Value Metrics to Grow your Shopify Store March 16, 2016 19:00

Value metrics are key data points that can help you understand and grow your Shopify store. You can find different reports in your Shopify dashboard. These reports can help you get a picture of where your business stands. But, it can be challenging to figure out which data or metric to focus on and how to improve them.

In this post, we list the top five value metrics that Shopify store owners can prioritize to grow their store and their business.

1. Average order value

The average order value can give you an understanding of how much money people typically spend during a single transaction on your store. Instead of a gross revenue number, this shifts the focus on to a single transaction. You can then monitor this number for growth, which will ultimately lead to higher revenue.

Average order value for a specific period = total revenue / number of orders

To start, you can go to Reports > Order sales section > Sales by month. This will give you the total revenue in that period. Then, go to Orders in the Shopify dashboard and filter the orders by date. It may also be easier to Export the orders as a CSV file and getting the number of orders from a spreadsheet.

There are a number of ways you can improve the average order value on your store. You can set free shipping or discount thresholds which are above your current average order value, bundle products, upsell and cross-sell, start a loyalty program, among other things.

2. Profit per order

Growing the amount in a single transaction can only take you so far if you don’t make any money off of that transaction. This is where the profit per order comes in. This metric is tied to your margins, that is, the difference between your cost price and selling price. The higher your profit per order, the more money you make to invest back into your business or for yourself.

Profit per order = sale price – cost of goods

You can use apps like Profiteer to input the cost of goods for different products. The app takes that information and provides reports on profits over a specific period, or highlight your most profitable products.

Instead of looking at broader profits for the business, profit per order narrows down the focus onto a single transaction. You can then use different strategies to increase this profit. You can ensure that your most profitable items are always in stock and marketed well. In addition, you can focus on scaling your production/sourcing to lower the cost for certain items, and put extra marketing effort into your most profitable products.

Here is a quick overview of the app:

3. Customer lifetime value

Customer lifetime value is the amount of revenue you will make from a single customer over the course of their interaction with your store. For example, if a customer spends $5 on soap per month for 5 years with a brand, then the lifetime value of that customer is $5 x 12 months x 5 years = $300.

The reason this number is important is because repeat customers are much easier to acquire compared to new ones. The simple reason for this is because existing customers already have experience and a relationship with your brand, and have trusted your store enough to spend money.

Customer lifetime value = total revenue from customers / number of customers

The above equation is one of the simplest ways to calculate the customer lifetime value. You can calculate this value using different equations based on your business.

To calculate your customer lifetime value, you can go to Reports in your Shopify dashboard and go to Sales by customer. Depending on when you had significant marketing efforts, you may want to filter for a specific period. Then, you can add up the Total Sales for each customer and divide by the number of customers to get the lifetime value.

This number is important to set your marketing budget. Let’s say your lifetime value of a customer is $100. Now, if you spend $1,000 on a marketing channel that gains 10 customers (i.e. customer acquisition cost = $1,000/10 = $100), then you’re only breaking even for your marketing efforts. The goal should be to spend less per customer to acquire them than their lifetime value. This will ultimately determine how much your store can grow and sustain as a business.

You can increase the lifetime value by building reward programs for your store, using lifecycle emails, growing your product shelf, and more.

4. Sales by source

It is important to understand where your sales are coming from and where most of your sales are coming from. You can look at the sales by different referral sources and by channels under Reports in your Shopify dashboard.

Sales by different sources and channels

This will give you an idea of your most lucrative sources for driving revenue. You can invest effort into growing these referral networks or channels further to build and scale your business.

5. Customer acquisition cost

The customer acquisition cost is typically measured for specific marketing campaigns and then averaged out for your entire business. This is the money you have to spend in order to gain a new customer.

Let’s say you put $1,000 in a Twitter ad campaign. Through the course of that campaign, you gained 50 new customers. This means that the customer acquisition cost was $1,000/50 = $20. Now, without any further marketing cost for a customer, if the customer spends more than $20 on your store, then the campaign can be considered successful.

The customer acquisition cost and the lifetime value of a customer go hand-in-hand. It is the balance between these two value metrics that can determine how quickly and by how much you can grow your business.

Value metrics for Shopify stores: Summary

All businesses tend to focus on specific metrics that help them grow and improve. For Shopify store owners, we narrowed down the top five metrics that can help make the store more profitable and valuable. As you get more value from each sale and customer, you can fuel your growth even further.

What important value metrics do you track? Do you focus on one over the others? Tell us in the comments.

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