Profit Analytics Blog
Read expert articles with insights about e-commerce profitability from analyzing thousands of e-commerce businesses' data.
Net, Gross, & Operating Profit Margins: What Is High?
Two popular metrics commonly used to gauge the success of a business are profit margin and net profit. And, while net profit is great at reflecting how much profit is generated from revenue, for some applications, it's arguable that a business's profit margin is a more valuable metric. This is because profit margin allows you to gauge how efficiently your business is running overall. Understanding these metrics—involving income, revenue, and profit—and the benchmarks of each of these can provide insight into a business's overall profitability. » Book a demo with BeProfit and learn how to calculate profit and other metrics with just one tool Difference Between Net, Gross, & Operating Profit Margins These three metrics are commonly used to analyze and measure the income of a business. All three metrics differ based on industry and business size and are typically not stagnant. To help you better understand the differences between the three margins, consider learning more about: 1. How to Calculate Net Profit Margin Net profit margin is a measure of profitability. It's calculated by determining a business's net profit as a percentage of revenue. Net Profit Margin = [(Revenue - Cost) / Revenue] x 100 For example, in e-commerce, the average net profit margin is 0.64%, whereas the average total market net profit margin is 7.77%, as reported by NYU Stern School of Business. But this can fluctuate depending on a number of factors, such as the number of sales, merchandising costs, and product prices. Another way to look at net profit margin is by using a net profit margin ratio. The net profit margin ratio is just another way to measure a company's profitability. Net Profit Margin Ratio = Net Income / Revenue This ratio tells you how much profit a company makes on each dollar of sales. Simply put, a high net profit margin ratio means that the company is making a lot of money on its sales. In contrast, a low net profit margin ratio means that the company is not making as much money on its sales. 2. How to Calculate Gross Profit Margin The gross profit margin differs from the gross profit and is expressed as a percentage. Gross profit margin is the percentage of revenue that remains after paying the cost of goods sold (COGS). The average, per NYU Stern School of Business, sits around 33% for all industries, and 42.78% for e-commerce, particularly. Gross Profit Margin = [(Revenue - COGS) / Revenue] x 100 This calculation is useful because it measures the efficiency of the business's operations, provides a benchmark for measuring other business expenses, and shows changes in gross profit margins over time. Thus, e-commerce businesses prove to be excelling at managing operational costs efficiently for a maximal gross profit margin. If you find your gross profit margin is low, however, you can look into reducing COGS, including lowering shipping costs or cutting out unnecessary expenses like excess staff or unneeded operational costs. » Need help managing expenses? Keep track of your e-commerce business expenses 3. How to Calculate Operating Profit Margin Operating profit margin (or return on sales) is the ratio of operating income to net sales. This is usually expressed as a percentage. Operating Profit Margin = (Operating Profit / Revenue) x 100 The operating profit margin ratio is used to determine how well a company can cover operating costs with revenues. In other words, how effective a company is at generating profits from its sales. This is a useful performance indicator when making comparisons to similar companies. The average total market operating profit margin is 13.52%, with the e-commerce industry at 5.85%. This can change drastically based on net sales or even streamlining operational processes to lower costs. » Find out how to calculate gross profit percentage Easily Track and Analyze Your Profits View and manage your profit trends on one dashboard. Provides a complete business and financial overview.Access to real-time data and custom reports.Link multiple platforms and shops for an aggregated view. BeProfit's app makes it simple to track and analyze your profit margins, saving you time and effort. Benefits of Knowing Your Profit Margins The ultimate goal for a business is profitability. If your sales are up, but your margins are down, you may need to take a deeper look at how you're running your business. A business with a good profit margin is able to remain afloat during tough times and capitalize on opportunities, such as seasonal marketing strategies, to help boost sales. A high-profit margin means that the company is making enough money on each sale to cover its costs and generate a positive return on investment (ROI) for continued growth. A high-profit margin also sends a positive signal to potential investors, lending credibility and stability to the business. » Learn about effective cost leadership strategies to help improve profitability Limitations of Profit Margin Calculations To calculate a profit margin, business owners need to calculate total revenue and total expenses. This can be complex. Research and development (R&D) costs are expensed in the year in which they occur, while depreciation expenses are spread out over the life of the asset. Profit margins also don't always consider changes in sales volume. If a company doubles its sales volume but keeps costs constant, the profit margin doesn't change. If a company reduces its sales but also lowers expenses and increases prices, its profit margin will increase. Calculating profit margins is not an exact science, and the outputs, while helpful, should be considered an estimation. » Discover how to perform a profitability analysis for your e-commerce store Knowing These Margins Can Help Improve Profitability Because margins can fluctuate and depend on a number of factors, knowing the benchmark values can provide an estimated guideline to assess your business. Ultimately, a good profit margin is essential for maximizing company growth, understanding how other successful businesses in your industry are performing, and achieving optimizing your processes. If you have low-profit margins, tracking these same metrics on all-in-one platforms, like BeProfit's, can offer useful insight for making sales strategy adjustments, operational optimizations, and improving revenue management.
