The biggest difference between fast-growing eCommerce businesses who are able to sustain that momentum for a long time, and those that fizzle out is financial literacy.
The eCommerce entrepreneurs who build systems to ensure that they always know their numbers can make more informed data-driven decisions.
One of the best tools in a busy entrepreneur’s toolkit is to add and monitor all of your eCommerce financial metrics in a dashboard.
Pro Tip: Use our free eCommerce toolkit, which includes the resources you need to get a firm grasp of your business finances. Download now.
In this post, we’re going to help you build your own financial performance dashboard.
Article Contents
What’s a financial performance dashboard?
Simply put, a financial performance dashboard allows you to gain visibility and a deeper understanding and clarity around the needs of your eCommerce business. From sales and marketing to customer service and product development, it also allows you – as the owner – as well as your entire team to see how every department contributes to the bottom line.
Let’s take revenue and profit as an example. This is a simple sales metric. However, it matters for your marketing team as they can see which of their efforts get the most visitors to your site, to your CRO and product teams to see which products are converting the best and to your CFO and controller who have the responsibility in identifying what pricing is right to go to market with.
So, a dashboard is a way to consistently track all of your team’s key performance indicators (i.e. KPIs.) And, it helps you pull away from the uncertainty of where to focus next.
Why do I need a dashboard if I already have detailed tax reports?
This is the biggest question that a lot of sellers ask us. The key difference between your tax reporting and a financial performance dashboard is that your tax reporting is for compliance-driven reasons. You have to file your taxes every year if you want to remain in business and don’t want to spend time behind bars.
However, you also have a responsibility to your team and yourself to have financial reports and dashboards that allow you to understand operationally how your business is functioning.
These are two different use cases. The way you look at reporting for tax may be more simplistic to those needs that you want for business intelligence.
What are the top benefits?
There are a lot of advantages to spending the time upfront to develop a clear financial dashboard.
See your most important KPIs in one place
The biggest advantage is that you can get a bird’s eye view of your most critical KPIs in one dashboard.
Instead of having to log into Shopify, Amazon, Google Analytics, your Facebook ads account, and pull up 6 different spreadsheets, you can just view all of the key KPIs in one dashboard on one screen.
Monitor sales, expenses, and profitability
Dashboards allow you to keep a pulse of your sales, expenses, profit margins, and cash flow on a daily, weekly, and monthly basis.
In fact, many eCommerce business owners start their day by quickly reviewing their sales dashboard.
Related Reading: What’s the difference between gross profit, net profit, and gross margin anyway?
How to manage purchase orders
Hold your team accountable
You can’t manage what you don’t measure. Making at least some of your financial performance dashboard accessible to your team is a great way to allow them to feel a sense of ownership in the business.
When each team member knows how their role fits into the larger picture, and they see these metrics day in and day out, they are going to feel more empowered. This will likely result in them working harder and taking the initiative to come up with ideas to improve the bottom line.
For example, if your marketing manager sees a big spike in new sales after a new Facebook ad campaign, they will likely want to double down on that campaign.
Reduce the amount of time putting together detailed reports
When was the last time you were excited to read a 20 page report? Not only are 20 page reports time-consuming for you and your team to put together, nobody even wants to read them in the first place.
Dashboards can solve this problem.
You set it up once, and then you can reference it whenever you want. This allows you to focus your time on growing your business instead of building complex reports.
What are the key metrics that eCommerce businesses should be tracking?
While every eCommerce business is different, these are some metrics that most businesses will want to track.
Growth Metrics
One of the most important metrics to consider alongside top-line revenue is customer acquisition cost or CAC for short.
These are all of your sales and customer acquisition metrics, such as evaluating the effectiveness of your ad spend, your site conversion rate, and average order value.
Revenue
This is the one metric that I bet every eCommerce entrepreneur reading this post is already tracking.
If top-line revenue looks like a hockey stick, you might even brag about it a little bit. However, this is a dangerous move as evaluating top-line revenue out of context can often lead to major issues.
For example, watch a couple of episodes of Shark Tank, and you can get a glimpse of what happens when you focus too much attention on top-line revenue. Many eCommerce businesses that appear on Shark Tank grew quickly and then ran into massive capital issues. They can’t buy enough inventory, meet purchase orders for retail, or pay off their operating expenses. These challenges have caused many promising companies to close up shop permanently.
Customer Acquisition Cost (CAC)
This is why one of the most important metrics to consider alongside top-line revenue is customer acquisition cost or CAC for short.
A good rule of thumb is to ensure that your costs for acquiring a new customer are less than 25% than the revenue you are bringing in from them.
For example, if a customer buys a $100 gadget from your store. You spent $15 to acquire them. That’s usually a sustainable customer acquisition cost.
However, if you spent $100 to acquire a customer who only spent $15 on a small gadget, that’s not a sustainable way to run a business unless you have a lot of VC funding or a rich uncle who is okay with writing really large checks.
Customer Lifetime Value (CLTV)
Another growth metric that all established eCommerce businesses (i.e. been in business at least 3 years) should look at is Customer Lifetime Value. This is the amount of money a customer spends with you in a given customer lifecycle.
