E-Commerce 101: 6 Metrics That You Need To Know

[Note: This is part of my learnings on E-Commerce, you can find the related posts here.]

I’ve been looking at various e-commerce metrics ever since started working in Lelong.my. After analyzing so many stores, I’ve learned how to read a store’s performance.

I’ll be sharing a list of metrics here, and how to put all of them into picture for a better analysis.

6 E-Commerce metrics that you must know

GROSS MERCHANDISE VALUE (GMV)

Gross Merchandise Value (GMV) or revenue is something I check on a daily basis.

GMV tells me how much I am making per day, per week, or on a monthly basis. If your dashboard doesn’t display GMV by default, you can get your GMV this way:

GMV = Total Order X Average Order Value (AOV)

When I drill deeper into the figure, I will be able to find out which products or categories are contributing to my revenue, so I can run a segmental revenue report to know which products are performing.

Also, it is important to note that sales are tied to seasonal factors.

I would expect lower sales during school holidays but a surge of demand 2 weeks before the festive season starts.

GROSS PROFIT MARGIN

Personally, I don’t get to see this all the time but if I were to consider from a merchant’s POV, this metric would be one of my key highlights on a weekly basis.

Simply put, this is my bottom-line that allows me to know how much money I am making per product, or even, my margin throughout the whole store.

Be it product gross margin or overall store’s gross margin, it gives off a very valuable insight on how healthy your business is.

Average Order value 

This also known as average basket size or average check out check out. Simply put, this is the average spending power that people are willing to spend per order.

For example:

  • 20 buyers bought RM 1,000 worth of products
  • 80 buyers bought RM 50 worth of products
  • AOV formula = ((RM 1,000 * 20) + (RM 50 * 80))/100
  • AOV = RM 240

This is a very interesting figure where you can gain valuable insights, especially when you analyze it with multiple factors such as audience profile, product category, and quantity.

I will leave the complex analysis for another time, but to start with, this basically tells you that what price points that people are comfortable in buying.

Number of orders

This means the total number of orders made on your store on a daily, weekly or monthly basis. Do take note that placing an order doesn’t necessarily mean making payment.

Some claim that number of orders are vanity metrics as you can simply jack up the numbers by giving discounts.

I agree that it is misleading at times, but the number of orders does carry much more value, especially when you cross analyze them with:

  • Average order value / average basket size / average checkout
  • New vs returning customers

In an ideal scenario, we would assume that increase in order volume would lead to increase in both revenue and profitability.

But more orders doesn’t necessarily mean better.

The interesting part about this figure is when you benchmark your number of orders based on new and returning customers, you will be able to find out what is the orders that you’re getting from your respective buyers’ segment.

And with that figure, you can go deeper to understand the following:

  • Are you retaining your customers?
  • What products do they buy?
  • Is there any upsell opportunity?

Number of buyers

Like how I explained previously, this is for new buyers and returning customers which is a very important metric to look at. I use this to find out which product brings new buyers to a store, and what products can turn them into a returning customer.

A healthy store would have an increasing flow of both new buyers and returning customers. Depending on the nature of the products you carry, the ratio may differ from 5/5 or 3/7.

Generally, returning customer would easily bring in 3x sales for your store compared to a new buyer.

Conversion rate

This is the success rate of placing orders to making payment.

For example, if 2 out of 10 people made payment after placing an order, it means you have a 20% conversion rate.

In a real scenario, the conversion rate sits between ~1% – 3%.

If I were to break it down to even more detail, it would be analyzing conversions throughout the whole funnel movement, for example:

Product Listing Page > Product Page > Shopping Cart > Checkout

The successful transition between pages is identified as micro-conversions which ultimately lead to macro-conversion i.e. checkout.

For starters, let’s just put it as the success rate of placing orders to making payment.

knowing your own niche & strategy

Before we deep dive into these metrics, it is important to get clarity on your store’s niche as this is the fundamental of your store. Metrics are just numbers that allow you to diagnose your store’s health.

For instance, some merchants are extremely focused on a specific segment, for example, IT PC components only.

On the contrary, some would go down the route of selling everything, which their store literally comprises of every single product that you can think of.

Both ways work.

Regardless, depending on your niche and store focus, you will be able to identify certain patterns and trends based on the metrics.

Making Sense Out of THESE Metrics

If you’re familiar with e-commerce, you know sales fluctuates based on different season, days and hours, so to analyze a store’s performance, I normally go by weekly and monthly comparison over the following metrics:

GMV / Total Buyer / Paid Buyer / Total Order / Paid Order / AOV / Gross Margin

E-Commerce Metrics 101 - Weekly Analysis
This is comparing against FY2016 weekly data, as well as FY17 week over week analysis for a benchmark.
E-Commerce Metrics 101 - Monthly Analysis
Not forgetting the monthly analysis and benchmark too.

I use AOV as the growth indicator, I’m more than happy as long as the average check out is increasing.

But coming from a merchant’s point of view, I assume looking at the overall gross margin and absolute profit is a must.

Do take note that if you isolate the figures you won’t be able to diagnose your business health, for example:

  • Orders dropped, but sales increased.
  • Average checkout increased, but profit dropped.

The whole idea of this exercise is to find out a healthy mix of metrics in the long run which allows you to identify:

  • What is my typical product cycle?
  • What is my returning customers ratio?
  • How can I increase my profitability?

By combining all these insights above, it helps you to identify the ratio of the product mix that can help you to grow consistently, which is the very next point.

The 1-8-1 healthy product mix

I noticed stores that operate really well have the following 1-8-1 product mix ratio:

  • 10% products are best sellers by default
  • 80% are specific long tail items
  • 10% are seasonal items

It never fails to amaze me that certain merchants have very sharp eyes in picking out best sellers when they are not even best-selling yet.

These merchants did hectic research on the market supply and demand. They found out what’s the best or lowest price point and work with their suppliers.

Most of the time you will notice that best sellers don’t give the best margins. Then why are top merchants doing these?

Best selling items are the store’s pull factor.

Just like you would visit Hermo for specific beauty brands, store merchants are leveraging on the very same idea to create their own store attraction.

What’s more about best seller is that:

  • It can be used as a bundle promotion to move slow moving stocks
  • Useful for upselling or cross promotion

These top merchants leveraged on best sellers to bundle and upsell to their buyers – whether it’s returning or new customers, and from there they jack up the average order value.

In the next post, I’ll write about how merchants can run promotional campaigns for better profitability and better revenue.

Let me know how do you normally analyze your store performance and how do you benchmark it in the comments below.

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