Business metricsCalculating CTR For Beginners: Formulas, Guides & ExamplesClick-through rate (CTR) is an essential metric that can help businesses evaluate their advertising campaigns' performances. Depending on the industry and platform, CTR averages can vary. For example, Wordstream shares that business services' paid search CTR average is 5.17%, whereas apparel has a 2.24% average CTR. So, this metric should be treated as more of a guideline than a definitive benchmark. Understanding your CTR can also provide insight into revenue and profits by highlighting how effectively you're utilizing your marketing budget. Understanding CTR CTR measures the engagement of online ads and other digital content, such as emails or website pages. To understand this engagement's correlation to revenue, you would need to also calculate metrics like conversion rate, cost-per-click (CPC), and others. CTR can be analyzed by subsections, such as micro conversions, search ads, and display ads. Each of these could provide different results, which can offer data for comparison to find from which ad type, for example, you garner the most conversions. Why Should You Track CTR? Tracking your CTR allows you to understand your marketing strategies' strengths and weaknesses. It can help better your business with: Increased conversions - Knowing where your campaigns are successful can help you identify and utilize effective techniques more widely, resulting in higher interaction and conversions.Insight into marketing campaigns - This can guide you to points in your campaigns that need optimization or costs that should be cut. By tracking CTR, you can better understand user behavior and, therefore, tweak your marketing approaches for better conversion and customer retention.Improved ROI - With a better understanding of your marketing campaign, you can increase the chances of users completing sales actions and the likelihood of turning profits. Track Profits From Your Marketing Conversions Automatically integrate your advertising data and easily track sales profits. UTM-based tracking allows you to analyze and optimize all engagement from social media to ad campaigns.Get an aggregated view of your business performance.Accessible on mobile and desktop devices for real-time team collaboration. BeProfit offers a customizable platform to track your advertising performance using key metrics. » Looking to do some CTR manipulation? Here are 5 expert tools and techniques How to Calculate CTR CTR is the ratio of clicks to the number of users who viewed the page, email, or advertisement. Some metrics to decide between before doing any calculations are unique clicks and overall clicks. If you want to categorize every time the same user clicks on the same link as one click, that's considered a unique click. Whereas overall clicks count every click, even on the same link and by the same user, as numerous clicks. Aside from industry benchmarks as a guideline, it's worth having your own benchmarks so you can measure your improvement from one period to the next. Although the CTR can vary based on platform, content, and channel, calculating it uses the same method and should be done at regular periods. CTR (%) = (Clicks / Impressions) x 100 Example of a Good CTR CTR (%) = (Clicks / Impressions) x 100= (75 / 3,000) x 100= 2.5% In this example, a call-to-action (CTA) button in an email campaign had a CTR of 2.5% Because email marketing CTR averages at 2.3%, this result is positive. This high CTR may have been achieved through extensive user behavior analyses or retargeting to ensure it was reaching people more likely to be interested. Successfully reaching a desired target audience can help businesses assess their marketing prowess and retain customers, which can improve conversion and help maximize profits. » Want to know more? Here's how email marketing practices can improve your ROI Example of a Poor CTR CTR (%) = (Clicks / Impressions) x 100= (50/10,000) x 100= 0.5% With the average CTR for Facebook ads at 1.4%, this example of a display ad that appears on Facebook feeds shows a low CTR. This may be a result of poor ad type selection, weak copy, and inefficient audience targeting, among other practices. This highlights how lower CTRs can cause businesses to lose out on potential conversions that could, in turn, lead to wasted costs with little to no ROI. Ways to Improve Your CTR Using data insights from tracking your CTR, and other metrics can inform new ways to use that can optimize CTR. Some of these ways include: Personalization - This includes web personalization, which targets your potential customers' specific interests and fosters a familiarity that can encourage engagement and loyalty.CTAs - By implementing CTAs for more strategic direction and redirection, you can increase the opportunity for users to visit specific pages or product pages.Retargeting - You can leverage social retargeting. This creates display pop-ups when a user interacts with your social content through likes or comments.Improve Ad Copy - Performing keyword research, rewriting, and making use of images and video marketing can optimize your ad copy with data-driven adjustments that can help drive engagement.A/B Testing - Testing various versions of an ad and comparing the metrics can highlight more precise areas of your ad that resonate best with users. You can use this insight and apply it to other ad campaigns for an improved CTR. » Discover steps to build a successful hybrid e-commerce marketing campaign Leverage Your CTR to Help Increase Conversions CTR is a key metric in understanding the success or failure of any given digital marketing campaign. Analyzing which platforms, techniques, and ad types are most successful, and which target audiences are most responsive to certain campaigns, can aid businesses to optimize their strategies for increased sales and profit-driving conversions. That's where BeProfit comes in. With a customizable dashboard that can easily track your profits and integrate your advertising data for real-time monitoring, you can focus more on spearheading informed strategies to continually improve your CTR.
