In the world of eCommerce, success is measured by how well a company can balance the demands of inventory purchasing, marketing and advertising, promotional strategy, discounting, pricing strategy, and more. In order to do this effectively, businesses must understand the key metrics that drive these activities. In this blog post, we will explore the metrics that matter most when it comes to planning eCommerce inventory purchasing/replenishing, marketing/advertising promotional strategy, discounting, pricing strategy, and more.
Inventory Turnover Rate
Inventory turnover rate is a crucial metric for any eCommerce business. It measures the number of times a company’s inventory is sold and replaced over a given period of time. A high inventory turnover rate indicates that a business is selling products quickly and efficiently, which can help reduce inventory holding costs and increase cash flow. To calculate the inventory turnover rate, divide the cost of goods sold (COGS) by the average inventory for the period.
Days Inventory Outstanding (DIO)
Days Inventory Outstanding (DIO) is a metric that measures the average number of days it takes for a business to sell its inventory. It is calculated by dividing the average inventory by the cost of goods sold (COGS) per day. A high DIO can indicate that a business is holding onto inventory for too long, which can result in increased holding costs and decreased cash flow.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the cost associated with acquiring a new customer. This metric takes into account all the marketing and advertising expenses associated with acquiring a new customer, such as paid search, social media advertising, and email marketing. To calculate CAC, divide the total marketing and advertising costs by the number of new customers acquired during the period.
Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is a metric that measures the total amount of revenue a customer is expected to generate over their lifetime. It takes into account the customer’s purchase history, the frequency of their purchases, and the likelihood that they will continue to do business with the company. A high CLV can indicate that a business is doing a good job of retaining customers and generating recurring revenue.
Gross Profit Margin
Gross Profit Margin is a metric that measures the percentage of revenue that a business retains after deducting the cost of goods sold (COGS). It is calculated by dividing the gross profit by the total revenue. A high gross profit margin can indicate that a business is efficiently managing its inventory and pricing its products appropriately.
Conversion Rate
Conversion rate is a metric that measures the percentage of website visitors who complete a desired action, such as making a purchase or filling out a lead form. A high conversion rate can indicate that a business is effectively resonating with its target audience and driving sales.
Average Order Value (AOV)
Average Order Value (AOV) is a metric that measures the average amount of money spent by a customer per order. It is calculated by dividing the total revenue by the number of orders. A high AOV can indicate that a business is effectively upselling and cross-selling products to customers.
Customer Retention Rate
Customer Retention Rate is a metric that measures the percentage of customers who return to make another purchase. A high customer retention rate can indicate that a business is effectively engaging with its existing customers and creating a positive customer experience.
Return on Advertising Spend (ROAS)
Return on Advertising Spend (ROAS) is a metric that measures the amount of revenue generated for every dollar spent on advertising. It is calculated by dividing the total revenue by the total advertising spend. A high ROAS can indicate that a business is successfully targeting its advertising and generating a positive return on investment.
Net Promoter Score (NPS)
Net Promoter Score (NPS) is a metric that measures the likelihood that a customer will recommend a business to others. It is calculated by asking customers to rate the likelihood of recommending a company on a scale of 0-10. Customers who rate the company 9 or 10 are considered promoters, while those who rate the company 6 or lower are considered detractors. The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. A high NPS can indicate that a business is providing a positive customer experience and building a loyal customer base.
To Sum It Up
eCommerce businesses need to keep a close eye on the metrics that matter most when it comes to planning inventory purchasing/replenishing, marketing and advertising promotional strategy, discounting, pricing strategy, and more in 2023. By focusing on the key metrics discussed in this blog post, eCommerce businesses can make informed decisions and optimize their operations for success.
