In the dynamic world of D2C ecommerce, understanding your business metrics goes beyond reviewing your P&L statement and balance sheet. While these metrics are crucial, they also often fail to capture the nuances of how your ecommerce business truly operates and grows. That’s where a robust ecommerce D2C scorecard comes into play.
This blog post will guide you through the essential ecommerce KPIs that can help you accelerate business growth.
Jump to:
- Ecommerce KPIs Glossary
- Importance of Ecommerce KPIs
- Essential Ecommerce KPIs
- Planning for Growth vs. Profitability
Ecommerce KPIs Glossary
- D2C (Direct-to-Consumer): A business model where companies sell directly to consumers without intermediaries, often through digital platforms.
- Ecommerce KPIs (Key Performance Indicators): Metrics used to measure and evaluate the success and performance of an ecommerce business.
- P&L Statement (Profit and Loss Statement): A financial statement summarizing revenues, costs, and expenses over a specific period.
- CAC (Customer Acquisition Cost): The cost associated with acquiring a new customer, calculated by dividing total acquisition costs by the number of new customers.
- COGS (Cost of Goods Sold): Direct costs related to the production of goods sold, including material, labor, and operational costs.
- AOV (Average Order Value): The average monetary value of orders placed, calculated by dividing total revenue by the number of orders.
- ROI (Return on Investment): A metric comparing the profitability of investments or marketing activities, calculated by dividing net profit by total cost and expressing as a percentage.
- Ecommerce Gross Profit: The difference between revenue and the cost of goods sold, providing insight into the profitability related to sales and operational expenses.
- MER (Marketing Efficiency Ratio): A ratio measuring the efficiency of revenue generated per marketing dollar spent, calculated as total marketing spend divided by total revenue.
- Blended ROAS (Return on Ad Spend): A metric aggregating all advertising channels to measure overall effectiveness, calculated by dividing total revenue by total ad spend.
Importance of Ecommerce KPIs
Data-driven decision-making is vital for ecommerce success. By analyzing trends, companies can adjust strategies for short-term and long-term growth. For example, rising CAC without revenue growth may require marketing changes.
Comprehensive metric analysis integrates KPIs like ROI, CAC, and retention rates, revealing their interconnections for strategic adjustments.
Focusing too much on one metric, like ROAS or CAC, can limit growth opportunities. Instead, businesses should balance various KPIs for informed strategies that enhance performance and ensure sustainable success.
For a comprehensive, visual overview of these concepts supported by examples and case studies, watch this video where Human’s CEO, Joel Brda, explains ecommerce KPIs for D2C success:
Essential Ecommerce KPIs
Understanding and effectively using key performance indicators (KPIs) is crucial for any ecommerce business striving for success. These metrics provide deeper insights into your operations that go beyond the typical financial statements.
Let's explore eight fundamental ecommerce KPIs:
Revenue
Revenue serves as a fundamental measure of your business's sales performance.
It's the all-up numbers from your different channels, summing up all online revenues, including product sales, shipping fees, and any discounts applied. It’s crucial to consider revenue alongside other metrics to avoid any false positives from a good sales month that might not indicate sustainable growth.
The formula for calculating ecommerce revenue is straightforward:
Revenue = Number of Orders × Average Order Value (AOV)
Where:
- Number of Orders is the total count of transactions or purchases made.
- Average Order Value (AOV) is the average amount spent per transaction, which can be calculated as:
AOV = Total Revenue / Number of Orders
Customer Acquisition Cost (CAC)
CAC reflects how much is spent to acquire a customer. This is calculated by dividing your media spend by the number of net new customers acquired during a specific period.
For example, if you acquire 26,000 customers with $815,000 spent, your CAC is $31 per customer. Whether your strategy is growth-focused or centered on market share, understanding CAC helps align your spending with your business objectives.
The formula for calculating CAC is:
CAC = Total Acquisition Costs / Number of New Customers Acquired
Cost of Goods Sold (COGS)
COGS is another vital aspect to consider when assessing profitability. It encompasses your direct costs, including the hard product costs, merchant fees, shipping, and any variable expenses.
Instead of looking at COGS as a standalone figure, evaluate it as a percentage of revenue. This way, you can easily track how well you’re managing your costs relative to sales and ensure you’re maintaining a steady margin.
COGS can be broken down further into:
- Product COGS
- Merchant Account Fees
- Shipping & Delivery Costs
Tracking these metrics will help you identify areas where you might be overspending or leaving money on the table.
The formula for calculating COGS is:
COGS = Beginning Inventory + Purchases During the Period − Ending Inventory
Where:
- Beginning Inventory is the value of inventory that a business had at the start of the accounting period.
- Purchases During the Period are the additional costs incurred to produce or acquire goods during the period (e.g., raw materials, direct labor).
