5 Financial Metrics Every E-commerce Business Should Track for Success

5 Financial Metrics Every E-commerce Business Should Track for Success | 4-minute read

Are you looking to scale your e-commerce business? If so, it’s important to know you are tracking the right financial metrics to help your grow your business.

Tracking the right financial metrics is essential to understand business performance and driving growth, especially in the competitive online space.

This blog will explain the important financial metrics every e-commerce business should track and how an expert e-commerce accountant can help.

What do financial metrics tell us?

Financial metrics allow us to accurately assess the performance and profitability of your e-commerce business. They provide us with valuable insights that can inform decision making and strategic planning for growth.

Tracking key financial metrics can also help to:

-Optimise marketing and sales efforts

-Monitor financial health

-Improve inventory efficiency

-Enhance customer relationships

-Streamline financial forecasting

-Benchmark business performance

5 Financial metrics every e-commerce business should track

Gross profit margin

Gross profit margin is the sum of revenue minus cost of goods sold, divided by revenue. Essentially it is the money a business makes after accounting for the cost of doing business and is displayed as a percentage.

For example, is an e-commerce business has a 20% gross profit margin, that means for every pound of revenue generated, 20p is retained while 80p is associated with the cost of goods sold.

Inventory turnover ratio

In accounting, inventory turnover ratio measures how efficiently inventory is managed. It refers to the number of times a company has sold or replenished its inventory over a specific period.

This metric is calculated to determine whether a business has excessive inventory in comparison to its sales. To calculate inventory turnover ratio, you divide cost of goods sold by average inventory.

Conversion rate

Conversion rate displays the number of users who complete a desired action, such as make a purchase on the website. It can be calculated by taking the number of conversions divided by the total number of visitors.

A high conversion rate means you are advertising and attracting the right audience. This means they are more likely to spend money on your products or services.

A low conversion rate means people who reach your website are not interested in your product offerings. To overcome this, consider how you better target your audience.

Operating expenses

Operating expenses are ongoing costs for running a business. They are recorded on the profit and loss statement and include rent, equipment, inventory costs, marketing, payroll, and insurance. Essentially, operating expenses are the cost of doing business.

This metric should be monitored to ensure the cost of daily business activities is maintainable. It can also give e-commerce businesses a good indication on where there is room to cut back on costs.

Average order value

Average order value is the average amount a customer spends each time they shop. To calculate your e-commerce store’s average order value, divide total revenue by the number of orders received.

This is an important metric as it determines the costs that go into each order. When a customer makes an order, it costs the business money to fulfil it. This means that the higher the order value, the more it offsets the costs of receiving that order.

How an e-commerce accountant can help

An e-commerce accountant, like those at Unicorn Accounting, can play an important role in helping e-commerce businesses to track and understand important business metrics.

With a selection of services and industry expertise, e-commerce accountants have access to customised accounting software and can produce financial reports, plans, and analysis.

They can even help to monitor cash flow, inventory management, and tax strategies to ensure the most efficient and effective operations.

Why choose Unicorn Accounting?

Ensure you keep on top of your finances and tax obligations by outsourcing to an accountant. This means that you don’t need to worry about your end of year accounts, payroll, or bookkeeping requirements.

At Unicorn Accounting, we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management bookkeeping, cash flow statement, and tax filing services to support and scale your business.

Our team of accountants and Xero certified advisors have experience working with both small start-ups and family run online stores to large scale, international retail and e-commerce brands.

If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today or click here to get a free quote.

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