The e-commerce metrics investors expect to see

The e-commerce metrics investors expect to see

Want to know the secret to better decision making? Data. It’s also a magnet for investors.

Here we explore the key data and metrics every e-commerce business needs to know.

E-commerce businesses: what metrics to use and how to present them

The six areas of your business you should always be monitoring through data are:

• sales performance
• customer behaviour
• marketing results
• customer experience
• supply chain, and
• cash.

Comparing these month-on-month, year-on-year and against budget is the best way to provide more meaning.

Let’s take a deeper look at each

Sales performance

Understanding sales is vital to any business but in an e-commerce business there tends to be a lot more data available to analyse.

It can highlight important opportunities as well as challenges, giving you actionable insight to improve and create a better customer experience.

• Clicked orders or sales over a defined period, such as month-by-month is one of the more basic but valuable metrics to monitor.  
• Website conversion shows the percentage of website visitors who purchased something, indicating how effective your product pages are.
• Product performance: understanding how each of your products are performing can help you make decisions about promotion and opportunities for potential new product lines.  
• Regional sales performance: geographical data can help you see how sales differ based on region. Segmenting other metrics by region is really important to understand how margin is affected.

Customer behaviour 

• Average order value (AOV) measures the average total of each order placed over a defined period. Ideally, this should be split between the first purchase and repeat purchases.
• Repeat purchase rate measures the percentage of customers that come back for another purchase within a defined period, e.g., 20% means that 20 out of every 100 customers returns over this period.
• Customer lifetime value (LTV) aggregates the total value of each customer (at the gross profit level) based on the length of time they remain a customer. This is normally viewed in a set period such as 12 or 24 months. It’s usually split into cohorts to understand how a specific cohort behaves to better predict future trends.
• Customer churn: specifically for subscription DTC businesses, this shows the rate at which customers cancel their subscriptions. If there are multiple subscription types, you will want to report by subscription type.  Reporting churn by cohort starting month can also provide more insight at what stage customers are most likely to cancel.  There are various other subscription metrics you can monitor such as number of active subscribers (split by subscription type), number of paused subscribers, monthly recurring revenue (MRR) and annual recurring revenue (ARR).

Marketing results

It’s also vital to delve into product performance (or product group performance) so you can better understand Stock Keeping Unit (SKU) performance.

Marketing attribution can be complicated, and there are many different methodologies available. If you’re not confident in this area in-house (and you’re not using an external agency for support), it can be helpful to take a summarised view.

• Return on ad spend (ROAS) is used to monitor the effectiveness of your paid marketing activity. Expect to see fluctuations when you try different initiatives and harness the most effective ones.
• Customer acquisition cost (CAC) measures the aggregate cost of acquiring one customer. You can either view this on a total order basis or first purchase order basis only. Segmenting this helps you better understand where to invest.
• Website traffic is a good indicator of how well your marketing is driving traffic to your website. Absolute traffic is normally the measure to go by, but comparing traffic month-on-month and year-on-year helps see cyclical improvements. Monitoring this after specific campaigns helps understand campaign effectiveness.
• Tools such as CloudIQ can help improve website conversion and identify the drivers of cart abandonment on your website. 

Customer experience 

• Returns rate looks at what percentage of sales result in returns/refunds, so you can investigate why this might be. Returns can often be one of the biggest impacting factors on unit economics – remember, you’ve already spent the money on acquiring the customer and the cost of shipping  
• Cancellations rate or cancellations as a percentage of sales can indicate long fulfilment times causing customers to request a refund before their order is shipped. 
• First response time (FRT) is the time it takes for a customer raising a ticket/query and someone first responding. You will also want to track the average time to resolve the ticket as well.

The following aren’t metrics, but we’re mentioning them because they are still useful to track.

• Return reasons: what is the biggest reason for returns? You need to know this so you can identify product issues or where there might be misinformation on your website, such as size or description.  
• Top 5 refunded/returned products: it can be useful to understand what they are, so you can investigate why this might be.

To capture this data easily, it is useful to have standardised reason codes.  You can then clearly see at the top level the key reasons and act upon this.

Supply chain  

A DTC’s supply chain is its foundation and the key to freeing up working capital. 

• Shipping cost %: as shipping is a variable cost, any increase or decrease can have a big impact on your overall profitability. Monitoring shipping relative to sales can help you consider alternative suppliers, especially as you grow and sell to new regions.
• Average inventory lead time highlights how long it takes to re-order inventory before it arrives at your warehouse/office.
• Value of slow-moving inventory indicates the working capital that’s currently tied up in inventory. By tracking this monthly against a set target threshold you can make decisions and possible work our arrangements with suppliers to reduce or return inventory.
• Average delivery times: to track how long it takes for inventory to be transported to your warehouse. If useful, you might want to do this region by region.

Cash

• Cash runway: cash is one of the most crucial numbers in any business. Knowing your cash position is vital to running the business and something potential investors will focus on. Investors will want to provide enough capital to allow you to execute your plans without providing too much so the company gets complacent.

Making metrics meaningful

Segmenting and comparing metrics

While comparing these metrics to the previous month and year helps you to monitor performance, many of them become even more powerful when they’re further segmented, such as by geography. You can then benchmark one segment (region) against another to really understand which is performing better and why. You can then act to make improvements.

Unit Economics and Contribution Margins

Bringing everything together is Unit Economics and Contribution Margins. These are powerful metrics that give you a complete overview of the business. Monitoring Unit Economics is very important.

E-commerce metrics and data - sometimes less is more

The problem many businesses face is not knowing what data to look at, which can lead to information overload and less action.

Data – what do you need?

Unless data is clean, organised and relevant, it doesn’t hold much value. That’s why it’s important to consider what data you really need.

Avoid overwhelming levels of data distracting from the key trends you want to monitor by having metrics that are closely tied to your strategy. Secondly, find effective ways to display and report on data, such as a visual dashboard that gives you a centralised and real-time view.

Tailor your data

Think about which metrics will give you a live ‘health check’ of your e-commerce business. And tailor the data based on the teams looking at it, or what investors want to see.

Leveraging technology  

Tracking your metrics can be time-consuming, especially when you (or your team) need to continuously export data, group reports together and then manipulate them in excel.

If this sounds familiar, have you considered how this can be automated?  

Automating – start small

You can start small; for example, Shopify apps such as Data Export can automate sending data to Google Sheets, which could be automated to feed into a model or a dashboard in the same sheet.  

Leverage APIs and combine data

We leverage Shopify’s API for many clients, building performance dashboards to monitor live performance across sales, product, fulfilment, expected profit margin and customer behaviour. Combining this with financial data from Xero, for instance, can really enrich sales data to give you a much more powerful, and up-to-date view, of your Unit Economics in the same dashboard.

If you’d like to find out more about how flinder can help your business, please get in touch.