Yes, profit is important. Very, very important. But it’s not the only number you should keep your eye on as you evaluate the success of your e-commerce company. Taking a holistic, wide view of how your company operates is the best way to gauge your strengths and weaknesses in the most analytical way possible. To help guide you, we’ve pulled out a few more rulers to gauge success.
Lifetime Value of a Customer (CLTV)
Knowing how much money you can profit from a one-time user is great. Knowing how much money you can earn from a lifetime customer is even better. This metric allows you to make projections and gives you a better handle on your brand. The great part is that it is easier to calculate than your Body Mass Index (a number that still eludes me). First determine the typical lifespan of a customer. 1 month? 1 year? 2 years? Then pull the profit data (sales - expenses) for a group of customers over that time period. Divide that by the number of customers you measured to arrive at the lifetime value of a customer. Clearly, you must start with an accurate profit that takes into consideration sales and inventory.
Cost of Acquiring a Customer
How many liters are in a gallon? How many quarts in a liter? Converting, conversions, ugh. Luckily for us, determining the cost of acquiring a customer doesn’t have anything to do with the metric system, and more to do with simple division. Take the total cost you spend on getting customers (SEO, sales, basic advertising etc.) and divide by new customers. You can break this down by financial quarters or for each type of advertising with which you experiment.
Conversion Rate (CR)
Remember quadratic equations? No? Yeah, me either. Sometimes people forget this highly important statistic as well. It doesn’t matter if you get 1 billion people on your site, if no one buys, then you aren’t making money. There are many reasons why people don’t purchase on your site; errors, speed of the site, lengthy check out process, etc. For this formula, divide your total conversions by your total views and multiple by one hundred. Wallah.
I was always dumfounded by math sentences. I mean seriously, leave the sentences to English class. “If this than that. . .” That said, if your customers are abandoning their carts, then you definitely need to consider why. These customers had an intent to buy. You paid money to get them on your site, and now they are gone. You want this statistic to be very low. Savvy Panda reports that over 65% of carts are abandoned. For more info on how to capture those multi-tasking, cart abandoners, check out our thoughts on how to keep multitasking customers on your site. This simple formula consists of dividing those customers who jumped ship from your cart by the total number of visitors, including those who purchased your product or service.
Social Media Followers
Remember that one day a year when you got to use practical math, like counting back change and it all made sense and was super easy? Well, so is this metric tool. Increasing your following on social media outlets allows you to reach your customers on many levels. It is also a direct link that can help you get more visitors to your site. According to the eCommerce Spending Report, Facebook and Twitter users spend 1.5 more than their non-using counterparts. I think that this is a number which we can all agree would yield positive results. Divide your social followers against all of your visitors for this stat and watch your number grow the more you post.
Okay, so math in terms of Sales Metrics isn’t all that bad. However, part of me will always get a little glassy when people start getting all co-sine and sine on me. Luckily for us, we can concentrate on our customers and leave the complex stuff to the engineers.