All businesses start with a specific goal in mind. For most, it’s profit.
Even at not-for-profit organizations – or when the main driver of a business is a personal goal, like being able to work in a more flexible way or spending more time with family – income is almost always required for sustainability.
Entrepreneurship can deliver on the various freedoms it promises, but success requires an active understanding of a business’s finances – which starts with knowing what to measure.
As management consultant Peter Drucker says, “What gets measured gets managed.” – so here are four key metrics of eCommerce profitability.
1. Gross profit margin
Gross profit margin is “a financial metric used to assess a company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS).”
Gross profit margin is critical because it immediately gives you an overview of how your current revenue is serving the rest of your business, and whether it is doing so at a profit or a loss. This has a far-reaching impact on your strategic and tactical options for how to run your business.