- Ending Inventory is the value of the remaining unsold inventory at the end of the accounting period.
Return on Investment (ROI)
Your ROI measures the total revenue generated from your marketing efforts minus discounts, divided by your total marketing spend, including agency fees or in-house marketing costs. It’s a comprehensive look at whether your overall marketing approach is effective. ROI is typically expressed as a percentage for easier comparison across different investments or marketing activities.
A 6.3X return, for example, indicates stronger returns relative to outlay. This gives you a clear view of how effectively your marketing drives revenue.
The basic formula for calculating ROI is:
ROI = (Net Profit / Total Cost) ×100
Ecommerce Gross Profit
In addition to ROI, you should also consider Ecommerce Gross Profit — a specialized metric that factors in variable feels like advertising costs alongside traditional COGS. Ecommerce Gross Profit helps you understand the true financial impact of marketing campaigns on your bottom line and what remains from your revenue to reinvest in your business.
The formula to calculate ecommerce gross profit is:
Gross Profit = Revenue − COGS
Marketing Efficiency Ratio (MER)
MER is an essential benchmark that measures the efficiency of your revenue generation per marketing dollar spent. It's calculated as total online revenue divided by the total marketing spend across the different channels.
MER gives you a quick snapshot of how well your marketing budget is converting into sales, showing you where optimizations may be needed.
The formula for calculating MER is:
MER = Total Marketing Spend / Total Revenue
Blended Return on Ad Spend (ROAS)
Don’t confuse MER with ROAS which focuses on revenue generated from advertising spend.
Blended ROAS aggregates all your advertising channels into one metric: Total revenue over media spend. It gauges your campaigns' overall effectiveness, taking a structured approach to attribution across platforms like Google and Facebook.
It’s important to ensure your ROAS remains balanced and aligned with your long-term growth goals. If your ROAS is too high, you might be underspending on marketing and missing out on potential growth opportunities.
The formula for calculating blended ROAS is:
Blended ROAS = Total Revenue / Total Ad Spend
Where:
- Total Revenue includes all revenue from both paid and organic channels.
- Total Ad Spend refers to the total amount spent on paid advertising.
Retention Revenue
Retention Revenue is a critical component of sustainable business growth, representing the income generated from existing customers who continue purchasing over time. Retention efforts can boost profitability and stability, often at a lower cost than acquiring new customers.
Retention Revenue is simply calculated as your total revenue minus new customer revenue. It's the remainder of income generated by your existing customer base.
Retention Revenue = Total Revenue - New Customers Revenue
Striking a balance between acquiring new customers and nurturing existing ones is vital for achieving long-term business success. While new customer acquisition fuels growth, retention ensures continued revenue streams. Monitoring retention revenue alongside new customer revenue helps identify whether your strategies focus too heavily on one area. Hitting a high retention percentage indicates effective customer engagement and satisfaction.
Read more: 29 Ecommerce Metrics to Track
Planning for Growth vs. Profitability
Navigating the balance between growth and profitability is pivotal for ecommerce businesses. Decisions in this context often revolve around whether to focus on expanding market share or maximizing immediate profits.
When aiming for market share, businesses prioritize increasing their top-line revenue, often reinvesting earnings into customer acquisition efforts. This might mean accepting lower profit margins or breaking even in the short term to establish a stronger foothold in the market.
Strategies include aggressive marketing campaigns, expanding product lines, or entering new markets to attract new customers and improve brand visibility.
Conversely, focusing on profitability involves optimizing operations to maximize margins. This might include cost reduction, enhancing customer retention, or increasing the value derived from each customer. A profitability-focused approach requires disciplined financial management to ensure sustainable growth over time.
Evaluating Break-Even Points and Profit Margins
Assessing break-even points is essential for aligning financial strategies with broader business objectives. Businesses need to calculate:
- Break-Even Point: Where total revenues equal total costs, ensuring no profit or loss.
- Profit Margin: The percentage of revenue that exceeds costs, reflecting sales profitability.
Understanding these metrics helps businesses decide when to invest aggressively or pull back to preserve profitability. Regularly evaluating financial metrics in light of operational goals allows businesses to strike a balance tailored to their strategic focus.
Hit Your Ecommerce KPIs With Human
However you measure success, understanding and using the right KPIs in ecommerce is all about making informed decisions.
Whether you're focused on acquiring new customers or nurturing long-term relationships, Human can help you navigate the complex world of ecommerce . We will tailor your marketing campaigns based on your KPIs, optimizing operations and driving sustainable growth. From strategic planning to implementation, we’ll position your ecommerce business for success.
Learn more about our ecommerce services and connect with us today to explore how we can support your ecommerce journey!