This metric can vary wildly since a customer lifecycle can be as short as a few months or 10+ years.
Average Order Value (AOV)
Average Order Value is a growth metric that all eCommerce businesses should track. This is the amount of money that a customer spends when they buy from you.
In fact, one of the best ways to drive down your acquisition costs is to increase the average order value. This can be done through packages, upsells, and cross-sells.
eCommerce Conversion Rate
How many visitors are buying something when they get on your website?
This is your conversion rate.
According to a recent report from eCommercefuel, a good conversion rate is 3%. This means that for every 100 visitors on your website, at least 3 of them should buy something from you.
Pro Tip: Since your conversion rate is going to vary based on your traffic source, we recommend segmenting your conversion rate. For example, you’ll have different conversion rates for email, organic search traffic, and paid ads.
Growth Equation
This is a bonus metric to keep an eye from the crew at Common Thread Collective Equation,
The growth equation is Visitors x Conversion Rate x AOV = Revenue
This one equation simplifies your eCommerce financials and allows you to cut through the uncertainty of what to focus on first and target in on those areas of impact to grow your business strategically.
Operational Metrics
Your contribution margin is the fuel that funds your ability to acquire new customers, launch new products, and pay yourself and your team.
On the expense side, we’re going to want to look at our key areas of spend, from the cost of goods sold, cost of delivery, and of course, profit margins.
Cost of Sales
This includes all of your cost of goods sold (COGS), fulfillment, freight, pick/pack, and processing fees. Basically, everything that goes into selling and shipping an order to a customer.
Contribution Margin
Your contribution margin is the fuel that funds your ability to acquire new customers, launch new products, and pay yourself and your team.
To calculate it, it is the selling price per unit minus the landed costs of each unit.
Once you have multiple SKUs or are selling on multiple channels, we recommend separating the cost of sales from operating expenses. Then, you can take revenue minus cost of sales to get your contribution margin.
Profit Margins
We recommend tracking overall business profitability as well as profit margins for each of your individual products.
Here is the equation to calculate your profit margin.
Revenue – cost of sales – customer acquisition costs – operating expenses = PROFIT
The best way to keep tabs on your cash flow and expenses is through your cash flow statement.
Customer Refund / Return Rate
Another metric to keep an eye on is customer refunds and chargebacks. This is not only a headache for your customer service team to manage, but this quickly adds up. If the refund rate is increasing, this can also be an indicator of product quality or customer satisfaction issues.
In the case of chargebacks, if you are getting too many over a short period of time, your payment gateway can even freeze or lock you out of your account.
How to optimize your financial performance dashboard
Now, that you know what a dashboard is and what metrics to include, we’re sharing a few tips to make your dashboard easier to read, so that you and your team will actually use it regularly.
Put your most critical KPIs front and center
What are the 3 most critical metrics in your business? These metrics should be the things that your eye is first drawn to in your dashboard.
For example, this might be daily revenue, average order value, and customer acquisition cost.
Keep it simple
Just like with any reports, the more numbers, fancy charts, and graphs you include, the more likely you are to bury the most important data or cause analysis paralysis.
So, a good rule of thumb is to try and keep your dashboard to one page.
If you find that you need multiple pages, you might want to create separate dashboards instead of having one massive dashboard.
Track cash inflows and outflows
One advantage of your dashboard is it helps you pay attention to your cash flow. It’s just simply looking at all the inputs, the cash that’s come into your business, and the cash that’s flowing out of your business.
Pro Tip: Each month, you should be reconciling your books and finalizing your monthly accounts so that you’re looking at your ending balances across your statements and making sure that what Shopify has matched what your accounting software shows and that this is being reported in your dashboard too.
Automate the process with dashboard software
There is nothing wrong with building your first few dashboards using Google spreadsheets. However, when your business is complex, using software to pull in the data can help you better track, analyze, and visualize everything.
There are loads of amazing free and paid options available, including Google Data Studio, Databox, Klipfolio, Geckoboard, Futrli, BareMetrics, Looker, and Tableau, to name a few.
Pro Tip: Another advantage of using software to build your dashboards is that it can automatically pull data from a wide variety of software that you are already using. For example, you can automatically pull in your data from Shopify, Xero, Facebook Ads, Google Analytics, and more. So, you can save boatloads of time and have all of your data in one place.
Make it accessible to your team
You’ve spent a ton of thinking about and building your dashboard. Now, it is time to make it accessible to your team. Some teams choose to pin a link to their dashboard in their company Slack channel. Others send alerts to a general Slack channel when certain milestones happen (i.e. a new sale, a customer leaves a review, etc.) This can go a long way to keep everyone in your company aligned with what’s going on, and it removes a lot of the guesswork if you are on track or not.
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Once you have uncovered a growth lever or two in your eCommerce business, the next step is keeping that momentum going. In order to do that, you need to know your numbers. A financial performance dashboard makes that process a lot simpler.
If you want peace of mind knowing that your eCommerce books are up to date, our team of eCommerce financial experts can help. Schedule a free call here.
