Key mterics to ecommerce profitablity

Key Metrics to Ecommerce Profitability

3/25/2019

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How can Ecommerce be Profitable?

All businesses start with a specific goal in mind. For most, it’s profit.

Even, Non-profit organizations – or when the main driver of a business is a personal goal, like being able to work in a more flexible way or spending more time with family – income is almost always required for sustainability. Entrepreneurship can deliver on the various freedoms it promises, but success requires an active understanding of a business’s finances – which starts with knowing what to measure.

3/25/2019

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Key Metrics to Ecommerce Profitability Gross profit margin Customer Acquisition cost Discounting Strategy Free cash flow Financial Freedom 3/25/2019

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1- Gross Profit margin Gross profit margin is “a financial metric used to assess a company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS).” Gross profit margin is critical because it immediately gives you an overview of how your current revenue is serving the rest of your business, and whether it is doing so at a profit or a loss. This has a far-reaching impact on your strategic and tactical options of how to run your business.

3/25/2019

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2- Customer Acquisition Cost Your Customer Acquisition Cost is the average dollar amount you spend to acquire a new customer (i.e., attracting them and persuading them to make a purchase from you). Oftentimes, businesses find that their CAC is out of control and exceeding their gross profit margins. It’s possible to use a loss-leader strategy in the short-term and for some products, but selling your products at a loss over an extended period of time may put your business at risk.

3/25/2019

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3- Discounting Strategy

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Gross profit margin and CAC are the building blocks for creating a good discounting strategy. Too often, it is seen that eCommerce businesses with an aggressive and significant discounting strategy , but with zero visibility into how that relates to their gross profit and CAC. You have an Average Order Value (AOV) of $100.

A gross profit margin of 30% leaves you $30 gross profit on an average order.

Your CAC is about $15, which means you are earning $15 per $100 order (or about 15%).

If a discount exceeds 15%, this business likely making a loss on that sale.

3/25/2019

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4- Free Cash Flow Many businesses die because they run out of cash — even businesses that show an accounting profit. If you only monitor these metrics and improve them over time, you should see your profitability growing nicely. But for a holistic and complete analysis, you should still weigh growth in profitability against the availability of cash in your business. “Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets.

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5- Financial Freedom It’s hard to build a successful business without really understanding these metrics. The starting should always be putting better tracking and monitoring in place. If you don’t have any insight into these metrics and you just started tracking them, the absolute numbers matter less. What matters more is that you have started the process, which will help you make improvements over time.

3/25/2019

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Information contributed by Buy Your Kart, one of the leading Ecommerce Development Platform. To know more visit www.buyyourkart.com & launch your eCommerce website or app in one click.

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