5 Financial KPIs Every E-Commerce Business Should Track for Growth

In the fast-paced world of e-commerce, staying on top of key financial performance indicators (KPIs) is essential to ensure sustainable growth. Online businesses face unique challenges including rapid shifts in consumer behaviour, intense competition, and the need to operate efficiently while managing inventory and marketing costs. The right KPIs provide valuable insights into business health, help optimise operations, and inform strategic decisions for scaling.

In this blog, we’ll explore five essential financial KPIs every e-commerce business should track, why they matter, and how digital tools can help streamline the process.

1. Gross Margin

Gross margin is the percentage of revenue remaining after deducting the cost of goods sold (COGS), which includes the direct costs of producing or purchasing the products that a business sells. It represents how efficiently a company is producing and selling its products, making it one of the most important financial metrics.

Why it matters for e-commerce:
For e-commerce businesses, maintaining a healthy gross margin is crucial for profitability. E-commerce companies often deal with variable costs such as shipping fees, warehousing, and packaging, in addition to COGS. Understanding your gross margin helps you price products effectively, manage production costs, and ensure you have enough leeway to cover other operating expenses.

How to track it:
You can calculate gross margin using the formula:
Gross Margin (%) = (Revenue – COGS) / Revenue × 100

Digital tools like accounting software (Xero, QuickBooks, etc) and e-commerce platforms (Shopify, WooCommerce) automatically generate reports that show your revenue and COGS, making it easy to track your gross margin in real time. 

2. Average Order Value (AOV)

Average Order Value is the average amount of money each customer spends per transaction. It is calculated by dividing total revenue by the number of orders.

Why it matters for e-commerce:
AOV is a critical KPI for e-commerce businesses because it directly impacts sales and profitability. A higher AOV means your business can generate more revenue per customer, reducing the reliance on acquiring new customers. This metric can help you assess the effectiveness of pricing strategies, promotions, and upselling or cross-selling initiatives.

How to track it:
AOV is calculated with this simple formula:
AOV = Total Revenue / Number of Orders

You can track AOV through your e-commerce platform’s analytics tools, which often have built-in reports for average order value. Shopify, for example, offers detailed AOV insights in its analytics dashboard. 

3. Customer Acquisition Cost (CAC)

Customer Acquisition Cost is the total cost a business spends to acquire a new customer. This includes marketing expenses, sales team costs, and other associated costs for attracting a customer.

Why it matters for e-commerce:
CAC is a key indicator of marketing efficiency. For an e-commerce business to grow, it must keep customer acquisition costs under control while optimising its marketing budget. A high CAC can quickly erode profit margins, especially if your customer lifetime value (CLTV) isn’t high enough to offset the costs.

How to track it:
To calculate CAC, use this formula:
CAC = Total Marketing & Sales Expenses / Number of New Customers Acquired

To track CAC effectively, digital tools such as Google Ads, Facebook Ads Manager, or marketing automation platforms like HubSpot can help you track advertising spend and customer conversions. You can also integrate your e-commerce platform with analytics tools to better understand which campaigns are driving new customers and at what cost. By doing so, you can optimise your marketing spend and reduce CAC over time.

To lower CAC, consider strategies like:

4. Inventory Turnover

Inventory turnover measures how often inventory is sold and replaced over a specific period, usually a year. It’s calculated by dividing the cost of goods sold (COGS) by the average inventory value. This metric helps gauge how efficiently a business is managing its stock.

Why it matters for e-commerce:
Inventory turnover is critical for e-commerce businesses because it impacts both cash flow and storage costs. Poor inventory turnover can result in overstocking, leading to high warehousing costs and potential for markdowns. On the flip side, having too little inventory can lead to stockouts, missed sales, and dissatisfied customers.

How to track it:
The formula for inventory turnover is:
Inventory Turnover = COGS / Average Inventory

E-commerce platforms like Shopify and inventory management tools offer real-time data on inventory levels and sales. These tools help businesses track inventory turnover by providing detailed reports on product movement and stock levels.

You can also use automated reordering features to replenish inventory at optimal times, ensuring you avoid both overstocking and stockouts.

5. Customer Lifetime Value (CLTV)

Customer Lifetime Value is the total revenue a business expects to earn from a customer over the duration of their relationship with the brand. CLTV considers factors like repeat purchases, average order value, and customer retention rates.

Why it matters for e-commerce:
CLTV is particularly important for e-commerce businesses because it highlights the value of retaining customers over acquiring new ones. A higher CLTV means you can afford to spend more on marketing and customer acquisition. Additionally, it allows businesses to develop long-term strategies that nurture customer relationships and drive repeat sales.

How to track it:
CLTV can be calculated using the following formula:
CLTV = Average Purchase Value × Purchase Frequency × Customer Lifespan

Tracking CLTV requires data integration across marketing, sales, and customer service tools. By analysing customer segments with higher CLTV, businesses can tailor their marketing strategies and improve retention rates.


If you are an e-commerce business owner and would like bespoke advice on setting up your Key Performance Indicators (KPIs), or if you’re interested in any of our services, please get in touch with us today.