7 Most Important Ecommerce Metrics You Should Know

You are pitching investors for your Ecommerce startup, but aren’t very familiar with the key metrics investors are asking for? Look no further, in this article, we laid out the 3 most important metrics any ecommerce entrepreneur should know. We explain you what they are, how to assess them and why you should consider tracking them.

Metric 1: Paid and organic traffic 

A successful e-commerce business relies on one’s ability to generate traffic (also referred to as “visitors”).

More importantly, you will need to show the difference between paid vs. organic traffic. The difference is:

• Paid traffic: all visitors coming from paid marketing channels (Google Search, Facebook Ads, etc.). You are either paying for clicks, or impressions. 
• Organic traffic: all visitors landing on your landing page(s) organically (either via a referral link, direct search, social media post, blog article, etc.)

Paid marketing is the easiest way to generate traffic. That is why many ecommerce entrepreneurs choose to invest heavily into it in the beginning. Yet, because you are paying for each paid visitor, you will need to monitor your Return on Ad Spend (ROAS) to make sure your paid marketing campaigns are profitable.

In comparison, whilst you do not directly pay for each organic visitor, organic traffic is not free. Organic traffic is earned from investment into SEO and content. Whilst investing into your SEO for instance does not pay immediately, the returns can far outweigh those of your paid marketing in the long run.

Metric 2: Conversion rate

Conversion rate is the number of orders or “conversions” divided by the number of visitors over a certain time period. It can be broken down into multiple components.

Typically, ecommerce businesses have multiple conversion rates. Multiplied all together, they result in your overall conversion rate. It might be confusing at first, so let’s use an example:

Let’s assume an online store which converts users via the following sales funnel:

100 Visitors land on the landing page (total traffic = 100)

40 visitors view at least one product and 60 leave the page without any product page interaction (Bounce rate = 60%)

4 visitors add a product to their cart (Add-to-cart rate = 10%)

1 visitor places an order (Card abandonment rate = 75%)

= Conversion rate is 1%

For more information around ecommerce conversion funnels and their different components, see a great article here.

Metric 3: Orders per day

This is an easy one, yet should not be overlooked. Whilst calculating orders (or “conversions”) should be trivial using total traffic and your conversion rate, it is highly recommended to include the number of orders per day (or per week, month depending on the volume) for better optics. 

Indeed, large numbers are difficult to read. And if you are expecting thousands, if not millions of orders per year in the future, displaying the very same metric per day is much easier to understand and visualize. 

Metric 4: Average Order Value (AOV) 

If you offer multiple SKUs, it is very likely that your AOV will change over time depending on the sales split. Sales split is the breakdown, in percentage, of all your orders between all the relevant SKUs.

Demonstrating that you can increase over time the AOV is a great asset when fundraising. Whether it is by upselling more expensive products to your customers, or via retention (repeat buyers tend to have a higher AOV, see below). 

More importantly, AOV gives a very clear snapshot of your product offering. It is all the more useful when prices range widely between the different SKUs: are you mostly selling $50 sportswear accessories or $300 high-end yoga mats?

Metric 5: Repeat Buyers Rate

Like any other business, driving retention is key. It also will significantly increase the value of your business in the eyes of an investor.

Retention can be assessed by your Repeat Buyers Rate (or “Repeat Customers Rate”). It is the number of conversions made by repeat buyers divided by the total conversions over the same time period. 

Repeat buyers are customers who make at least one conversion over their lifetime. 

Let’s use an example: 

Startup Yogamats is selling 2 yoga-related products via their store: yoga mats and sportswear. Unlike sportswear which is not necessarily a durable product due to fashion or tear and use (especially by sports enthusiasts), yoga mats usually have a long lifecycle. Therefore, whilst Yogamats sportswear typically have a 12-18 months lifecycle, yoga mats can last up to 5 years. Therefore,  from its own data, Yogamats gather that, on average, a buyer buys 1 mat every 3 years, and sportswear every 12 months. 

Assuming that Yogamats buyers change provider 50% of the time, Yogamats estimate the following for its budget:

• 50% of all new buyers are repeat buyers. 50% of all new buyers will come back and buy at least one more time over their lifetime
• Repeat buyers purchase frequency is 24 months. Assuming 50/50 sales split between yoga mats and sportswear: 50% x 12 months + 50% x 36 months

It is now easy to understand that the Repeat Buyers Rate will increase over time, as more and more of Yogamats customers are repeat customers.

Note: driving retention is good in every sense. Indeed repeat buyers usually have higher conversion rates, higher average order value, lower cancellation and return rates, and lower complaint rate (to customer service). In short, they are more profitable.

Metric 6: Customer Lifetime Value

Customer lifetime value (also referred to as “Lifetime Value” or “LTV”) is the result of your net margin per customer (usually gross profit) and the average lifespan per customer. 

Let’s use our Yogamats example again:

• Your net margin per customer (using our example above, if you sell a $300 yoga mat and make 50% gross profit, your net margin is $150 per customer per month)
• The average lifespan of your customers: ecommerce businesses’ customers’ lifetime is a function of churn. Let’s assume that Yogamats repeat buyers churn over time (they will buy every 24 months, yet will churn at a 20% annual rate, meaning repeat buyers have a 5 years lifetime), therefore, the average repeat customer (50% of all customers) churn after 5 years, and new customers (the remaining 50%) churn after 1 month only (they buy and churn)

Multiplying the Gross Profit per customer by their respective average customer lifetime, factoring in the purchase frequency (how often repeat buyers buy): we obtain an Lifetime Value of $262.5:

LTV = 50% x Non Repeat Buyers LTV + 50% Repeat Buyers LTV

Where Repeat Buyers LTV = Repeat Buyers lifetime / purchase frequency x gross profit per repeat buyer  

LTV = 50% x 1 month x $150 + 50% x 60 months / 24 months x $150

LTV = $262

Metric 7: Customer Acquisition Cost (CAC)

Looking at Customer Lifetime Value alone does not give a good idea of customers’ profitability. Instead, comparing LTV to CAC (more on that later) gives us a transparent view on your unit economics and your overall profitability. 

Indeed, whilst LTV captures your gross margin per customer, gross margin does not take into account customer acquisition costs (which are by definition below Gross Profit and above EBITDA).

CAC are all the costs associated with the acquisition of your customers, it can be:

• Sales: salaries and commissions of your sales team
• Marketing: paid ads campaigns, agencies retainer fees, offline advertising, discounts, etc.

Let’s use our gym membership example above: assume you generate 100 orders in June 2021, yet you spent $5,000 in sales & marketing. Thus, your CAC is $50, meaning you spend in average $50 to get 1 new customer. 

Comparing LTV to CAC

Now, let’s compare CAC to LTV: on average we saw earlier you spend $50 per customer, and earn $262 over her/his lifetime. Your business, and more importantly, your marketing strategy is profitable. 

1 very important metric to use when comparing CAC to LTV is LTV:CAC (or “LTV to CAC ratio”). In our example above, LTV:CAC is 5.2 times ($262 / $50)

Note: whilst LTV:CAC gives a clear view on the profitability of your marketing strategy, it does not tell us anything about your overall profitability. Indeed, CAC does not include any costs other than acquisition. More especially, it does not include fulfilment costs (packaging, shipping, etc.) which, along with salaries, are one of the most important expenses for ecommerce businesses.