Five key metrics for eCommerce profitability

Products mentioned
Success requires metrics

HubSpot recently reported that Global B2C eCommerce sales are expected to reach $4.5 trillion by 2021. And by 2022, B2C eCommerce sales in the Middle East and North Africa (MENA) are projected to increase two-fold compared to 2019. This means growth potential in the eCommerce profit for B2C companies moving into eCommerce.
However, starting an online store can be very challenging. You might invest money, time, and resources in increasing the number of visits, and then be surprised that zero sales are made. At that moment, you could start asking yourself; how can you avoid this? What should you do?
In this article, we answer this question in two words: eCommerce metrics. We’ll tell you all about what we mean by ‘eCommerce metrics’, what eCommerce metrics you should measure, and how to measure them.
Let’s start!

Five key metrics for eCommerce profitability

1. Cost of Acquiring a Customer (CAC)

Let us start with something simple, the Customer Acquisition Cost. Customer Acquisition Cost (CAC) is the cost that determines your company’s fate. It helps you obtain the average cost of each eCommerce customer and know the profitability of marketing actions.
CAC is calculated by:

Dividing everything invested in sales (any action that aims to attract more sales) and marketing during a given period by the number of customers that have been achieved during that time.

For example, if a company spent $1000 on marketing in a year and acquired 100 customers in the same year, their CAC is $10.00.
Related articles: Customer Acquisition Cost: The One Metric That Can Determine Your Company’s Fate

2. Customer Life Cycle Value (CLTV)

Customer Life Cycle Value (CLTV) is one of the most important eCommerce profit metrics. It represents the total revenue a business can reasonably expect from a single customer account.
CLTV is calculated by:

Multiplying the average profit that the client has generated in a year by the number of years in which he is a client, subtracting the cost of acquisition (CAC).

Remember: The longer a customer continues to purchase from your company, the greater their lifetime value becomes.

3. Customer Satisfaction

customer satisfaction men eating ice cream

Customer satisfaction is a metric designed to measure the level of content for which your clients have shown towards a product, service, or experience.

Companies that are actively geared towards their customer’s success are experiencing more revenue because of increased customer satisfaction, HubSpot.

Multiple metrics serve to interpret customer tastes through psychological graphs, search history, or demographic studies, among others. Beyond these metrics, Customer Service is a valuable source of suggestions and the best indicator of eCommerce customer satisfaction.
Note: Customer Service Advisor must have full knowledge of the online store’s products to meet buyers’ needs.
For more effective customer support, You can read GoDaddy’s Customer service survival guide for small businesses.

4. Conversion Rate (CR)

Conversion Rate is the percentage of visitors to your website or to a specific landing page who get “converted”, that is, who complete what they are invited to do there and turn into leads.
The conversion may involve making a purchase, subscribing to a newsletter, providing contact details, registering with your site, etc…
To calculate the conversion rate, you need to know the number of visitors you had within a given period of time, and how many conversions you obtained in that same period.

Conversion rate = (Conversions / Total Visits) x 100.

For example, if last month your online store had 40,000 visitors and 800 conversions, then conversion rate was (800/40,000)x 100= 2%
Related articles: 39 Quick Ways to Increase Your Website’s Conversion Rate

5. Return on Investment (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.

ROI is the metric that shows the profits generated by a specific marketing action.

Unfortunately, eCommerce ROI, while a simple metric on the surface, is actually one of the most difficult metrics to accurately determine for eCommerce site. For B2C companies, it can be especially challenging and many online stores make the mistake of calculating the return on investment of their eCommerce taking as a sample the data of a single sale.
And now, how to measure the Return on Investment (ROI)?
Calculating ROI at first glance appears to be quite simple:

ROI = (PROFIT – INVESTMENT) / INVESTMENT x 100

Imagine that you created a Facebook ads campaign and you invested $300 in it. Through the campaign you acquired 5 customers. And the average checkout price was $100. The ROI will be:
ROI = (5*100 –300) / 300 x 100 = %66

Remember: Understanding how to measure the eCommerce profit or the return on investment (ROI) you get or plan to get from your B2C eCommerce investments is crucial in determining whether your online store will succeed or not.

Conclusion

As an online store owner, you should monitor the metrics daily. Sometimes the data is useful, but it causes us to look at irrelevant metrics and lose sight of the most relevant KPIs for our business.
Be aware that each industry is different, and you must find the actionable eCommerce metrics that best suit your sector.
I know, knowing your suitable metrics is one of the most boring things when managing an online shop, but it can make your business more effective in the long term.

Image by: Frank BuschviaUnsplash.

Selina Bieber
Based in Dubai, Selina heads up MENA and Turkey at GoDaddy, overseeing the growth of the business and brand in this exciting region. Before joining GoDaddy, Selina headed up media relations across Europe for a large-scale energy project headquartered in the Netherlands and was on the agency-side leading marcomms activities for the likes of Facebook, Verisign Inc and Euler Hermes. Selina grew up in Australia, studying international studies and media at the University of Adelaide before moving to Istanbul and completing a Master’s Degree in Political Science at Boğaziçi University. She also holds a CIM Level 6 Diploma in Professional Marketing. With English as her mother tongue, Selina additionally speaks Turkish and German.