(Read Time 8 min)

As an ecommerce business owner, understanding which performance metrics to track can be a daunting task. With so many metrics available, it can be difficult to know which ones will help you make informed decisions about how to grow, how to strategize, and how to optimize your ecommerce store.

In this blog post, we will explore the key metrics that ecommerce businesses should track to drive growth. By tracking these metrics, you can gain a deeper understanding of your business's health and make data-driven decisions about how to increase revenue, improve customer retention, and optimize your marketing strategy.

Whether you're new to the game or a seasoned pro, I've got some valuable insights to share with you. Get ready to learn some simple strategies that will take your metrics from good to great! Trust me, with the tips I'm about to share, you'll be running a thriving ecommerce business in no time.

So, let's dive in and explore the metrics that matter for growing your ecommerce business.

Overview

Before diving into the specifics of each metric, let's review the two categories we will cover: business metrics and customer metrics.

Business Metrics:

1. Revenue

2. Contribution Margin

3. Ad Spend

4. Media Efficiency Ratio (MER)

5. Average Order Value (AOV)

6. Conversion Rate (CVR)

Customer Metrics:

1. New Customer Acquisition Cost (NCAC)

2. First Order Profitability % (FOP)

3. Total New Customers

4. Customer Return Rate

5. Churn Rate (Subscriptions)

6. Lifetime Value (LTV)

Business Metrics

REVENUE

This one is pretty obvious. Revenue is a key metric for ecommerce businesses as it measures the total amount of money generated from sales of products or services. It is important to break down revenue by channel, such as website sales, Amazon sales, or sales from other marketplaces. Tracking revenue by channel helps businesses identify areas for growth or where to make adjustments to their sales strategies.

Low Revenue? Heres how to fix it...

• Implement upsell and cross-sell strategies to increase the average purchase value of each customer.

• Optimize your pricing strategy by testing different price points to see what drives the highest revenue.

• Make better offers to incentivize new customers to make a purchase.

CONTRIBUTION MARGIN

The contribution margin is a critical metric for ecommerce businesses as it helps determine how much revenue your business generates after accounting for variable costs such as product costs, shipping costs, and advertising costs. The formula for calculating contribution margin is:

Net Sales - *Cost of Delivery - Ad Spend = Contribution Margin

By tracking this metric, ecommerce businesses can make informed decisions about pricing, promotions, and marketing investments. For example, if the contribution margin is low, it may be necessary to increase prices or reduce costs to increase profitability.

*Cost Of Delivery: Everything that is included to get the product delivered. COGS, Shipping Fee, Processor Fee, Merchant Fee, Pick & Pack Fee

Low Contribution Margin? Heres how to fix it...

• Reduce costs by negotiating better deals with suppliers, payment processors, or by sourcing materials at a lower cost.

• Increase prices for products with higher margins. If possible, we strive to have Gross Profit Margins at 50% or more.

AD SPEND

Ad spend measures the total amount of money spent on advertising across all channels, including Google Ads, Facebook Ads, and Tik Tok Ads and so forth. By tracking ad spend, ecommerce businesses can determine the return on investment (ROI) of their marketing efforts. If the ROI is low, businesses can adjust their marketing strategy, such as reducing ad spend on underperforming channels and investing more in successful ones.

Low ROI? Heres how to fix it...

• Analyze your ad campaigns to determine which channels are delivering the highest return on investment (ROI) and shift your budget accordingly.

• Use data to optimize your ad creative to improve conversion rates and reduce cost per acquisition (CPA).

• Consider partnering with influencers or running user-generated content campaigns to drive engagement and reduce ad spend.

• Make better offers to incentivize new customers to make a purchase.

MEDIA EFFICIENCY RATIO (MER)

Media efficiency ratio (MER) is the measure of how much revenue is generated for every dollar spent on advertising. The formula for calculating MER is:

Total Revenue / Total Ad Spend = Media Efficiency Ratio

A high MER indicates that the advertising efforts are generating revenue for the business, whereas a low MER may indicate a need to adjust the marketing strategy. By tracking this metric, businesses can ensure they are optimizing their ad spend and maximizing their return on investment.

Low MER? Heres how to fix it...

• Optimize ad spend by analyzing campaign data and adjusting budgets, targeting, and creative accordingly.

• Test different ad formats and messaging hooks to determine what resonates best with your target audience.

• Implement retargeting campaigns to bring customers back to your site and improve conversion rates.

AVERAGE ORDER VALUE (AOV)

AOV is the average amount of money spent per order by a customer. This metric is important as it helps businesses understand how much value they provide to customers. Increasing AOV can be a driver of revenue growth. One way to increase AOV is by offering pre-purchase and post-purchase upsells with one time only offers. Increasing AOV helps counter rising acquisition costs and cash flow for your ecommerce business.

Low AOV? Heres how to fix it...

• Implement upsell and cross-sell strategies to increase the value of each purchase. (Zipify Pages/Zipify OCU)

• Offer free shipping for orders over a certain threshold to incentivize customers to spend more.

• Bundle products together to encourage customers to purchase more items at once.

CONVERSION RATE (CVR)

CVR measures the percentage of website visitors who make a purchase. The formula for calculating CVR is:

Visitors / Total Orders = Conversion Rate

This metric helps ecommerce businesses understand how effective their website is in guiding visitors towards making a purchase. A high CVR indicates that the website is doing a good job in converting visitors into customers. If the CVR is low, you must adjust you website design, product offers, product description pages, website copy, and/or checkout process to increase conversion rates.

Low CVR? Heres how to fix it...