Profit calculation3 Best Excel Formulas for Calculating Markup vs. MarginAccording to the NYU Stern School of Business, the average gross profit margin across all industries is 36.28%, with online retailers generating an average gross profit of 42.78%. How does yours compare? As an e-commerce entrepreneur, knowing your profit margin and focusing on the factors that influence your profits and contribute to a robust bottom line is crucial. Grasping the concepts of margin and markup is a key component of this process, and thankfully, Excel makes calculating these vital metrics a breeze! In this post, we'll delve into the top Excel formulas for determining markup and margin and how you can leverage them to make informed pricing decisions and boost your profitability. Understanding the Difference Between Markup and Margin Markup Markup refers to the amount you charge above the cost to cover expenses and generate a profit. In the marketplace, markup is expressed as a percentage, that is, the percentage added to the cost of a product or service to determine its selling price. To work out your markup, you need to accurately calculate the cost of goods sold (COGS). Margin Margin represents the portion of each sale that contributes to covering expenses and generating profit. We also express margin as a percentage: the percentage difference between the selling price and the cost expressed as a percentage of the selling price. So, in summary: Markup is the percentage increase in price over the cost of the productMargin is the profit made as a percentage of the selling price Below are three key pairs of Excel formulas you can use to calculate your markup and margin. » Learn more about the differences between gross margin & gross profit so you don't get them confused 1. Basic Percentage Formula To gain a better insight into a company's pricing strategy and make informed decisions on pricing and sales, we can use two basic formulas that apply to markup and margin. Markup Calculation Formula Markup = [(Selling Price - Cost) / Cost] x 100 For example, if a T-shirt costs $23 to produce and the company wants to sell it at a price of $30, the necessary markup would be [($30 - $23) / $23] x 100. This works out to be a markup of 30.43%. To calculate this in Excel, enter the cost and selling price in separate cells, such as A2 and B2. In cell C2, input the formula: =(B2-A2)/A2*100 Alternatively, enter the formula =(B2-A2)/A2 and select "Percentage" from the dropdown list in the "Number" field in the top menu. This automatically expresses the value as a percentage. » Simplify calculations and optimize profits. Book a demo for BeProfit's profit-tracking app Margin Calculation Formula Margin = [(Selling Price - Cost) / Selling Price] x 100 Using the same example as above, your calculation would be [($30 - $23) / $30] x 100. The gross margin, therefore, works out to be 23.33%. As with the markup formula, input the cost and selling price in separate cells, such as A2 and B2. In cell C2, enter the formula: =(B2-A2)/B2*100 Or you can enter the formula =(B2-A2)/A2 and select "Percentage" in the "Number" field in the top menu. 2. Sales Price Formula Considering both the cost of producing the product and the desired profit margin is something businesses must do when setting a sales price. Sale prices are another key factor in margin and markup calculations. Sales Price Using Markup To calculate the sales price with the desired markup in mind, use this formula: Sales Price = [1 + (Markup/100) x Cost Price] Using the same figures are the previous examples, the sales price = [1 + (30.43/100) x 23]. This means your sales price should be $30. An Excel formula is a much quicker way to calculate the sales price. If you enter the cost price in the cell A2 and the markup in cell C2, the formula you would enter in cell B2 is: =(1+C2)*A2 Make sure that for B2, you select "Number" from the dropdown list from the top menu, as you can see below: Sales Price Using Margin To determine the sales price using the profit margin, use this formula: Sales Price = Cost Price / [1 - (Margin Percentage/100)] For example, if you want to achieve a margin of 23.33% on the T-shirt that costs $23, your sales price = $23 / [1 - (23.33/100)]. This works out to be $30. For a simpler way to calculate the sales price, you can use this formula in Excel: =A2/(1-C2) Again, be sure to select "Number" from the dropdown list for cell B2, as you can see below: By using these sales price formulas, businesses can ensure that they're setting prices that will result in the desired profit margins. 3. Discount Formula Another common strategy businesses use is discounts to attract customers and increase sales. When it comes to margin and markup calculations, discounts can affect profit margins. If a company offers a discount on a product, the sales price will decrease, which may impact the margin percentage. Firstly, if you have a discount percentage in mind, you need to calculate what the new discounted sales price will be. To do that, use this formula: Discounted Sales Price = Selling price x [1 - (Discount Percentage/100)] To illustrate with our same example, to work out the discounted sales price for our T-shirt with a 10% discount, the calculation would be: discounted sales price = $30 x [1 - (10/100)]. This works out to be $27. To calculate this in Excel, enter the sales price in cell A2 and the discount percentage in cell B2. Then input this formula in cell C2: =A2*(1-B2) Remember to select "Percentage" from the dropdown list for cell B2 and use "Number" for cells A2 and C2. Once you have this amount, you can work out your new markup and margin values. Use the basic percentage formulas, but replace the original selling price with the discounted sales price you just calculated. This means the new markup formula will be: New Markup = [(Discounted Sales Price - Cost) / Cost] x 100 Using our example, the new markup after the discount = [($27 - $23) / 23] x 100. This comes to 17.39%. The formula to calculate the new margin will be: New Margin = [(Discounted Sales Price - Cost) / Discounted Sales Price] x 100 Using our example, the new margin = [($27 - $23) / $27] x 100. This works out to 14.81%. You can use the same basic percentage formulas in Excel, but just make sure you replace the selling price in cell B2 with the discounted sales price. In other words, replace $30 with $27. By calculating the new markup and margin after applying a discount, you can better understand the impact of the discount on your profits. This will help you make informed decisions about whether or not to offer a discount and how to adjust your pricing strategy to maintain profitability. » Looking for more help with discounts? Check out more easy Excel discount formulas Factors That Can Impact Markup and Margin We already established that markup and margin are key metrics that impact businesses and their profitability. However, several factors can impact these metrics, including competition, market demand, production costs, and pricing strategies. In highly competitive markets, businesses may need to lower their prices to remain competitive, which can impact both markup and margin. Production costs, including raw materials, labor, and overhead, can also impact markup and margin. Finally, different pricing strategies can impact these metrics, as businesses may need to adjust their prices to reflect changes in their overall pricing strategy. » Remember to keep your pricing strategy flexible. Learn how with dynamic pricing Calculate Markup and Margin in Excel for Effective Pricing In today's competitive market, it's crucial to calculate markup and margin accurately to ensure profitability and sustainability. Using the above formulas in Excel is a simpler, more time-efficient, and more accurate way to calculate these key metrics. By using Excel to calculate markup and margin, businesses can make informed decisions about pricing that will ensure customer satisfaction and boost customer lifetime value (CLV) while still maintaining profitability. Once you have effective pricing in place, it's essential that you continually monitor, track, and analyze your profits and expenses. BeProfit is one of Shopify's best profit calculators to get the job done. It's an all-in-one analytics tool that auto-syncs your order and expense data to provide real-time product, order, marketing, and expense reports. With a clear overview of your business finances, you can make informed and strategic decisions to scale your store and boost your bottom line.
