Accounting KPIs for Your E-Commerce Business

Jack Perkins is the Founder at CFO Hub, which provides on-demand CFO, Controller, Accounting, and HR services.

All businesses need to gauge their financial performance, and key performance indicators (KPIs) are particularly important for e-commerce businesses. They provide strategic and actionable insights into the customer experience and the efficiency of your marketing strategies, and a more in-depth way of measuring other important areas of your operations.

What follows is an in-depth look at KPIs in e-commerce, including why they’re important, which KPIs to measure, and how to effectively use this data to increase the profitability and growth of your online business.

The Importance of Accounting KPIs

The accounting KPIs detailed below can help you determine which aspects of your business are working and aid in identifying areas where more effort or a better focus could lead to increased profitability.

These KPIs can give you a clearer picture of the most important aspects of your day-to-day operations, help you spot trends in customers' preferences and behaviors, help you target problem areas, and give you the information you need to create a concrete and actionable plan.

Detailed Explanation of Accounting KPIs

To better understand the relevance of these KPIs and how they’re used during regular accounting procedures, it may be helpful to group them in terms of overall profitability, inventory management and stock on hand, customer acquisition and marketing costs, and the overall efficiency of your order fulfillment and accounts receivable processes.

Sales and Profitability

• Revenue: This is the amount of money your business brought in through sales in a given period. Taken by itself, it’s not particularly helpful, but it’s an important metric to use when you're evaluating other areas of your business.
• Average order value (AOV): As the name implies, this is simply the cash value of the average order placed by your customers. Some strategies that can help increase your AOV include offering product bundles, upselling items prior to checkout or in follow-up contact, or offering free shipping for higher individual order amounts.
• Customer lifetime value (CLV): This indicates how much money an average customer will likely spend with your business over time. CLV can be heavily influenced by how well your business retains customers, and low CLV numbers can be a sign of trouble. To boost your CLV, you should consider things like establishing a loyalty program, offering personalized product recommendations, and being more responsive and attentive with your customer service.
• Gross profit margin: This measures your profits after subtracting the cost of the products you’ve sold. A good gross profit margin means you have enough money to cover other business expenses.
• Net profit margin: This shows how profitable your business is after factoring in all expenses, like operating costs, marketing expenses, and taxes.

Inventory Management

• Inventory turnover: This is a measurement of how often your inventory is sold and replaced within a given period. You’re looking for high inventory turnover, which is a good indication that you’re managing your inventory well and optimizing any storage costs.
• Stock-out rate: This shows the amount of sales you may have lost out on due to a specific product being out of stock. A high stock-out rate usually indicates that there's a problem somewhere in your supply chain. Bear in mind that high stock-out rates typically lead to disappointed customers.
• Holding costs: This metric represents the cost of storing your inventory, including warehouse space, insurance, and any breakage or spoilage that can result in unsellable products.

Customer Acquisition

• Customer acquisition cost (CAC): This is the average amount your business spends to attract and convert new paying customers. You should pay close attention to how your CAC relates to your CLV figures. This can provide a clearer picture of how well your business is retaining customers and highlight lost opportunities.
• Return on ad spend (ROAS): This measures the effectiveness of your advertising campaigns and is calculated by dividing the revenue generated by the amount of your ad spend.

Efficiency

• Order processing time: This is a measurement of the average amount of time that elapses between a customer placing an order and that order being fulfilled. Faster processing times typically lead to a better customer experience, provided that the orders are packaged correctly and arrive undamaged.
• Payment processing fees: These costs can sometimes be overlooked, but they can add up quickly. One good way to optimize this figure is to track the fees associated with various payment processing methods to determine where you might be able to save.

Applying the Information Made Available by Accounting APIs

Understanding your KPIs plays an important part in making sure your business is operating effectively and turning a good profit. By carefully considering these KPIs and how they relate to one another, you can make sure that you’re capitalizing on all available opportunities, handling your costs efficiently and sustainably, and making good decisions that will help your business succeed over the long term.