7 Profit Metrics Every eCommerce Store Should be Measuring
Knowing these metrics will help you grow profitably. π°
Without them, you can end up losing a lot of money and wondering where it all went. πΈ
Keep reading to learn more. π
Knowing these metrics will help you grow profitably. π°
Without them, you can end up losing a lot of money and wondering where it all went. πΈ
Keep reading to learn more. π
#1: Gross Profit Margin
First up is gross profit margin which is net sales minus the cost of goods sold divided by revenue.
Gross profit margin tells you how much you have left over after paying for the cost of goods being sold.
First up is gross profit margin which is net sales minus the cost of goods sold divided by revenue.
Gross profit margin tells you how much you have left over after paying for the cost of goods being sold.
It's important to measure gross profit margin so you can make sure you're making enough per sale to cover the rest of your expenses.
If your gross profit margin is too low, then you need to figure out how to lower your COGS in order to increase profit.
If your gross profit margin is too low, then you need to figure out how to lower your COGS in order to increase profit.
#2: Contribution Margin
Contribution margin is revenue minus variable costs including COGS, shipping, packaging, picking and packing, etc.
It's used to measure the portion of sales that contributes to covering fixed costs and generating profit.
Contribution margin is revenue minus variable costs including COGS, shipping, packaging, picking and packing, etc.
It's used to measure the portion of sales that contributes to covering fixed costs and generating profit.
It's important to measure contribution margin so that:
β You know if you're spending too much to get products to your customer's door
β You know how much you have left over to cover fixed expenses
β You know if you're spending too much to get products to your customer's door
β You know how much you have left over to cover fixed expenses
#3: Marketing Efficiency Ratio
Marketing efficiency ratio (MER) is total revenue divided by total ad spend.
MER helps you to do a quick daily, weekly, or monthly check to see if you're spending too much to acquire customers.
Marketing efficiency ratio (MER) is total revenue divided by total ad spend.
MER helps you to do a quick daily, weekly, or monthly check to see if you're spending too much to acquire customers.
Let's say your goal is an MER of 5 which means you are budgeting 20% of your revenue to go to ad spend.
Every day you can keep track of MER in @triplewhale to make sure you aren't spending too much to acquire customers.
Every day you can keep track of MER in @triplewhale to make sure you aren't spending too much to acquire customers.
@triplewhale MER is a great way to keep a close eye on profit.
You can check it daily or weekly instead of waiting until the next time your bookkeeper runs your books.
You can check it daily or weekly instead of waiting until the next time your bookkeeper runs your books.
@triplewhale #4: Fixed Costs
Fixed costs are the amount of money you are paying for salaries, rent, your marketing agency, software, etc.
The difference between fixed costs and variable costs is that fixed costs don't go up with every new order you ship out.
Fixed costs are the amount of money you are paying for salaries, rent, your marketing agency, software, etc.
The difference between fixed costs and variable costs is that fixed costs don't go up with every new order you ship out.
@triplewhale The goal is to keep fixed costs as low as possible so you can increase net profit.
As a general rule of thumb, you should shoot for not spending more than 20%-25% on fixed operating expenses.
As a general rule of thumb, you should shoot for not spending more than 20%-25% on fixed operating expenses.
@triplewhale #5: Revenue Growth
In order to increase profit, you also need to keep an eye on revenue growth which is the amount your sales are growing each month.
Some of our clients, for example, are currently growing 40% each month so far this year.
In order to increase profit, you also need to keep an eye on revenue growth which is the amount your sales are growing each month.
Some of our clients, for example, are currently growing 40% each month so far this year.
@triplewhale It's important to measure revenue growth because:
β You won't grow as quickly if you don't set revenue growth targets
β Your profit goes up as revenue goes up (as long as you keep all of your expenses in line)
β You won't grow as quickly if you don't set revenue growth targets
β Your profit goes up as revenue goes up (as long as you keep all of your expenses in line)
@triplewhale #6: Revenue from Email + SMS
Revenue from email + SMS has the highest profit margins because you don't have to pay money to acquire each new purchase like you do with paid ads.
With paid ads, you have to pay to play, but with email + SMS, you make more without paying more.
Revenue from email + SMS has the highest profit margins because you don't have to pay money to acquire each new purchase like you do with paid ads.
With paid ads, you have to pay to play, but with email + SMS, you make more without paying more.
@triplewhale As a general rule of thumb, you should shoot for making at least 25% of your revenue from email + SMS which will:
β Take pressure off your paid ads AND increase the return from your paid campaigns
β Increase lifetime value of your customers
β Maximize store profit
β Take pressure off your paid ads AND increase the return from your paid campaigns
β Increase lifetime value of your customers
β Maximize store profit
@triplewhale #7: Net Profit
Last up is net profit which is the profit you make after paying for all of your expenses.
Net profit is also the goal of being in business, aka putting as much as possible into your business's pocket.
Last up is net profit which is the profit you make after paying for all of your expenses.
Net profit is also the goal of being in business, aka putting as much as possible into your business's pocket.
@triplewhale Healthy net margins are somewhere in the 15%-20% range for eCommerce stores.
This means you should shoot for having 15%-20% left over after paying for all of your expenses.
This means you should shoot for having 15%-20% left over after paying for all of your expenses.
@triplewhale Net profit is also used to calculate how valuable your store is if you decide to sell it because buyers will end up paying a multiple of your Seller's Discretionary Income which includes net profit.
Thus, by increasing net profit, you increase your store's value. π°π
Thus, by increasing net profit, you increase your store's value. π°π
@triplewhale That's a wrap!
If you enjoyed this thread:
1. Follow me @JosephPutnam for more of these
2. RT the tweet below to share this thread with your audience
If you enjoyed this thread:
1. Follow me @JosephPutnam for more of these
2. RT the tweet below to share this thread with your audience
@triplewhale You can also learn more about how we help eCommerce stores make more from email + SMS at growth.conversionengine.com, and you can DM me if you have any questions about how to profitably grow your store.
#letsGROW
#letsGROW
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