Profit calculation4 Easy Excel Discount Formulas For Your E-Commerce StoreDiscounts can sometimes make or break a sale. 83% of shoppers say that discount coupons inform their purchasing behavior directly. However, discounts need to be implemented strategically. With monitoring, businesses can calculate optimal discounts, as well as forecast ROI and profits. And Excel can be a powerful and flexible tool to help with this. Excel can streamline and optimize e-commerce operations, allowing businesses to make better-informed decisions and achieve greater success. 1. Discount Price Using Manual Formula Calculating discount prices using manual formulas in Excel is a simple and efficient way to manage your pricing strategy to help ensure profits. Let's say you want to offer a 20% discount on a product that originally costs $100. Here's how you can calculate the discounted price using a manual formula: 1. Enter the original product price ($100) in cell A2. 2. Enter the discount rate as a decimal (0.2) in cell B2. 3. In cell C2, enter the following formula: Discounted Price = Product Price - (Product Price x Discount Price)C2=A2-(A2*B2) 4. Excel will calculate the discounted price, which is $80 in this case. You can easily adjust this formula for different products and discount rates. Monitor Your Sales Performance With your discounts in place, you can track profit and revenue metrics to find whether your pricing leads to conversions. View data from mobile or desktop devices.Connect multiple shops for an integrated view of your business's revenue metrics.Create and export customized data reports. With BeProfit, you can monitor your conversion rates and profits, which can help you spot when product discounts are working for your business. 2. Manual Formula to Calculate Discount Rate To calculate a discount rate in Excel, you would typically need the optimal price you're hoping to sell the product for first. For example: 1. Enter the original product price ($100) in cell A2. 2. Put in the target discounted price ($50) in cell B2. 3. In cell C2, enter the following formula: Discount Rate = (Product Price - Target Discounted Price) / Product PriceC2=(A2-B2)/A2 4. Excel will calculate the discount percentage required to achieve the target discounted price. In this example, this would be 50%. Make sure you format cell C2 as a percentage. You can change this from the "Home" tab in the "Number" section, and select "Percentage" from the drop-down box. If you'd like to decrease the decimal points so your percentage is rounded to a whole number, you can click on "Decrease Decimal" from the same section. » Find out how to calculate revenue in Excel using simple formula templates 3. Using Array Formula to Calculate Discount Price Array formulas in Excel can help you quickly calculate discounted prices for large sets of data. For example, you have a dataset with 10 products and you want to calculate the discounted price for each product based on its original price and discount rate. Here's how you can use an array formula: 1. Enter the original product prices in column A. 2. Enter the discount rates as decimals in column B. 4. In column C, enter the following formula: Discounted Price = Product Price - (Product Price x Discount Rate)C2=A2-(A2*B2) 5. To apply the formula to the other rows, press Ctrl+Shift+Enter. Excel will automatically calculate the discounted price for each product based on its original price and discount rate. » Discover the 3 best Excel formulas for calculating markup vs margin 4. Find the Discount Rate With the What-If Analysis Excel's What-If Analysis function is a bit more involved. But it can help you determine the required discount rate to achieve your desired discounted price. For instance, let's say you have a product with an original price of $100 and a current discount price of $50, and you want to offer it at a final discounted price of $75. 1. Begin by entering the original price of the product ($100) in cell A2, the current discount rate (50%) in B2, and use the manual formula from the first method to get the current discounted price in cell C2. 2. Next, navigate to the Data tab on the Excel ribbon and click on "What-If Analysis." Tip: Make sure the cell selected before you click on "What-If Analysis" is C2 (the "Discounted Price" cell) 3. From the drop-down menu, choose "Goal Seek." 5. In the "Goal Seek" dialog box, you will see that "Set cell" is auto-filled with C2. Now: Fill in "75" in the "To value" field since this is your desired discounted price.Click into the "By changing cell" field, then click on cell B2 to select that value. 6. After clicking OK, Excel will automatically compute the required discount rate to achieve the target discounted price of $75. In this case, a 25% discount rate should be used. Employing the What-If Analysis function can be a great tool to test different pricing strategies and discounts before implementing them, so you can help boost sales and ensure your final amounts will still convert into revenue and profits. » Need help? See how to increase e-commerce store revenue with customer discounts Deduce Your E-Commerce Store's Discounts With Ease By using Excel to deduce your e-commerce store's discounts, you can take the guesswork out of pricing. This can help you increase profit margins, boost customer satisfaction with competitive pricing, and potentially improve AOV. But monitoring your pricing effectiveness is also vital. You can use platforms like BeProfit for seamless profit and revenue tracking, so you can have a clear overview of the impact and performance of your discounts and pricing.
