This interview is available on Youtube and as a Podcast.
Ben McAdam is a founder of Profits Collective and a Profit Coach and Virtual CEO. In this podcast, we talk about the five key metrics on which every eCommerce business should focus.
Revenue is your income from sales. If you do not have revenue, you do not have a business! A healthy company should have a growing revenue.
Break up your revenue into categories or products to understand what drives it. You do not want to run out of the products which are vital revenue drivers
Margin is the difference between what the customer pays and the cost to the merchant. If you do not get the ratio between what an item costs and what you can sell it for right, you will not be profitable, no matter how high your revenue. You cannot outsell a margin problem.
With low margins, you will not have enough profit to grow the business or pay yourself. A sale price of 3 to 5 times your cost price is healthy. If your multiple is only two times the cost, business owners tend to burn out when your turnover hits six figures.
Are you spending enough on marketing? If you spend to little, you will not sell enough, too much and you could have got a better return. Spending 5 to 15% of your revenue is a healthy amount.
Owners should make sure they pay themselves so you can live. It is a balance as you do not want to starve the business of funds. You have to be able to pay yourself a market rate for the tasks you will want to delegate later. You will be stuck doing these tasks if your business cannot afford to pay the market rate. Making sure you can afford to pay someone else to do your job is a good indicator that your margins are OK.
Unless your business is profitable, you will not be able to do important things like pay down debt, pay yourself and attract investors.
Ben talked to Trevor Ginn from vendlab.com, an eCommerce agency specialising in online marketplaces and e-commerce sales platforms.
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