8 E-Commerce Metrics Every Founder Should Track

Introduction

In the world of e-commerce, knowing how your business is doing is key to success. With so many numbers to look at, it can be hard to know which e-commerce metrics really matter.

Focusing on the right e-commerce metrics can give you a clear picture of your business’s health. This helps you improve your marketing and keep your customers happy. In this post, we’ll go over eight important e-commerce metrics every e-commerce business should track.

We’ll include some average benchmarks to help you understand how you compare. Whether you’re just starting out or have been in the game for a while, these e-commerce metrics will help you make smart decisions for growth and profit.

E-Commerce Metrics

Here are some e-commerce metrics Think Team believes you should track:

1. Conversion Rate: This measures the percentage of website visitors who make a purchase. It’s calculated by dividing the number of transactions by the total number of site visits. A higher conversion rate indicates more effective marketing and user experience.
   
   Tip: The average e-commerce conversion rate is around 2-3%. However, this can vary significantly by industry and product type.
   
   
2. Gross Margin Rate: This e-commerce metric shows the percentage of revenue retained after accounting for the cost of goods sold (COGS). It’s calculated by subtracting COGS from revenue, then dividing by revenue.
   
   Tip: Healthy e-commerce gross margins typically range from 40% to 50% before ad spend, depending on the industry and business model.
   
   
3. Customer Acquisition Cost (CAC): This measures how much it costs to acquire a new customer, including marketing and sales expenses. It’s calculated by dividing total acquisition costs by the number of new customers acquired in a given period.
   
   Tip: While there’s no universal ideal CAC, it should be significantly lower than your Customer Lifetime Value (CLV). A good CLV:CAC ratio is typically 3:1 or higher.
   
   
4. Average Order Value (AOV): This is the average amount spent each time a customer places an order. It’s calculated by dividing total revenue by the number of orders.
   
   Looking for ways to improve your store’s AOV? Check out this helpful article.
   
   Tip: While there’s no universal ideal AOV, and it varies by your product mix and target market, the higher the AOV the better. Strategies to increase AOV include upselling, cross-selling, and offering free shipping thresholds.
   
   
5. Customer Lifetime Value (CLV): This estimates the total revenue a customer will generate over their entire relationship with your business. It’s typically calculated by multiplying the average purchase value by the average purchase frequency rate and the average customer lifespan.
   
   Tip: A good CLV varies widely by industry, but it should be at least three times your CAC.
   
   
6. Return on Ad Spend (ROAS): This measures the revenue generated for every dollar spent on advertising. It’s calculated by dividing the revenue attributed to ads by the total ad spend.
   
   Tip: A good ROAS is generally considered to be 4:1 or higher, meaning $4 in revenue for every $1 spent on advertising.
   
   
7. Inventory Turnover Ratio: This measures how many times inventory is sold and replaced over a period. It’s calculated by dividing the cost of goods sold by average inventory.
   
   Tip: A good inventory turnover ratio for e-commerce is typically between 4 and 6, meaning inventory is sold and restocked 4-6 times per year.
   
   
8. Contribution Margin: Probably one of the most important e-commerce metrics, contribution margin shows how much of your sales revenue is left after covering variable costs. It’s calculated by subtracting total variable costs from total revenue.
   
   Contribution margin helps you understand how much each sale contributes to covering fixed costs and generating profit.
   
   Tip: A good contribution margin varies by industry, but generally, a higher margin is better. For e-commerce businesses, a contribution margin of 30% or higher is often considered healthy.

Conclusion

In conclusion, tracking the right e-commerce metrics is essential for any e-commerce business. These eight key metrics provide valuable insights into your performance and help you make informed decisions.

Regularly monitoring these numbers will not only help you optimize your business but also enhance customer satisfaction.

We’ve helped setup KPI dashboards for several e-commerce brands. Need help with that for your brand? Reach out to our team here.