Financial KPIs for eCommerce | Spot Studio Blog
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Financial KPIs for eCommerce

Financial KPIs for eCommerce

Financial KPIs are, quite simply, the way you measure your financial success. These should be the corner of any digital marketing strategy and without them you’re going to have a real bad time. In order to create a holistic understanding of your digital marketing efforts, you will want to use these KPIs as the root of all your measurements, and combine them with others specified in this guide.

Total Gross Revenue

    \[{\textrm{Total Gross Revenue}}=\sum_{}{}{Sales} \]

 

What is it?
This is the total amount of money made from sales during a set period without any deductions.

 

When would you use it?
This KPI will give you a generalised understanding of whether your company is growing financially in terms of sales revenue. It should be used in conjunction with other metrics in order to understand whether you are losing money somewhere in your business model.

 

Data Sources?
This will be in your shop database, and be accessible through all good platforms for eCommerce businesses.

 

Benchmarking?
It ought to go without saying that the higher this total, the better.

 

 

Gross Profit

    \[{\textrm{Gross Profit}}={\textrm{Gross Revenue}}-{\textrm{Total Cost of Goods}} \]

 

What is it?
The Total Gross Profit KPI is the total amount of money your business has made, minus the cost of the products you sold.

 

When would you use it?
This KPI gives you an understanding of how profitable your business is. It will highlight whether you are spending too much money on goods.

 

Data Sources?
These figures will be in your shop database.

 

Benchmarking?
You will want the gross profit to be as high as possible, growing year upon year.

 

 

Net Profit

    \[{\textrm{Net Profit}}={\textrm{Total Revenue}}-{\textrm{Total Expenses}} \]

 

What is it?
This is the total amount of money your business has made, minus the total amount of money that has been spent on things like goods, staff, advertising, etc..

 

When would you use it?
This is a metric which will give you an understanding of where your business is losing money, and what its largest expenses are.

 

Data Sources?
Shop databases, and expenses accounts.

 

Benchmarking?
As with the above, you want this figure to be as large as possible.

 

 

Avg. Revenue Per User (RPU)

    \[{\textrm{RPU}}=\frac{\textrm{Total Revenue}}{\textrm{Total Customers}} \]

 

What is it?
The RPU is a ratio that will give you an understanding of how profitable your business is on a per-user basis.

 

When would you use it?
RPU is best used by companies which offer a subscription service, such as digital magazines, delivery services, telephony, etc.. This will give you a break down of the average of what each user brings your business and allow you to plan for future growth.

 

Data Sources?
Analytics data, shop database and subscriptions are required to calculate this ratio.

 

Benchmarking?
The higher the better, however, as the RPU doesn’t necessarily have a normal distribution, you will need to take into consideration whether this is giving you a fair evaluation of what each user is bringing. For example, you may have one user who is paying £10,000 per month, compared to the £500 everyone else pays – this will skew the data dramatically and therefore make the average meaningless. Take this into consideration.

 

 

Marketing Spend

What is it?
This is the total amount of money spent on marketing your business or products over the course of a set time (usually the tax year). In some cases this might include the loss to profit from price promotions.

 

When would you use it?
Marketing spend will give you an idea of just how much you are spending on marketing your business. This is valuable on it’s own, but will give best results when compared to other financial KPIs.

 

Data Sources?
PPC expenditure, marketing staff wages, advertising design & campaign expenditure, directory costs.

 

Benchmarking?
In 2015, companies spent an average of 10.4% of their total revenue on marketing. B2C product companies tend to spend more than this, whilst some of the larger marketing and sales management companies are spending up to 50% of their revenue on marketing. On average B2B companies will spend around 40% of their marketing budget on producing and marketing content.

As such, the benchmark will vary dramatically depending upon which sector your business is focused. The rule of thumb, however, is that you should be spending over a minimum 10% to see effective returns on your marketing spend. More information here.

 

 

Gross Margin by Product Type

    \[{\textrm{Gross Margin}}=\frac{\text{Revenue} - \text{Cost of Products}}{\textrm{Revenue}} \]

 

What is it?
The gross margin of a product type is the total sales revenue of the product in question, minus the costs of the product, divided by the total sales revenue. It is expressed as a percentage.

 

When would you use it?
A gross product margin is used to determine whether a product that a company sells is performing as expected, and whether you need to be charging more for the product in question.

 

Data Sources?
Your shop database will contain all information on the amount of products of a certain type sold, and the total revenue of that product.