Profit calculationHow to Calculate Revenue in Excel (Simple Formulas + Templates)Every seasoned business owner knows the value of revenue calculation as it helps them assess their profit, perform financial analysis, and do forecasting. So, how is sales revenue calculated? This article offers start-ups and established businesses alike straightforward Excel revenue calculation templates. » Book a demo with BeProfit to learn more about the advantages of our revenue calculation solutions 5 Types of Revenue and Their Exemplified Calculations This post will address the following revenue categories and provide a revenue formula in Excel for each: Incremental revenueAverage revenueGross revenueQuarterly revenueMarginal revenue Calculate Your Revenue Effectively Save time and effort by having your revenue calculated automatically. Analyzes data to guarantee constant, precise revenues.Integrates your stores into a single management system.Compatible with both desktop and mobile devices. BeProfit offers an accurate and easy-to-use tool that will eliminate all the stress and strain associated with performing revenue calculations on your own. 1. Incremental Revenue Incremental revenue is the profit a business receives from a certain increase in sales. This can refer to the additional revenue received from releasing a new product or service or trying new marketing strategies. Therefore, the original revenue that would have been generated before the additional product or service was introduced in that period must be subtracted from the adjusted revenue that includes the new product or service. Formula A formula can therefore be constructed as follows: Incremental Revenue = Adjusted Revenue - Original Revenue Adjusted Revenue = adjusted number of units sold x adjusted selling priceOriginal Revenue = original number of units sold x original selling price When using Excel, the calculation can be set up as follows: Original Revenue and Adjusted Revenue are listed separately.Incremental Revenue is calculated by subtracting the totals (=D3-D2). » Delve deeper into the differences between incremental cost vs marginal cost 2. Average Revenue Average revenue is earned for each unit, product, or service you sell. People also refer to it as average revenue per unit or per user (ARPU). Formula Average revenue is calculated by dividing the total revenue by the quantity sold: Average Revenue = Total Revenue / Quantity Sold So, if a company's total revenue is $5 000 and the quantity sold is 1 000, then the average revenue per unit is $5 000 ÷ 1 000 = $5. In Excel, the calculation can be set up as follows: Total Revenue and total quantity sold are listed separately.Average revenue is calculated by dividing the totals (=B2/B3). » Find out how to track your revenue like the e-commerce giants 3. Gross Revenue Your gross revenue is the total amount of money your company makes before expenses are deducted. This includes the sale of shares, property, and equipment, as well as interest and exchange rates. Knowing your gross revenue will help you analyze your financial statements, track your sales volumes, and identify high-impact revenue channels to understand how well your business is doing. Formula There are two types of gross revenue: product revenue and service revenue. Product Revenue = Number of units sold x Average price Service Revenue = Number of customers x Average price of service In Excel, the calculation can be set up as follows: Products and services are listed separately.Quantities sold, prices, and any discounts provided are used to calculate the final total selling price of each product and service.Total gross revenue is calculated by adding the final totals of products and services (=E5+E11). » Explore the difference between gross profit vs gross margin for more insights 4. Quarterly Revenue Quarterly revenue measures the increase in your sales from one quarter to the next. You would use it to review the sales of successive quarterly periods or compare the sales of the same quarter in different years. It's important to note that quarterly revenue can be influenced by seasonal sales. For example, if the Olympics is hosted in a certain country, it may skew quarterly results and give you an inaccurate view of your company's quarterly revenue. Formula You can calculate quarterly revenue growth as follows: [(Q2 - Q1) / Q1] x 100 In Excel, the calculation can be set up as follows: Q1 and Q2 sales are listed separately with their relevant sales information (units sold, prices, and totals).The formula is applied at the bottom before it's converted to a percentage in the next row. » Learn the 3 best Excel formulas for calculating markup vs margin 5. Marginal Revenue Marginal revenue is the increase in revenue that you get from the sale of each extra unit of output. While marginal revenue can stay constant over a specific output level, it follows the law of diminishing returns and will eventually slow down as your output level increases. As a business owner, you can use historical marginal revenue data to analyze customer demand for your products and determine your most efficient and effective prices. Finally, this calculation helps you understand your forecasts because it determines future production planning and schedules. Formula This is the formula you can use to calculate your marginal revenue: Change in Revenue / Change in Quantity=(Total Revenue - Old Revenue) / (Total Quantity - Old Quantity) Let's look at a quick example: Your company sells its first 100 products for $1 000, so that's a selling price of $10. You sell the next products for $8. This means that your marginal revenue for product number 101 is $8. It's important to note that marginal revenue disregards the previous average price of $10. This is because it only analyzes incremental change. If you sell 115 units for $1 100, your marginal revenue for products 101 through 115 is $100, or $6.67 per unit. In Excel, the calculation can be set up as follows: The periods you're comparing are listed separately. In this case, it's simply indicated as "previous year" and "this year".Marginal revenue is calculated by applying the formula [=(D3-B3)/(C3-A3)]. » Learn more about the revenue vs product revenue discrepancy in GA4 Save Time With Precise Tools There are profit calculation mistakes to avoid if you use the formulas and spreadsheets provided in this article. If you're not confident about how to calculate monthly revenue in Excel on your own, using the Profit Analysis Dashboard by BeProfit can save you time while ensuring your results are accurate. Once the revenue has been calculated, the next step is to analyze and measure it using metrics such as net, gross, and operating profit margins. Knowing how to calculate net profit margins is essential because it provides insight into how effectively your business is running overall. » Want to know how profitable your store is? Learn how to perform an e-commerce profitability analysis
