Breaking Down Key eCommerce Metrics
Growing an eCommerce business is a little bit like growing a garden. A good gardener is always checking in on their plants for changes in color, monitoring soil consistency, looking for new buds, and other signs that the plants are healthy or that a problem is beginning to form. To grow a business, it is up to you to frequently check in and monitor your business’s health, both to spot opportunities or nip problems in the bud. But what exactly are you monitoring? Below are 5 key metrics that can quickly help you understand how your brand is performing.
Year to Date Growth
The first metric to look at when understanding a brand’s health is Year to Date growth. YtD growth is simply how much your brand has grown in earnings by percentage compared to last year over the same time period. This is a look at your brands long term momentum and a metric to always keep in mind. As brand owners it is very easy to get nervous about a bad few days of sales, or a poor month, and conversely it is also very easy to get over excited about a few good days. Checking YtD growth numbers regularly keeps the big picture goals in mind and helps make sure the rest of your metrics have perspective.
Gross Profit
Gross profit is simply a look at how much sales you are making compared to the cost of making the good. This is not net profit however. Net profit is your bottom line, or how much you’re making after all business expenses are subtracted. So if high net profit is ultimately what you’re after, why look at gross profit? Simply put, gross profit makes for a better diagnostic tool. If your net profit is too low something is wrong, but your gross profit can help you zero in on where your business needs the help. Is the manufacturing cost too high? Do you need to raise the prices? Do you need to shift focus to selling your higher ticket items, or should you increase production of your cheaper items? Knowing net profit is important for seeing if your business is healthy, but gross profit gives you a quick peak under the hood.
Total Advertising Cost of Sales
In eCommerce, Total Advertising Cost of Sales is your look at how your advertising is doing. TACoS measures the relationship between advertising cost and total revenue your company is generating. Note that this is different from ACoS, or Advertising Cost of Sales, in that ACoS is comparing ad spend to ad revenue. While ACoS is better at seeing how a particular ad campaign is performing, TACoS is useful for seeing the relationship between advertising and sales overall. Ad sales can affect organic sales for both good and bad, so being able to see if your ad spend is building the business overall or burning through money is important for evaluating the overall effectiveness of your advertising strategy. In general, when TACoS are too high it means that you are in effect buying sales, so focusing on improving the quality of your ads may help you get more organic traffic and ease the burden on your ad budget. On the other hand, when TACoS are too low it means you are sitting on a hot product that isn’t getting seen by enough people, so you need to spend more and get that high selling product a larger audience.
Conversion Rate
Conversion Rate is a look at how many people going to your site actually end up buying the product or subscribing to the service. This is an all-important number in eCommerce but not one that’s easily standardized as a healthy conversion can vary wildly between businesses. A high-ticket service converting at 5% may be fantastic and a low-price item converting at 10% may be a sign of a serious problem, so while we do want to optimize conversion there is no one-size fits all solution. Tracking conversion over time though will help you get your businesses baseline and see the effects of sales, new items, price changes, or any other aspect of the business you need to measure. One thing to keep in mind is that just like TACoS can be too low, conversion being too high might be a problem. If your product has a very high conversion, it means that there are likely plenty of potential customers out there who would love your product but aren’t seeing it, so in this case boosting your ads to a larger audience may be the right choice for growing your business even if it technically means seeing a lower conversion rate.
Average Order Value
Finally, Average Order Value is a straightforward metric. AOV looks at how much each customer is spending during their shopping experience and is particularly useful in combination with conversion rate to see how effective each conversion is. Knowing your AOV is one of the first steps in getting to know your average shopper and can help you target a price range for promotions and new goods in development. AOV is particularly important for seeing if upselling promotions are working, as an increase in AOV will mean the warmed customer is simply buying more. In general, looking for ways to increase AOV while maintaining healthy rates on other metrics like conversion is a simple way of growing your brand. We hope this blog post was beneficial!
Thank you,
Commerce Canal Team
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