don’t need to be a math genius to interpret these numbers – just a positive attitude and a little support from reporting tools.
Ecwid provides a fully functional e-commerce platform with