Business metrics5 Expert Ways to Lower Your CPA Through Ad SpendWith global ad expenditure at $822,756 million, digital advertising is at the forefront of businesses' strategies. Specifically, cost per acquisition (CPA) can make or break your profitability. The lower your CPA, the more revenue you'll be able to generate from your ad spend. But achieving a low CPA isn't always easy—it takes a strategic approach to optimize your ad campaigns and make the most of your budget. Understanding CPA CPA is used as a metric to measure how much it costs for each successful acquisition or conversion. CPA ($) = Total Advertising Costs / Number of Conversions A successful acquisition from an online advertisement could be: A signupPurchaseSubscription to a newsletterAnother goal that you want customers to complete Monitoring CPA in conjunction with other metrics, like marketing ROI or customer conversion rates, can provide a more complete overview of how successful your campaigns are at obtaining and converting customers. Good ad spend can differ depending on the industry, target audience, and desired ROAS. The higher the CPA, the more expensive it is to acquire each customer, so lowering this number, typically, should be a top priority. Using CPA data to adjust advertising tactics and budget allocation can help drive profits and minimize overspending. Monitor Your Ad Data Easily Simplify your performance and profit tracking with integrated data. Pull and optimize ad data from various platforms in one intuitive dashboard.Access custom reports in real time.Pinpoint ROAS and conversion rates per platform. BeProfit provides a hassle-free platform to help you assess your ad metrics and identify your most profitable products or services. » Discover the ROI and ROAS differences How to Lower Your CPA Making the most of your ad spend with data-driven strategies can include a number of techniques based on your marketing goals. 1. Personalization Personalized ads are a cost-effective technique to avoid irrelevant advertising that doesn't turn into conversions. Personalization AI can produce tailored advertising by using data about: Customer preferences and interestsBrowsing historyGeographic locationSales data Personalized ads can help increase engagement and conversions, which can decrease your overall CPA. Additionally, personalizing ads gives customers the feeling that they are being seen as individuals rather than just another face in the crowd. This can inspire trust and encourage better customer retention. 2. Targeting and Retargeting Targeting involves ads tailored toward specific groups or demographics of people based on their interests or location. For example, Facebook Ads allows for keyword targeting and tailored audiences so that there's less wasted ad spend on uninterested audiences. Retargeting allows you to serve specific ads only to those customers who have already interacted with your website in some way, such as clicking on an ad or making a purchase. By appealing to specific interests and demographics, advertisers can make strategic budget decisions and increase the likelihood of customer acquisition through less costly means. » Using Facebook? Learn how to advertise on facebook like an e-commerce pro 3. Optimize Paid Campaigns With paid campaigns, you can use audience segmentation based on different criteria like age, gender, interests, location, and more, and performance metrics to analyze efficiency. Then, specific methods can use this data to maximize engagement, including: Changing when an ad runs based on higher site or page traffic timesLimiting geographic locations where certain ads run based on demographicsTargeting the ads to specific devicesImproving keywords and copy based on relevancyOptimizing landing pages Additionally, monitoring performance metrics such as click-through rate (CTR), conversion rates, and cost per click (CPC) regularly can help identify any underperforming campaigns that need adjustment. It can also highlight if an ineffective campaign should be paused entirely to minimize wasted ad spend. 4. Leverage Video Marketing Research from Wyzowl shows that 89% of consumers have been convinced to purchase a product or service after watching a video, and 51% are more likely to share video content than any other online content. This can lead to a higher click-through rate and more chance of lowering CPA. Advertisers have various options, like: Banner videosIn-feed videosCross-platform social media videosInteractive videos Incorporating videos in your e-commerce marketing can help prospective customers understand your offerings and provide interactivity, which is useful in increasing engagement and retention. Because customer retention is cheaper than acquiring new customers, this can also help lower ad spend. 5. Analyze Your Strategies But let's not forget about analytics. Performance metrics, such as CTR, CPC, and sales conversion rates, can help you assess campaign success. Using tools like Google Analytics is one great way to pinpoint areas for improvement. By monitoring any underperforming campaigns closely to determine why they aren’t performing well, you can implement new ad spend and optimization strategies. For example, if a strategy gets the customer to click on your page, but they don't convert. This could mean you need to revamp your page copy or change ad redirection with more fine-tuned personalization. Regularly tracking and adjusting your ad strategies and performance can help improve conversion by streamlining or retargeting rather than increasing CPA. » Check out the ultimate guide to effective e-commerce ads Optimize Your Ad Strategies for a Lower CPA Optimizing ad spend shouldn't stop after initial implementation. By adopting omnichannel strategies like expanding reach across various platforms using different paid social types, you can curate customer experience based on location, interests, or channel. To help, BeProfit provides an all-in-one platform to monitor advertising metrics and profits with ease. This way, you can focus on reducing ad spend waste and optimizing tactics to help keep your CPA low, your conversion rates up, and improve your ROI and profits.
