Key metrics are important across businesses in every industry. That's particularly true for the likes of eCommerce startups. Owners already do quite a lot of things, but unfortunately, that can lead to overlooking "the small stuff.” Metrics tend to fall under the “small stuff” category every so often.
Read on to learn more about key metrics that need to be managed by ecommerce owners:
THE KEY METRIC: Ad Spend Returns
WHY IT MATTERS: This is the metric that's ideal for any marketing strategy. One of the easiest metrics to calculate hands down is ROAS: return on ad spend. The formula to get it involves ROAS divided by revenue generated by a certain marketing channel by total spend in the channel. It has a similarity to customer acquisition costs, but, instead, there are particular details related to advertising payoff.
THE KEY METRIC: Customer Acquisition Cost
WHY IT MATTERS: Generally abbreviated as CAC, the customer acquisition cost is how much a business spends to gain new clients, customers and even leads. This is where any and all expenses related to marketing and sales divided by new clients within a certain period count towards.
Ideally, the CAC needs to be very low, especially when compared to lifetime values, which should be high.
THE KEY METRIC: Customer Lifetime Value
WHY IT MATTERS: In a nutshell, customer lifetime value is the contributions by a buyer from their very first order all the way to the last. It is the revenue generated by a customer through the whole B2C (business-to-consumer) relationship with a business.
Customer lifetime value will end up rather low if one-time buyers aren't converted into repetitive ones. Needless to say, vice versa is true as well. Lifetime value will end up quite high if customers are repeat buyers. It's worth noting that tracking lifetime value metrics isn't easy by any means. It's absolutely worth the effort, though, since the data can be leveraged against CAC.
This matters largely because customers who become more valuable over time will mean a higher ROI (return on investment) in terms of customer acquisition and advertising.
THE KEY METRIC: Operational Cash Flow
WHY IT MATTERS: While the term is self-explanatory (and the world 'operational' can be interchanged with 'operating'), it's worth defining. It's how much cash a company generates throughout a given period, measured within those parameters.
Operational cash flow is basically the revenue a business gets minus money spent on advertising, overhead, purchasing inventory, shipping, or other operating costs. It's a crucial metric because it's usually the preferred choke point in order to scale.
Having an updated insight into a business's operating cash flow plays a key role in projecting future cash flow and planning the eCommerce business's next steps forward.
Metrics are incredibly important for businesses across all industries. eCommerce, in particular, benefits from a number of them. Owners have to manage many metrics well and need to focus on them being in an ideal state at all times. Key metrics include operating cash flow, ad spend returns and customer acquisition cost.
Looking for an ecommerce accounting firm to help you be on top of your metrics? Reach out to The ECommerce Accountant today! We’re eager to help influencers and online stores by being their go-to business advisors.