Financial literacy can often be the deciding factor that separates rapidly expanding eCommerce enterprises that are able to maintain momentum over time from those that ultimately fail.
eCommerce business owners who establish processes to guarantee they are always aware of their figures are better able to make data-driven judgments.
A financial performance dashboard is one of the best tools in a busy entrepreneur’s toolbox.
In this article, we’ll teach you exactly what you need to do to build your own financial performance dashboard.
What is a financial performance dashboard?
On a simple level, a financial performance dashboard enables you to become more aware of, and have a better grasp of, the requirements for your eCommerce firm. It also enables you as the business owner to understand how each department affects the bottom line, from sales and marketing to customer service and product development.
Let’s take the case of revenue as an example. This sales metric is straightforward. It is important for your marketing team to know which of their campaigns are bringing in the most visits to your website, for your CRO and product teams to know which products are converting the best and for your CFO and controller to know what pricing is appropriate to use when going to market.
Using a dashboard, your team can continuously monitor all of its important performance metrics (that is, KPIs.) Additionally, it aids in removing the uncertainties surrounding your next area of attention.
I have already compiled thorough tax reports; why do I need a dashboard?
Your tax reporting is done for compliance-driven reasons, which is the main distinction between tax reports and a financial performance dashboard. If you want to stay in business and avoid going to jail, you must file your taxes every year.
However, you also owe it to your team and to yourself to have financial data and dashboards that let you know how your company is doing operationally.
Both of these use cases are different. Your perspective on reporting for taxes might be more spartan than what you need for business information.
What are the main advantages of having a finance performance dashboard?
Taking the time up front to create an understandable financial dashboard has several benefits.
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You can view all of your crucial KPIs in one location.
You can monitor all of the important KPIs in one dashboard on one page rather than having to connect to Shopify, Amazon, Google Analytics, and your Facebook advertisements account and bring out six different spreadsheets.
You can keep track of sales, costs, and profitability.
With the help of dashboards, you can monitor your sales, costs, and profit margins on a daily, weekly, and monthly basis.
In fact, a lot of entrepreneurs running online stores begin their days by quickly looking over their sales dashboards.
You can hold your group to account.
What you don’t measure, you can’t manage. An excellent method to give your staff a sense of ownership in the company is to make at least some of your financial performance dashboard available to them.
Each team member will feel more empowered when they understand how their role fits into the bigger picture and are exposed to these metrics on a daily basis. They’ll probably work harder as a result and take the initiative to think of solutions to raise the bottom line.
You can reduce the time spent creating thorough reports.
The last time you eagerly anticipated reading a 20-page report was when? 20-page reports take a lot of effort to create for you and your team, and nobody likes to read them in the first place.
This issue can be resolved via dashboards.
Once you’ve invested the time setting the dashboard up, you can use it as often as you like. As a result, you will have time free to concentrate on expanding your company rather than creating intricate reports.
What are the most important metrics that eCommerce companies need to monitor?
Although every online store is unique, most firms will want to monitor these indicators.
Customer acquisition cost
Customer acquisition cost, or CAC for short, is among the most crucial performance indicators to take into account, together with top-line revenue.
All of these sales and customer acquisition indicators include things like gauging the return on your marketing expenditure, your site’s conversion rate, and the average order amount.
Revenue
This is the one statistic that every online business owner reading this article likely already keeps track of.
You might even take a little pride in it if top-line revenue resembles a hockey stick. However, this is a risky course of action because extrapolating top-line income can frequently result in serious problems.
You can see what occurs when you place too much emphasis on top-line revenue by watching a few episodes of Shark Tank, for instance. Many of the eCommerce companies shown on Shark Tank had rapid growth followed by significant funding constraints. They are unable to cover their operational costs, fulfil retail purchase orders, or purchase enough goods. Many promising businesses have had to permanently close their doors as a result of these difficulties.
Cost of acquiring new clients (CAC)
Customer acquisition cost, or CAC for short, is one of the most crucial variables to take into account, along with top-line revenue.
As a general rule, make sure that the cost of gaining a new customer is less than 25% of the revenue they are generating for you.
For instance, let’s say a customer purchases a $200 device from your shop. You purchased them for $30. Typically, acquiring new customers at that price is sustainable.
However, unless you have a lot of venture capital backing or a wealthy uncle who is willing to write really large checks, spending $150 to gain a customer who just spent $25 on a dress is not going to be sustainable.
Client Lifetime Value (CLTV)
Customer Lifetime Value is another growth indicator that all eCommerce businesses that have been in operation for at least three years should consider. This is the total sum a client spends with you over the course of a particular customer lifecycle.
Since a customer’s lifecycle might last anywhere from a few months to more than ten years, this number can fluctuate greatly.
Order Value on Average (AOV)
All eCommerce companies should monitor Average Order Value as a growth metric. This is the sum of money a consumer pays you when they make a purchase.
In fact, raising the average order value is one of the best strategies to reduce your acquisition costs. The use of bundles, upsells, and cross-sells can accomplish this.
Online store conversion rate
How many people who visit your website actually make a purchase?
A respectable conversion rate is around 3 percent. As such, for every 100 visitors to your website, at least three people should make a purchase.
Cost of Sales
This covers all of your fulfilment, freight, pick-and-pack, and processing costs, as well as your cost of goods sold (COGS). In essence, everything involved in marketing and delivering an order to a customer.
Contribution Margin
Your contribution margin serves as the fuel that enables you to develop new goods, bring in new clients, and pay yourself and your staff.
It is calculated by subtracting the landed costs from each unit from the selling price per unit.
Once you sell through several channels or have multiple SKUs, you would benefit from separating running costs from sales costs. After that, you can calculate your contribution margin by subtracting revenue from sales costs.
Profit Margins
We advise keeping track of both your company’s overall profitability and the profit margins for each of your specific goods.
Make it Available to Your Team Members
After you have invested sufficient thought and effort in creating your dashboard, make it available to your team. Some groups display it on the wall; others create an online repository. Whatever way you choose to share it, sharing your performance metrics with key team members takes a lot of the guessing out of whether you are on schedule or not and can go a long way toward keeping everyone in your business on the same page. Maintaining that momentum in your eCommerce business comes after you have identified one or more growth levers. You need to be able to calculate that; therefore, learn your numbers. Using a financial performance dashboard greatly simplifies this procedure.
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