In eCommerce, we love metrics–you know this, we know this. They’re crucial for tracking progress, making sure the good ship eComm Brand is not in danger of sinking, and empowering teams to make data-driven decisions.
At Daasity, we work with over 1600 eCommerce brands and help them track dozens of metrics, so we wanted to call attention and cover to the “must track” metrics: the metrics that our brands value the most and are most crucial to the health of their businesses.
First thing’s first. No customers, no money. Although we could lead off with a metric like orders, we prefer to think about orders as a function of traffic+conversion rate: that is, people coming in, and people buying.
You need a certain amount of traffic to your eCommerce store to hit your numbers, and if you understand your conversion rate (see next section), you can accurately forecast orders.
However, it’s important to note here that while increasing traffic is a starting point, if your conversion rate is low (i.e., consumers aren’t buying), it likely means you’re not getting the right audience coming to your site, which means you may want to analyze your customer acquisition. Which acquisition channels lead to more purchases?
The percentage of visitors to your site who do purchase is affected by a number of factors (besides acquisition channels), including your site’s UI/UX and speed, the products you’re featuring, your PDPs, your marketing initiatives, your promotions, and more.
Your conversion rate is calculated by dividing the number of conversions (i.e., purchases) by the total number of visitors to your site and multiplying by 100:
To improve your conversion rate, run a conversion funnel analysis to identify where optimization opportunities may exist in your conversion funnel.
The conversion funnel includes the following steps: 1) customers entering your site, 2) going to product pages, 3) adding product(s) to their carts, 4) reaching checkout, 5) making purchases:
By understanding where drop-offs occur in your funnel, you can increase your overall conversion rate. For example, it’s typical to expect a large drop-off between site visits and PDP views, but you may find that by optimizing certain website variables, e.g., improving site speed, you can improve the drop-offs.
Or, by improving and adding to content on PDPs, you may find that customers are more likely to add items to their carts.
How much are you spending per conversion?
Another one of the most essential eCommerce metrics, Cost per acquisition (CPA) shows you the average cost to gain one new customer.
Important note: although CPA and CAC are often used interchangeably, they are technically different marketing metrics:
Cost per acquisition refers to the variable marketing cost ($ spent on ad platforms) to acquire a new customer.
Customer acquisition cost (CAC) refers to the variable marketing cost and other costs such as:
- recurring costs of marketing/eCommerce tools used
- ad vendor cost
- costs to create ad creatives
- team salary
- agency costs (if applicable)
- team salary
To calculate CPA, divide your variable marketing cost by the total number of new customers you’ve acquired. For CAC, add in the costs above into your variable marketing cost, and divide by the same denominator.
For a full guide, head to our cost per acquisition article.
Cost of Goods Sold (COGS, i.e., the cost of sales) refers to the direct costs you incur via manufacturing and selling your products.
COGS includes all the direct costs incurred by a company when it manufactures products. Some are variable costs like labor and storage costs, while others are fixed costs like insurance and utility bills.
Examples of costs generally used in COGS include:
- Raw materials
- Freight-in costs
- Purchase returns and allowances
- Trade or cash discounts
- Factory labor
- Parts used in production
- Items purchased for resale
- Inventory storage costs
- Factory overhead
To accurately calculate your COGS, plug these costs into the following formulas:
For a full breakdown and guide, head to our COGS article.
Average order value (AOV) is the average dollar amount that customers (whether they are new or returning customers) spend at your business, per order. Increasing AOV should be a fundamental goal of every eCommerce brand.
As with other metrics, we recommend tracking AOV on a weekly and monthly basis and comparing recent to past performance:
To calculate AOV, divide your total gross sales by your total valid orders (many AOV calculations we see are inaccurate because they include all orders):
For a full guide (packed with 14 real-life tactics on how to increase AOV), head to our average order value article.
Contribution margin is usually used to calculate and track profitability on a unit basis. It is your top-line sales minus discounts, refunds, returns, cost of goods sold, and marketing costs. In short, it is your sales revenue (or gross profit margin) minus variable costs, and it is sometimes used as a stand-in metric for profitability (though getting to net profit also includes EBITDA).
Your CM is a great number that reflects your company’s health and is the main component in calculating your Break-Even Point (BEP) as well as setting profitability targets when budgeting and planning (which we discuss in our article on MER).