• Optimize your website's user experience to reduce friction, cognitive overload, and decision fatigue.

• Always be testing different landing pages, messaging, copy, design, offers, and calls to action to determine what resonates best with your target audience.

Customer Metrics

NEW CUSTOMER ACQUISITION COST (NCAC)

NCAC measures the cost of acquiring new customers. The formula for calculating NCAC is:

Ad Spend / Total New Customers = New Customer Acquisition Cost

Tracking NCAC helps ecommerce businesses determine the effectiveness of their marketing efforts. If the cost of acquiring new customers is high, businesses may need to adjust their marketing strategy and/or front end offers to acquire new customers at a lower cost.

High NCAC? Heres how to fix it...

• Make better offers to incentivize new customers to make a purchase. (The Offer has a lot to do with multiple key metrics)

• Analyze your ad campaigns to determine which channels, audiences, messaging, and creatives are delivering the highest ROI and shift your budget accordingly.

• Consider partnering with influencers or other Joint Ventures to drive engagement and bring new customers.

• Implement an affiliate program to incentivize your current customers to refer their friends and family

FIRST ORDER PROFITABILITY % (FOP)

FOP measures the profitability of the first order from a new customer. The formula for calculating FOP is:

AOV - COD - NCAC/AOV X 1 = First Order Profitability %

This metric helps ecommerce businesses understand whether they can generate a profit from the first order of a new customer. A high FOP indicates that the business can generate a healthy profit margin on new customers (which is difficult but achievable). By maximizing FOP, you can reinvest more quickly for growth.

Low FOP? Heres how to fix it...

• Optimize your pricing strategy to ensure that your margins are healthy and that you're making a profit on each sale (if possible strive to 50%+ gross profit per sku)

• Implement strategies to increase Average Order Value.

TOTAL NEW CUSTOMERS

Total new customers are the total number of new customers acquired during a specified period. This metric helps ecommerce businesses forecast future growth and project revenue. By tracking the total number of new customers, you can ensure they are acquiring new customers at a sustainable rate.

Not bringing is lots of new customers? Heres how to fix it...

• Make better offers to incentivize new customers to make a purchase.

• Implement referral programs to incentivize your current customers to refer their friends and family.

• Leverage social media to drive awareness and reach new customers.

• Use data to optimize your ad targeting and creative to improve conversion rates and reduce CPA.

CUSTOMER RETURN RATE

Customer return rate measures the percentage of customers who make a second purchase. This metric helps you understand customer loyalty and retention. A high customer return rate indicates that customers are satisfied with their purchase and are likely to make additional purchases in the future. By retaining existing customers, you can reduce the cost of acquiring new customers and increase revenue. Maintaining a high CRR help increase Lifetime value and tells you customers are loving your products.

Low CRR? Heres how to fix it...

• Share your mission, values, and connect with customers in a personal way

• Implement a loyalty program to reward customers for repeat purchases.

• Optimize your customer experience by providing exceptional customer service and support.

• Send personalized offers and promotions to encourage customers to come back and make another purchase.

CHURN RATE (SUBSCRIPTIONS)

Churn rate measures the percentage of customers who cancel their subscription within a specified period. This metric is important for ecommerce businesses that offer subscription services (which we suggest all stores do). A high churn rate indicates that the subscription service may not be meeting the needs of customers nor providing the value they want. By reducing churn rate, businesses can increase customer retention and revenue. Subscriptions is one of the most effective ways to grow a business, so tracking this metrics allows for constant improvement.

High Churn Rate? Heres how to fix it...

• Analyze your subscription data to determine why customers are churning and address those issues.

• Implement a loyalty program to incentivize subscribers to stick around.

• Send personalized offers and promotions to encourage subscribers to renew their subscription.

LIFETIME VALUE (LTV)

LTV measures the total amount of revenue a customer is expected to generate over the course of their lifetime. This metric is important for ecommerce businesses as it helps identify the most valuable customers. By maximizing LTV, businesses can increase revenue and profitability. One way to increase LTV is by offering personalized recommendations or promotions based on a customer's purchase history.

At NewHeidts we like to specifically track 60 day Lifetime Value or 90 Day Lifetime Value. In doing so it gives us a specific timeframe to which we can understand how much we can acquire a new customer for, what's the AOV and First Order Profitability and then map out a journey of touch points over the next 60/90 Days that we can add value, make more offers, understand where we break even (if we acquired a new customer at a loss) and then increase their 60/90 day Lifetime Value. This gives us a system and strategy we can continually optimize to increase LTV and profit.

Low LTV? Heres how to fix it...

• Map out a 60/90 Day Journey of a new customer with multiple touch points, offers, and value adds.

• Implement a loyalty program to encourage repeat purchases and build long-term customer relationships.

• Leverage email & sms marketing to send personalized offers and promotions to encourage customers to come back and make another purchase.

• Use data to identify high-value customers and target them with relevant offers and promotions.

• Continually create and test new product and offers (low ticket to high ticket offers)

CONCLUSION

Tracking key business and customer metrics is essential for ecommerce businesses to make informed decisions about pricing, promotions, and marketing investments. Revenue, contribution margin, ad spend, media efficiency ratio, average order value, and conversion rate are some of the key business metrics that businesses should track to optimize your sales strategies.

Meanwhile, new customer acquisition cost, first order profitability, total new customers, customer return rate, churn rate, and lifetime value are customer metrics that can help businesses understand customer loyalty and retention. By analyzing and optimizing these metrics, businesses can increase revenue and profitability, acquire new customers at a lower cost, and retain existing customers for long-term growth.