 

Benchmarking?
Whilst it might seem intuitive that the higher the percentage of the gross margin, the better, this isn’t necessarily going to paint you the full picture. Some businesses will have extremely high profit margins, but a low amount of sales. Conversely, other businesses will have low margins and high sales. This can often lead to the same or similar gross revenue.

In order to benchmark this KPI you will want to examine what the norms are for your sector. You will be able to get this information from your local trade association, or from specialist consultants.

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Revenue Per Visitor

    \[{\textrm{Revenue Per Visitor}}=\frac{\text{Total Revenue}}{\textrm{Total Visitors}} \]

 

What is it?
Quite simply, this is the measurement of the amount of money generated by each visitor to your website.

 

When would you use it?
This gives you an understanding of how much additional revenue you can expect to generate by attracting new visitors to your website. For instance, it can be used to see whether recent spikes in traffic are actually ‘valuable’, i.e., visitors who are making purchases. This will help you evaluate your content marketing and advertising efforts.

 

Data Sources?
Total website visitors can be found in your analytics tools, though be sure to filter out any phantom traffic. For accurate figures on total revenue, you will need to delve into your own accounts.

 

Benchmarking?
This will vary dramatically from business to business based entirely upon the cost of your good and the scope of your marketplace. It is best to benchmark the revenue per visitor against your own results on a monthly or quarterly basis in order to evaluate effectively.

 

 

Cost Per Visitor

    \[{\textrm{Cost Per Visitor}}=\frac{\text{Sum of Marketing Costs}}{\textrm{Total Visitors}} \]

 

What is it?
This is the net spend on advertising, whether that’s PPC, display adverts, advertorials, or anything else, divided by the total amount of visitors your website is receiving.

 

When would you use it?
This financial KPI will give you a broad understanding of whether you are over or underspending on advertising. It won’t, however, give you the keys to unlocking which of your advertising methods are garnering the best results. As such, this KPI is best used when looking at your accounts holistically, and specifically when you’re trying to figure out where you can cut costs to your business.

 

Data Sources?
Your total spend in AdWords and Google’s Display Network is easy to locate. You need to be keeping close eyes on where you are spending additional advertising funds, especially when using blogger marketing. Total visitors are once again in your analytics accounts, but as always, make sure you’re filtering out spam traffic to get accurate results.

 

Benchmarking?
There is no way to give a universal figure for benchmarking this financial KPI given the variety of business methods, means and markets. However, there are certain factors that you need to take into consideration:

Are you a business that is just starting out? In this case, your CPA will be higher as you sacrifice profits in order to boost brand awareness.

Have you worked out a budget for your marketing spend? This is very important and will indicate how you ought to be spending your hard earned cash. With a smaller budget, you need to be focusing on advertising which will result in higher, profit driven conversions.

What is your marketing goal? If you want to boost brand awareness, content marketing is the way to go. But often this won’t generate a high conversion rate. If your focus is on getting sales up, PPC might prove to be more cost effective.

 

 

Cost Of Returns

    \[{\textrm{Cost of Returns}}=\sum_{}{}{Value of Products Returned} \]

 

What is it?
This is the total value of the products that are sent back to your business.

 

When would you use it?
The cost of returns KPI is an indicator of how much money you are losing when customers send their products back to you. It will give you an idea of whether your on-page strategy, or product quality is causing you a loss of profits.

 

Data Sources?
Values for this KPI will be found in your stock management system.

 

Benchmarking?
You will want to keep this as low as possible, but the question is, “how?” First of all, you need to be collecting data on why products are being returned to you. Make it mandatory that customers returning products give you a reason as to why. Without this data, this financial KPI is effectively redundant.

Next, you need to evaluate what the major causes of returns are and what you can do to bring the number down. For instance, if many clients are citing that the size of your product proved to be unsuitable, you may want to look into how you size products, or how product sizes are explained on your website.

Focusing on giving your customers the best understanding of your product before purchase will help reduce this a great deal. Including reviews from paying customers on the product page itself will not only help give future customers a clear understanding of the product, but demonstrate your ‘trustworthiness’ as a business.

 

 

Cost & Revenue Per Campaign

What is it?
These are the two values of cost and revenue generated per specific advertising campaign.

 

When would you use it?
By evaluating these KPIs you can determine which of your campaigns were the most successful, and which were the least. This ought to be undertaken at least quarterly in order to inform your future marketing strategy.

 

Data Sources?
By creating segmentation in your Google Analytics account, you can monitor traffic driven through to your website from specific sources (advertorials, for example), and then set up conversion goals for each traffic source in order to understand what revenue each campaign has generated. The same can be done with Facebook Pixel Tracking in order to monitor campaigns on the FBX. As with all your advertising campaigns, regardless of the platform, you need to ensure that you are monitoring traffic and end-goal conversions.