TrackingCAC vs. CPA: Differences & Importance for E-Commerce SellersCustomer acquisition cost (CAC) and cost per acquisition (CPA) are two complementary metrics with a similar important goal: getting conversions (sales) by promoting brand awareness. CAC does this by measuring the cost of acquiring a paying customer, while CPA measures the cost of acquiring a non-paying customer, including customers that register for your email newsletter, register on your store, participate in a survey or trial, and more. Customer Acquisition Cost (CAC) Let's get right down to business. CAC calculates how much you have spent in your quest to get more customers. This metric is calculated over a specific period of time. The insights that you can get from calculating CAC will help you in two ways: You'll know which customer acquisition channels to prioritize because you'll know which channels are performing the best.You'll be able to use your CAC calculations to optimize your sales and marketing budgets, thereby assisting with the marketing decision-making process. How to Calculate CAC In order to calculate the customer acquisition cost, the following CAC payback formula is needed: the total cost (sales and marketing costs) of acquiring customers / the total number of customers acquired over a time period Typical Components The typical costs included in calculating CAC in e-commerce will vary between companies and industries. The components would typically be as follows: Advertising costsDirect sales costsProduction costsCost of your marketing team (employee wages)Technical costs (software costs) Why It's Important for E-Commerce CAC helps to measure the value of bringing on new customers. This provides further insights because: It helps businesses understand the larger scope of their marketing efforts to keep expenses manageable.It ensures products are priced correctly. Monitoring your CAC value will play an ongoing role in your e-commerce store's marketing and sales strategy as your business grows. Using the insights that you get from CAC will allow you to build a sustainable business that continues to show steady growth. » Are you receiving a return on your marketing activities? Learn how to calculate and increase your marketing ROI Know Exactly Where Your Business Stands Boost your conversions with Profit Analysis Dashboard by BeProfit. This app can help you pinpoint metrics and identify your best-selling products with ease. Get real-time reports on the cost of goods sold (COGS), shipping costs (shipping and handling), processing fees (payment processing), and more.Track and analyze all of your traffic from places like social media, online ads, email campaigns, affiliates, and influencers with the help of a UTM system.Monitor advanced revenue metrics like cost per order with a mix of automated matching and manual tagging. Cost Per Acquisition (CPA) CPA measures the total cost to acquire a single paying customer from a specific campaign or channel. CPA is critical for measuring the success of your marketing strategies. The insights that you can get from calculating your CPA will help you in two ways: You can pinpoint how much it should cost to get one new customer. This will help you avoid spending more than you should on attracting other new customers.Once you have an accurate CPA, you can formulate accurate costing strategies to sustain the growth of your business and, in turn, the success of your business. » Discover 5 expert ways to lower your CPA through ad spend How to Calculate CPA The following is the formula that must be used to determine the CPA: total cost of a campaign (marketing and sales) / total number of conversions (customers) Typical Components The typical costs included in calculating your CPA will also vary between companies and industries. The components would typically be as follows: Clearly defined target audiencesThe cost of your sales and marketing teams (employee wages)Advertising budget and creative costs (engaging content)Technical costs (software)Production and publishing costsInventory upkeep Why It's Important for E-Commerce CPA helps your marketing team track their success and gives them the opportunity to show business leaders real results for the marketing campaigns they run. By monitoring CPA on an ongoing basis, your marketing team will know when it's time to end a campaign and start working on something new and fresh. Finally, CPA can be a reference point for future campaigns. It provides a realistic metric to aim for because it has already been achieved in the past. » Are you reaching the right customers in the right way? Discover the difference between remarketing and retargeting Similar, but Not Identical It's important for you to know the difference between CAC and CPA since they are so similar in order to use them in the correct way. As an e-commerce seller, you need to know how much it costs you to attract paying and non-paying customers so you can use them in tandem to grow your customer base and sustain success. Once you grasp the importance of CAC and CPA, you can start using the LTV/CAC ratio to drill down into the insights they provide even further. The more you drill down, the more valuable the insights. It isn't only about the bigger picture—it's about the finer details as well.
