As an eCommerce business owner, you have a lot to digest when it comes to determining what actions you need to take or where to focus in order to ensure your business is profitable. There are countless numbers you likely are seeing in all of your dashboards, where should you start? We pulled out three core metrics that can help guide you towards focus areas in your business in order to increase profitability:
- Cost Per Acquisition: Do you know how much it costs you to acquire a new customer? This is extremely important. If you sell a product for $20 that people don’t need to buy more than once, and it costs you $18 to acquire that customer, your profitability (if any if you think about manufacturing costs, etc) is extremely low and will make long term success very difficult. Now, if you, for example, sell a $20 product that people, on average, order 6 times in their lifetime, an $18 CPA may be very acceptable.
- Average Order Value: Do you know how much on average someone is spending with each order? Here are two scenarios, let’s imagine that for every $1 you spend you make $2 now let’s imagine for every dollar you spend you are making $4 and then let’s ramp that up to scale. If you are spending $1million dollars and making $2million vs $4million. Which option would you prefer? No brainer right. Well, increasing your average order value is one of the greatest levers you can pull to impact your return on investment. If you for example sell a $20 product but you have another $18 product that compliments it well, you could create a bundle or have an upsell at the cart promoting it. Now, instead of a $20 average order value, you have a $38 average order value, how would that impact your profitability?
- Customer Lifetime Value: Do you know how much on average a customer is worth to you over their lifetime? This is probably one of the most important numbers to know as it sets the benchmarks for an acceptable cost per acquisition cost range and will help you understand how loyal your customers are. If you discover that your average customer value is low or that a significant number of customers are unhappy with your product or not reordering, you may need to take some time investing in your customer experience or product experience to bump up repeat customers.
Once you discover what these numbers are you can then identify focus areas and develop strategies within your business to improve your profitability as an eCommerce business owner. Want some help understanding a clear strategy to improve these numbers for your eCommerce business? Let us know. Our eCommerce team is here to help you.