Essential eCommerce Metrics for Venture-Backed Startups

Metrics are more than just numbers for your eComm startup — they’re key to setting strategy, raising funds and instilling investor confidence in your operations. Metrics help provide data-driven insight to help your startup measure its performance, inform decision-making and drive growth. Tracking the right metrics helps startups better understand their customers, optimize marketing spend, and build a more successful and scalable business.

Don’t confuse metrics with KPIs. Metrics measure business activity, while KPIs are more specific metrics that are weighed as a startup reaches its goals. While both are important to the success and growth of your startup, it is the key eComm metrics that investors will assess during due diligence.

Understanding Metrics vs. KPIs for eCommerce

While metrics are important, some are more important to track than others. In fact, the metrics you select to track should be viewed as a strategic decision that can help separate your eComm startup from its competitors and strengthen sales strategies.

Again, metrics are quantifiable measurements of your startup’s performance, and often include website visits, orders, revenue and more. KPIs are metrics with more strategic targets that tend to indicate progress toward your startup’s goals (think: meeting conversion rate targets and average order values).

While both metrics and KPIs are important, it’s crucial that any KPIs demonstrate a path to profitability and scalability, especially during later investing rounds, and that they are aligned with user engagement and overall customer satisfaction.

Selecting Metrics Based on Growth Stage

Selecting what metrics to track has as much to do with your startup’s stage as it does anything else. For example, early-stage startups that are pre-Series A should focus on metrics that demonstrate potential and product-market fit. These metrics may include conversion rate, repeat purchase rate and the LTV:CAC ratio.

Startups in Series A fundraising should focus more on unit economics and scalability, and track metrics such as contribution margin, cohort retention and CAC payback period as core key performance indicators. Startups in active stages of growth should focus on metrics that feature operational efficiency and profitability, like inventory turns, channel profitability and net profit margin.

Revenue and Sales Performance Metrics

Some of the key metrics you’ll want to be sure your startup is tracking are the foundational ones that indicate traction. These include:

• Gross merchandise value (GMV): This is the total dollar amount of all goods sold through your startup’s platform in a given period before any expenses, fees or returns are deducted. Calculate it by measuring the total number of sales by the average sale price.
• Monthly recurring revenue (MRR): MRR refers to the predictable income your startup generates from its customers on a monthly basis, typically from subscription-based services. It helps forecast future revenue, track growth and make strategic decisions.
• Average Order Value (AOV): This represents the average amount a customer spends per order, helping startups understand purchasing habits and evaluate the effectiveness of various marketing campaigns and strategies. Calculate it by dividing the total revenue by the total number of orders over a specific period.
• Sales by channel: This refers to the pathways your startup uses to sell its products or services to customers. It can help you compare sales through your startup’s website versus those of a third-party retailer or distributor.

Customer Acquisition and Retention Metrics

Customers aren’t just important to revenue and profitability for your startup, they’re also important for appealing to investors. This helps underscore the importance of customer economics, such as acquisition and retention metrics. Here are the metrics you need to be tracking:

• Customer acquisition cost (CAC): CAC is the total expense your startup spends to acquire one new customer, which helps measure the effectiveness of customer acquisition efforts and marketing campaigns. Find CAC by dividing the total cost of sales and marketing by the number of new customers acquired over a specific period.
• Customer lifetime value (LTV): LTV is used to predict the total revenue your startup can expect from a single customer throughout their entire relationship with your eComm startup, which can help you understand how much to invest in acquisition and retention efforts.
• CAC payback period: CAC payback period is the time it takes for your startup to earn back the cost of acquiring a new customer. It’s essential for assessing your sales efficiency and marketing efforts. Calculate it by dividing the customer acquisition cost by the month’s gross margin-adjusted revenue per customer.
• Repeat Purchase Rate: The repeat purchase rate is the percentage of customers who make more than one purchase within a specified period. Calculate it by dividing the number of customers who made the purchases by the total number of customers, then multiplying that figure by 100. This metric helps gauge customer loyalty and satisfaction.
• Customer retention rate: The customer retention rate measures the percentage of customers your startup retains over a specific period, helping to understand customer loyalty and determine profitability. It’s calculated by using this formula:
  • Customer retention rate = ((Customers at end – New customers) / Customers at start) x100

Conversion and Website Performance Metrics

Website optimization has a direct impact on profitability — but only if you’re converting web traffic into sales. Here are metrics to know:

• Conversion rate: This refers to the percentage of website visitors who complete a desired action, such as making a purchase or filling out a form. For your eComm startup, the conversion rate will be ‘purchases’. Calculate the conversion rate by dividing the number of conversions by the total number of visitors, and then multiplying that result by 100. The industry benchmark is a conversion rate of around 2-3 percent. A 4 percent rate indicates a high performer.
• Cart abandonment rate: This refers to the percentage of online shoppers who add items to their cart but fail to complete the purchase. Calculate it by dividing the number of abandoned carts by the total number of created carts, then multiplying that by 100. The average cart abandonment rate is 70-80 percent.
• Add-to-cart rate: This measures the percentage of website visitors who add a product to their shopping cart. Find it by dividing the total number of add-to-cart actions by the total number of visitors, then multiplying that by 100.
• Traffic source performance: Traffic source performance allows you to see where your website traffic is coming from. Common sources include organic search, social media, email and paid search.

Channel-Specific Conversion Optimization

eComm startups are challenged with managing sales and operations across various platforms, such as their website, online marketplaces, social media and physical stores. There’s a need to sync inventory, maintain consistent branding, handle shipping and return requirements, and integrate systems in a way that supports customer relationships.