 

Benchmarking?
Generally your costs must be less than revenue generated in order to be considered a successful campaign. However, this isn’t necessarily true if the object of your campaign was to simply increase brand awareness, rather than to generate additional revenue. As such, you need to split your campaigns into their key objectives in order to properly understand the value of cost and revenue per campaign.

Additionally, you need to be aware of the fact that whilst certain traffic to your site might not generate instant sales, it may result in future direct traffic which does. So unless you are monitoring return traffic, you may need to take these results with a pinch of salt.

 

 

Revenue By Product Line

    \[{\textrm{Revenue by Product Line}}=\sum_{}{}{Value of Products Sold in Line} \]

 

What is it?
The revenue by product line, or other appropriate grouping is the total amount of money made from a distinct category or line of products.

 

When would you use it?
By evaluating the revenue by product line, you are able to distinguish which products are generating the most income for your business, and which are not. This will give you an indicator of a few things:

 

  • – What your business is known for selling.
  • – Which products are most in demand.
  • – Which products are worth selling.
  • – Which products you ought to drop.

 

Data Sources?
Your eCommerce inventory will contain all relevant data on revenue generated by your product lines. However, you may need to manually group products in your analytics report in order to make this information easier to digest.

 

Benchmarking?
By taking the data on board, you will be able to see which of your products are your best sellers and which are the non-performers. If there is a distinct disparity between product lines, this may be evidence that certain products are not worth keeping in stock, and can be dumped off at a discount. Additionally, this will help you understand how to replenish stock. For product lines which are performing well, you can begin forming advertising campaigns in order to further boost sales.

It is also worth looking into what time of year your product lines are best performing. This may help you understand why your clients are buying these products, and give you a focus on advertising.

 

 

Profit By Product

    \[{\textrm{Profit by Product}}=\frac{\text{Total Profit By Product}}{\textrm{Amount of Products Sold}} \]

 

What is it?
This is the profit by individual product, or service. It measures the overall profit margins of selling specific products.

 

When would you use it?
This should absolutely form part of your monthly or quarterly reports, and will get you thinking about pricing decisions, discounting and price realisation.

 

Data Sources?
You will need to set your own profit margins per product, and these need to be taken into account before you begin selling. Then, monitor the amount of products sold at full price, and those sold with discount in order to generate a figure for this financial KPI.

 

Benchmarking?
This will vary from business to business, depending on the cost of the products which you are selling. In all cases, a higher profit by product is desirable. Poor performing products need to be investigated and dropped if they are not profitable.

 

 

Lost Profit

What is it?
This is the total amount of pure profit lost, not including expenses.

 

When would you use it?
The ‘lost profit’ KPI will highlight areas that you are leaking money, and show you the holes you need to plug. It will give you an indicator of what profits you should be expecting.

 

Data Sources?
By having your expected profit margins, and profit by product, you will be able to calculate the loss in profit (expected vs. actual).

 

Benchmarking?
You will want to keep your profit losses to an absolute minimum. Areas in which you are showing profit loss must be thoroughly investigated and combatted against.

In order to ensure that you are doing all you can pre-sale, you will want to tighten up quality control of your products or services. Faulty, malfunctioning or unsafe products will often be the major cause of profit loss. Additionally, discounts, especially high percentage discounts, will want to be used sparingly.

 

 

Return on Inventory

    \[{\textrm{Return on Inventory}}=\frac{\text{Item's Gross Margin}}{\textrm{Average Cost of Inventory}} \]

 

What is it?
This is the gross return on inventory, also known as GMROI – or gross margin return on inventory investment (GMROII).

 

When would you use it?
The GMROI calculations help business owners evaluate whether a sufficient gross margin is being achieved by the products that have been purchased, compared to the investment in inventory.

 

Data Sources?
You will need both the ‘average inventory costs’, and average margins on products, or product lines in order to calculate this financial KPI.

 

Benchmarking?
For any business owner, the higher GMROI, the better. To set a benchmark for this KPI, you will want to use current or future budgets and calculate your GMROI. With your ratio, you will want to measure every appropriate segment against this figure. As always, you need to identify which areas are exceeding targets, and which are lacking. Investigate those that aren’t pulling their weight and discover why – are products perishing before they can be sold? Is the market not there? Then act accordingly.

Think we have missed out any more important financial KPIs? Get in touch and let us now, and let’s grow this list together!

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by:

Philip Likos-Corbett

Information Architect

The smartest, best looking and most captivating guy at Spot Studio, Philip also writes these biographies.