Key Financial Metrics Every Ecommerce Business Owner Should Master

10 min read

Accurate and up-to-date financial metrics are critical for determining the success and health of any business. These numbers aren’t just figures; they’re the GPS guiding business owners through the twists and turns of profits and losses.

Key financial metrics help business owners to make business decisions that directly impact the bottom line. Luckily, you don’t have to be a financial guru to understand the key performance indicators that help your business operate.

Let’s discuss key financial metrics every ecommerce entrepreneur should grasp to keep that business ship afloat.

What Are Financial Performance Metrics?

Closely monitoring the business metrics in any ecommerce business is mission-critical. You can’t drive the business forward without knowing where the weaknesses lie. Financial performance metrics provide valuable insight into where your business can improve.

So, what are financial performance metrics? Let’s discuss.

Financial metrics or KPIs (key performance indicators) are used to determine an ecommerce company’s performance and overall health. These metrics consider revenue, expenses, sales, profits, and other key financial metrics that are typically reviewed on a weekly, monthly, or quarterly basis.

These metrics can help business owners understand necessary costs like acquiring new customers, profitability during any given time, and much more. With these critical metrics in mind, business owners can make data-driven decisions that drive long-term growth and expansion.

Wondering what is KPI in business apart from financial metrics? Read this article that covers essential business KPIs for online stores:

Key Financial Metrics for an Ecommerce Business

Ecommerce businesses have an abundance of critical metrics that should be monitored on a weekly, monthly, and annual basis. Let’s discuss the best financial metrics to evaluate a company here.

Revenue Growth Rate

Revenue growth rate is a powerful metric that helps businesses understand how much their revenue has grown over a specific period.

It’s measured in a percentage and can help entrepreneurs and business owners measure how rapidly their business is growing. It’s also handy to refer back to when a company has introduced a new product or initiative to understand its influence on this change, whether positive or negative.

Calculating revenue growth rate:
Revenue growth rate = (Revenue month B – Revenue month A) / Revenue month A X 100

Customer Acquisition Cost

Customer acquisition cost (CAC) is the amount of money a business spends to acquire (or win) a new customer. It helps businesses understand the efficiency of their sales and marketing process and how profitable customers make the business.

Calculating customer acquisition cost:
CAC = Marketing campaign costs/customers acquired

Average Order Value

The average order value (AOV) calculates the average amount a customer spends on each order. It helps to understand customers’ shopping behaviors and how much they’re willing to spend on your products.

The majority of ecommerce businesses track this metric monthly to get the full picture of customers’ spending and shopping habits.

Calculating average order value:
Average order value = Revenue/number of orders

Average revenue per customer/visitor

Revenue per visitor is a helpful metric to measure how well online sales perform. It accurately assesses the average revenue amount per visitor to your website. It’s important to note that revenue per visitor calculates unique visitors to the site, not total visits.

Calculating revenue per customer:
Revenue per visitor = Total revenue/number of visitors (during a specific period)

Gross Profit Margin

Gross margin is calculated by subtracting the cost of goods sold (COGS) from your total net sales. It helps to measure production efficiency and can provide insight when setting the price of products. Gross profit margins also help evaluate cost control and overall pricing strategies in the market.

Calculating gross profit margin:
Gross profit margin = (Net sales — COGS) / Net sales

Net Profit Margin

The net profit margin indicates a company’s profitability by showing how much profit it makes as a percentage of its revenue. It’s a valuable metric for businesses to evaluate the effectiveness of generating profit from sales and monitoring if operating and overhead costs are under control.

Calculating net profit margin:
Net profit margin = (Net income/Revenue) X 100

Working Capital

Working capital is the difference between a company’s working assets (cash, customer invoices, current inventory) and its liabilities (accounts payable, debts).

Working capital measures a company’s short-term financial health and reflects operational efficiency.

Ecommerce companies typically require lower working capital as they engage with a larger customer base compared to businesses in other sectors.

Calculating working capital:
Working capital = Current assets — current liabilities

Inventory Turnover Rate

Inventory turnover rate describes the period from when a company purchases a product to when it is purchased by a customer. Simply put, it is the number of days it takes to sell the inventory on hand.

This metric helps businesses understand how their products sell and make better strategic decisions about manufacturing, pricing, and purchasing.

Calculating inventory turnover rate:
Inventory turnover rate = Days in period / (COGS / Average inventory value)

How to Track Financial Performance Metrics

Calculating and understanding important financial performance metrics isn’t as challenging as it sounds, and there are tools and software that can help. Popular tools include SimpleKPI and GeckoBoard. Such tools offer monitoring and management functionality to support business owners in making smart financial decisions.

What is best is that some ecommerce platforms come with built-in metrics analytics. Take Ecwid by Lightspeed, for example. It has a built-in reporting tool that provides insights on different metrics of a company. Reports include data on Visitors, Conversions, Orders, Marketing, and Revenue of an online store.

Ecwid’s Revenue reports provide insights into some of the key financial metrics we discussed above:

Average order value
Average revenue per customer
Average revenue per visitor.

Checking average revenue per visitor in Ecwid’s reports

However, that’s not all. Ecwid’s Revenue reports also provide you with data on the following:

Store revenue: the total amount of money your store gets from sales
Costs and expenses: how much money you spend to make money from sales
Taxes: the total amount of taxes charged on all orders in your store
Shipping expenses: a total of all shipping rates that you specified for your shipping methods
Handling fee: if you specify handling fees for your shipping methods, you’ll see the total amount of fees for all orders
Cost of products sold: the sum of product cost prices specified in your store settings.

Tracking financial metrics will help your ecommerce business sustain healthy growth over time. You’ll be able to monitor and project your revenue over time and improve your customer journey for better profits.

Here’s what Ecwid seller Benjamin Dorner of BraveBrew says about Ecwid’s reports:

The new Reports feature helps us track the most important KPIs without barriers: when purchases are made, how often purchases are made, and from which devices purchases are made. All in all, it’s great and more fun than third-party apps. Benjamin Dorner of BraveBrew

Start Monitoring Financial Metrics for Your Store

Overwhelmed by all the financial metrics examples you should be monitoring as an online business owner? Don’t stress! You don’t have to be a math genius to interpret these numbers — just a positive attitude and a little support from reporting tools.

Ecwid provides a fully functional ecommerce platform with built-in reports on the most crucial online store metrics. Get started today and track your business performance right where you manage your online store — in your Ecwid admin.

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Business Finance

Jul 31, 2024

About the author

Anastasia Prokofieva is a content writer at Ecwid. She writes about online marketing and promotion to make entrepreneurs’ daily routine easier and more rewarding. She also has a soft spot for cats, chocolate, and making kombucha at home.