Ecommerce Accounting Requirements You Had Better Know

If you’re not keeping track of the correct numbers to ensure that every transaction succeeds and is successful, you could be selling yourself into a hole that you cannot get out of and adding debt over it all. These numbers reveal what’s going on under the various layers of your business. That’s why they’re called key performance indicators (or KPIs for short). KPIs are different for each industry, but the most crucial KPIs for eCommerce are:

  • The overall profit margins
  • The margin of contribution by product line
  • Ad spending as a percentage of sales
  • Marketing Return on Investment
  • Ratio of Debt
  • Rate of turnover in inventory
  • Customer lifetime value (CLV)

Let’s look more closely over each of these KPIs to find out what they tell us and how to utilize these to boost your store’s performance and increase your profits.

Overall Profit Margin

The most basic and raw understanding of your eCommerce’s success is your gross margin. Simply put, this is your revenue from sales plus the direct cost of the goods you sold. These direct costs could be added together to form the Cost of Goods Sold.

Contribution Margin by Product Line

The next step is to take things further to examine the individual product segments. If you’re selling more than one item, the next step to take in a proper Chartered Accountant Company to process is to determine the products that are benefiting, and which are harming. The research has revealed that most companies have a handful of product lines that earn the bulk of their profit, others that make a tiny amount, and a few people who make money but are repaid with the profits.

Ad Spending as A Percentage of Sales

A lot of business owners on the internet are looking at numbers without context. The analysis of your advertising spend by itself doesn’t provide you any valuable information. A knowledgeable eCommerce accountant would suggest considering ad spending as percent of sales to determine how these numbers are related to one another.

Return on Marketing

How can you determine if your marketing is a wise investment? You can track your marketing ROI using the channel. Accountants For Amazon Sellers In Uk goes beyond advertisements; it’s also email campaigns and social media blogging, and many more. Shopify reports, as an example, provide the sources of your traffic, whether it’s through a search, mailer, or even a social media site. The information you gather can be used to figure out the amount of your return you earn from every dollar spent on marketing.

Debt Ratios

Online stores are frequently touted as a great option to get into business without spending a lot of dollars. However, many sellers are seeking money to expand their business or to buy inventory to start. How much you raise and the method you use to raise it will be a major factor in the outcome.

Inventory Rate of Turnover

Inventory is among the largest expenses of many eCommerce businesses and finding the perfect balance can significantly impact the cash flow of your business. If you have too little inventory, you’ll be short of inventory and lose sales. There’s too much inventory, and you’re typing the cash you don’t require. This could lead to the necessity of discount and clearance sales to clear out products that become damaged, expired, or just disappear from your shelves.

Customer Life Value (CLV)

If you’re in eCommerce or another industry, there’s nothing like an existing customer. They help you increase your profits without adding the cost of acquisition like marketing. Sooner or later, they begin bringing their family and friends along.

The Wrap-Up

You can see that “selling more” isn’t always the best option. You require information about your financial system to assist you in deciding which items to offer and the best way to sell them to maximize profit. Just a few tweaks, and you’ll be able to put more money into your pockets every month and not have to do anymore.

If crunching numbers isn’t your idea an enjoyable time, reach out and work with an outsourced accounting firm that is knowledgeable of eCommerce accounting.

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