Contribution margin can be expressed as a dollar value or as a percentage. To express it as a dollar value, follow the formula below:
To express it as a percentage, follow this formula:
For a comprehensive guide, head to our contribution margin article.
One of the truly gold standard metrics, LTV is oft-discussed, but unfortunately often miscalculated.
Customer lifetime value is gross margin per customer over their lifetime with your brand. Gross margin is what’s left after you subtract your landed cost, or what it costs you to manufacture (product cost) a product and ship it to your warehouse (freight costs, taxes, duties, insurance).
We recommend a two-step formula to calculate it. First, calculate your gross margin for the specified time period. Second, use gross margin in the formula, as illustrated below:
LTV can be tracked and evaluated in a variety of ways, such as by acquisition channel or first product purchased—understanding what sources and behaviors lead to higher LTV is key for making better spending decisions.
For example, using a visualization that shows LTV by first order SKU can lead brands to promote a particular product over others in order to bring in higher LTV over time.
Using the type of LTV visualization above, bra brand Harper Harper Wilde found that their customers who ordered non-underwire bras as their first purchases had higher LTVs than those who ordered underwire bras.
For a truly comprehensive guide to LTV, head to our customer lifetime value article.
LTV:CAC adds more context to the nature of LTV with acquisition costs.
LTV:CAC (also written as CLV:CAC) is the ratio of your brand’s Customer Lifetime Value and your Customer Acquisition Cost:
Having a strong understanding of your LTV:CAC will be crucial to your brand’s success because it indicates how effective your marketing efforts are, and it projects your brand’s long-term profitability.
For example, if a brand has an LTV:CAC of 1:1, they are likely losing money on every acquisition (when you factor in other costs and taxes), whereas a brand with an LTV:CAC of 3:1 means that they can expect to make nearly 3 times what they spend to acquire every customer.
For a complete guide to LTV:CAC, head to our LTV:CAC article.
Repurchase rate (also known as repeat purchase rate) is the percentage of customers who have purchased more than once in a time period.
To calculate repurchase rate, divide your number of customers who have purchased more than once by your total number of customers from a particular time period:
A common mistake we see is to interpret repurchase rate as the number of customers who have placed more than 1 order from your store out of the customers who have already placed an order within a particular date range.
In other words, repurchase rate is often analyzed as a relative percentage, and not an absolute percentage. It does not reflect total repeat purchase rate, only the repeat purchase rate for that specific time period.
Unless you’re specifically examining cohorts, you don’t want your repurchase rate (and other metrics) to be based on relative analytics. Instead, they should be based on absolute analytics: out of your entire customer base, what percentage of them has made a second purchase?
For a complete guide, head to our repurchase rate article.
Let’s move onto a couple of crucial operations metrics now…
Weeks of Supply
Weeks of supply (aka WOS) is an estimate of how many weeks the inventory of a product will last based on your current sales rate. A healthy weeks of supply is often around 6 weeks, but this depends on your brand and products.
You also can calculate forward-looking weeks of supply, which is based on an estimated future sales rate. Using an estimated future sales rate may result in a more accurate forecast than using a current or historical sales rate: you can incorporate factors such as seasonality as well as previous holiday data for guidelines.
Weeks of supply keeps you on top of your inventory levels. You can understand at a glance if you have a healthy amount of inventory at the product level and ensure your inventory will last until your next purchase order arrives.
Additionally, you can use weeks of supply to monitor and compare inventory levels across different types of products and create standard KPIs for different product categories depending on their average/target rate of sale (ROS).
Carrying Cost %
Carrying cost (also called carrying cost of inventory or holding costs) is the sum of all expenses related to storing products in your warehouse until they sell. The expenses include:
- Product depreciation
- Inventory storage costs (rent of building or rented warehouse space)
Besides calculating and tracking carrying cost on a monthly basis, we recommend tracking carrying cost on a percentage basis. In other words, track how much your carrying cost compares to your total inventory value:
For a full list of operations metrics, head to our operations metrics article.
Tracking metrics and more with Daasity
At Daasity, we empower consumer product brands to track dozens of metrics based on accurate data, as well as hundreds of out-of-the-box reports, deep analytics such as RFM (and customizations of all those metrics, reports, and analytics).
For more information about who we are and what we do, visit our home page or request an On-Demand Demo.