(ThyBlackMan.com) Running a successful retail business requires tracking expenses, revenues and a number of other factors by which the health of the enterprise can be determined. While most people would focus solely on whether or not a profit was generated in a given month month, as you’re about to see, that’s a rather shortsighted approach. Measuring the success of your ecommerce site requires more than determining whether or not you took in more than you spent at any given moment.
Here are the key factors you need to consider.
Site Traffic
You need to have a firm handle on the number of visitors your site attracts each month because every metric below is going to be a function of this one. In other words, your traffic has a direct effect on how many sales you make and how many new customers you attract. This figure will also give you an idea of how well your search engine optimization effort is doing.
Conversion Rate
Let’s say you have 100 visitors to your web site each day. Of these 100 visitors three people make purchases. This means three percent of the people who visited your site converted from shoppers into buyers. And while this might sound like a paltry figure, when you consider a three prevent conversion rate was the industry average in 2018, it doesn’t sound so bad after all. In fact, it means you’re probably doing pretty well. Which brings up a key factor in all of this. When you’re evaluating the numbers, it’s important to have an accurate benchmark against which to draw your comparisons.
Average Order Value
At this point, it might be useful to recall what an ecommerce site is. Shopify, the leading provider of online shopping platforms, says the purpose of an e-store is to facilitate the buying and selling of goods and services. With that in mind, and taking your three prevent conversion rate into consideration; what was the total number of people who bought from you over a month?
Let’s say the month has 30 days and you have three sales each day. This would give you 90 sales at the end of the month.
To determine your average order value, take the total dollar amount of your sales and divide that figure by the 90 buyers. Let’s say the total amount was $9,000.00. Divided by 90, that would give you an average order value of $100.
Now, let’s say the cost of the goods sold plus all of your expenses came to an average of $60. This gives you a 40 percent profit margin per customer. This can help you determine how much is a reasonable amount to spend on customer acquisition efforts such ad advertising, promotions and marketing.
Repeat Customer Rate
As the phrase implies, this is the number of buyers who come back to make additional purchases on your site. By most accounts, 80 percent of your future profit comes from 20 percent of your existing customer base.
With this in mind, the urgency of encouraging repeat business becomes clear.
When you have a handle on how much of your business is currently derived from repeat customers, you can predict your future profitability.
Customer Lifetime Value
This metric gives you an idea of how much each of your customers is worth to your business. More than just a function of how much they spent this month, it gives you an idea of the long-term value of a given customer.
This information is critical to determining how much you should spend to acquire each customer. After all, if you’re paying more to get a customer than they will spend over the lifetime of your relationship, that’s going to be a losing proposition in the long run.
Which is why it’s important to look beyond your immediate yield.
As you have seen, if the numbers are off in any of these categories, your business will struggle in the long run—even if you appear to be making a profit now. This is why it’s important to count more than the money you “have in your pocket” when measuring the success of your ecommerce site.
Staff Writer; William Gold