For example, direct-to-channel website conversion rates are typically several percentage points higher than those on online marketplaces, due to greater brand control. There are also key differences between mobile and desktop conversion rates, as mobile commerce accounts for approximately 70 percent of total traffic but has a lower conversion rate. Attribution complexity across various channels also requires sophisticated tracking for accurate CAC calculation.

Profitability and Unit Economics Metrics

Profitability metrics your startup should be tracking during Series A fundraising include:

• Gross profit margin: This shows the percentage of revenue left after deducting COGS. A healthy gross profit margin for eComm startups is 40 to 60 percent.
• Contribution margin: This is revenue minus all variable costs, a key metric in unit economics.
• Net profit margin: This is the total profit after all expenses. A higher net profit tends to indicate better efficiency and financial health.
• Burn multiple: This measures your startup’s capital efficiency by dividing net burn by its net new annual recurring revenue.

Inventory and Operational Metrics

Key metrics that connect operational efficiency to cash flow and profitability include:

• Inventory turnover rate: This measures the efficiency with which inventory is converted into sales.
• Days sales of inventory (DSI): This indicates how long capital is tied up in inventory.
• Fulfillment cost per order: This is the average cost to get a product from the warehouse to the customer. It includes costs for receiving inventory, storage, picking, packing, shipping and returns.
• Return rate: The average industry return rate is about 30 percent. A higher return rate can indicate problems with product description and quality.

Metrics That Investors Scrutinize

Series A investors want to see metrics that show scalable, sustainable growth and evidence of financial health in eComm startups. They often focus on the LTV:CAC ratio and other metrics, including revenue growth, customer retention rates, gross margins and conversion rates. VCs tend to expect 15 to 25 percent monthly growth pre-Series A, improving unit economics and evidence of capital efficiency. Investors also closely examine cohort retention curves to determine if customers are staying and increasing their spending over time. Aim to tell a story with your metrics.

Building Investor-Ready Metric Dashboards

A good financial dashboard should organize key metrics such as GMV, CAC, LTV, LTV:CAC ratio, contribution margin, burn rate and runway. It should also show trends over time to demonstrate trajectory and not just points in time.

Common Metric Tracking Mistakes for eCommerce Startups

eComm startup founders are prone to their share of mistakes that obscure their startup’s true performance. Make sure to avoid these pain points:

• Tracking too many metrics without a clear focus.
• Ignoring cohort analysis.
• Overlooking attribution.
• Confusing revenue growth and profitability.

Build a Metrics-Driven eCommerce Strategy

Are you ready to build a metrics-driven eComm strategy? At Graphite Financial, we’ll work with your startup to identify and track the right metrics that matter most to you and your investors. As a professional financial services firm, we’ll implement the proper metric tracking, help build investor-ready dashboards and work to optimize your startup for profitable growth. Contact us today to learn more and schedule a consultation.

FAQs

What’s the difference between eComm metrics and KPIs?

eComm metrics tend to measure business activity, while KPIs are more specific metrics that are weighed as a startup reaches its goals. For example, metrics include website traffic, conversion rate and products sold, while KPIs often include conversion rates based on a campaign, customer lifetime value and return on ad spend.

Which metrics do Series A investors care about most for eComm startups?

Series A investors seek metrics that demonstrate scalable, sustainable growth and evidence of financial health in eComm startups. On this note, they often focus on the LTV:CAC ratio and other metrics, including revenue growth, customer retention rates, gross margins and conversion rates.

What’s a good LTV:CAC ratio for DTC eComm?

A good LTV:CAC ratio for an eComm startup is 3:1, meaning the customer lifetime value is three times what the startup spent to initially acquire that customer. This is considered healthy and profitable for the startup. Anything higher than 3:1 is a stronger indicator of a healthy and profitable business model, while anything below indicates that a startup is losing money on each new customer it acquires.

How often should I track eComm metrics?

How often you track eComm metrics largely depends on the metric that you’re tracking. Some metrics, such as conversion rates, should be tracked weekly or even daily, while metrics like revenue growth and LTV are more long-term, big-picture metrics that don’t require as frequent tracking. When deciding how frequently to track your eComm startup’s metrics, do so by determining if it’s a short-term or long-term metric.

What metrics indicate product-market fit for eComm?

Metrics that indicate product-market fit include high retention rates and upward trends in LTV versus CAC. Strong organic growth and high referral rates are other key metrics that indicate good product-market fit. Assess a mix of quantitative (i.e., customer retention, churn, CLV, CAC, etc.) and qualitative (i.e., Net Promoter Score, customer feedback, etc.) metrics to determine if you have a strong product-market fit.

How do I calculate contribution margin for my eComm business?

Contribution margin is calculated by subtracting all variable costs (i.e., COGS, shipping fees, transaction fees, etc.) from your net revenue. The formula is as follows:

• Contribution margin = Net revenue – variable costs

What’s a healthy customer acquisition cost (CAC) for eComm startups?

A healthy CAC for an eComm startup is considered to be less than $100 or a ratio of at least three times the customer lifetime value. However, the benchmark CAC varies depending on the product category and level of competition.

Why is cohort analysis important for eComm metrics?

Cohort analysis is important because it provides actionable insights into customer behavior over time. Cohort analysis moves beyond single point-in-time averages and helps provide insight into retention, engagement and spending to help startup leadership assess marketing strategies, optimize products and reduce churn by knowing what drives loyalty and what works for various customer groups.