Business metricsAOV Beginner's Guide: What Does It Mean For Your E-commerce Business?For an e-commerce business, conversion rates and average order value (AOV) go hand in hand. While these can differ between industries and market sizes, recent statistics show that the average conversion rate for e-commerce businesses is around 1.72%, while the average AOV sits at around $116.72. So, consistent conversions can help increase AOV because it means more people are completing purchases while maximized AOV can improve revenue and profit margins. » Want to know more? Learn the best conversion rate metrics for e-commerce startups What is Average Order Value? AOV calculates the average amount of money spent by a customer per order over a certain period. This metric directly impacts profits because if an e-commerce business doesn't make enough sales or only makes low-value sales, it may turn a low profit or no profit after expenses are paid. How to Calculate it? AOV ($) = Total Revenue / Number of Orders Received Let's look at an example. An online clothing store received 200 orders and made $10,000 in a month. AOV ($) = Total Revenue / Number of Orders Received= $10,000 / 200= $50 A lower AOV, like this, may imply that customers are spending less per order, which can hamper profitability. But a high AOV indicates that customers are willing to spend more money on the business. So, let's say the same online store made $20,000 and received 200 orders in a month. AOV ($) = Total Revenue / Number of Orders Received= $20,000 / 200= $100 This higher AOV can enhance profitability and highlights positive customer engagement with the store. Why Should You Calculate it? Calculating and monitoring AOV can help businesses understand their sales strengths and weaknesses and their customers' buying habits. Some ways include: Tracking revenue and sales metrics to identify areas where they can cut costs.Businesses can make data-driven decisions to improve sales and revenue.Analyzing AOV can help identify techniques that need improvement to increase customer loyalty and drive sales. Seamlessly Monitor Your Sales Data Make sales data and revenue metrics easy to digest with an intuitive one-stop platform. Use cutting-edge analysis for insights into marketing performance.Access the app using desktop or mobile devices.Create and export custom data reports to assess revenue and profits. BeProfit offers a user-friendly platform to make conversion, profit, and sales data easy to monitor and comprehend. Understanding Average Order Value's Impact Customer retention can lead to a high AOV because when customers are loyal to a brand, they tend to make repeat purchases. The trust and loyalty the business has built with its customers can increase the likelihood of higher-value purchases. Poor customer retention can negatively impact revenues and profits and can indicate a business is not appealing to customer needs. For example, this happened when I first started in e-commerce and spent a significant amount on marketing but failed to convert those leads into conversions. The AOV and profits increased through employing effective sales techniques, like web personalization, because costs were optimized. » Find out ways to boost product profitability for your e-commerce store How to Improve Average Order Value Finding the best techniques to improve conversion and increase AOV is essential to improve a business's bottom line. Here are a few to help your business achieve this: Upselling and cross-selling: By suggesting related or complementary products to customers based on their browsing preferences or past purchases, businesses can encourage them to add more items to their cart.Customer support: Various channels such as live chats, phone calls, and personalized emails can enhance customer satisfaction, leading to repeat purchases.Digital marketing: Using various digital marketing techniques such as email marketing, social commerce, and other targeted advertising can attract more customers and encourage them to spend more.Product bundling: Offering products in bundles based on customer interests can encourage customers to buy more as it offers them more value for their money, resulting in a higher AOV.Loyalty programs: Rewarding customers for their repeat business through loyalty programs such as points, discounts, and exclusive offers can incentivize them to spend more. » Discover the best Shopify apps to increase your AOV Track Average Order Value To Help Your Business Tracking AOV can help businesses identify opportunities to reallocate funds or cut unnecessary marketing costs, plus assist them in making informed decisions about pricing, advertising strategies, and promotions. With BeProfit, you can track your revenue-based metrics, retention rates, and profitability in an integrated platform. This way, you can identify your sales trends and make data-driven decisions about your marketing strategies to help increase AOV.
Profit optimization5 Simple Advertising Techniques to Increase Shopify Incremental Profit MarginsShopify is a dominant platform in the e-commerce market. It holds 10% of the global e-commerce tech market and, in 2022, had a total revenue of $5.6 billion. But poor advertising can lead to low sales and missed profits. So, Shopify businesses can revamp their advertising strategies to reap their own successful revenues, help boost reach, and increase incremental profit margins. What Are Incremental Profit Margins? Incremental profit margins refer to the additional profits earned by increasing sales or changing product offerings. The incremental margin formula is as follows: Incremental Profit Margin = (Ending Profit Metric - Beginning Profit Metric) / (Ending Revenue - Beginning Revenue) Good e-commerce profit margins can vary depending on industry and business size. For instance, Shopify's gross profit margin in 2022 was 49.2%, and the average for online retail is 42.78%. Let's look at an example. An e-commerce store adjusted its advertising campaign from one quarter to the next and wants to know how its profit margin changed incrementally. In the first quarter, they earned $6,000 in revenue and $2,000 in gross profit. By the end of the second quarter, their revenue was $24,000 and the gross profit was $10,000. Incremental Profit Margin = (Ending Profit Metric - Beginning Profit Metric) / (Ending Revenue - Beginning Revenue)= ($10,000 - $2,000) / ($24,000 - $6,000)= $8,000 / $18,000= 44% (rounded down) The advertising campaign roughly generated a 44% incremental profit margin, which indicates that the ad spend was effective at turning additional profits. » Find out the mistakes to avoid when calculating profit for your Shopify store Track Your Store's Profitability Easily Evaluate complex ad, sales, and profit metrics in real time with intuitive charts and custom reports. Uses cohort analysis for detailed insight into ad performance.Analyzes and optimizes all social media, online ads, and email campaign traffic.Accessible from anywhere via mobile or desktop devices. BeProfit can help you monitor your profit margins and discover actionable ways to improve them for all your Shopify stores, all from one dashboard. Advertising Techniques for Maximal Incremental Profit Margins Effective advertising can drive incremental profit margins and also increase costs and decrease margins if not targeted well or if the ROI is too low. Different ad metrics, like CTR, CPC, and CPA, can impact how much profit each campaign generates. Some techniques to try and boost profit margins include: 1. Email Marketing Built-in email marketing tools and native apps allow Shopify store owners to create targeted campaigns and send automated emails based on customer behavior. Email marketing can help increase incremental profit margins as follows: By reminding customers of abandoned carts and encouraging them to complete purchasesAttracting new customers and retaining existing ones by offering exclusive promotions and discountsStrengthening customer loyalty to help boost Shopify sales » Learn about loyalty programs for Shopify to boost sales 2. Interactive Popups On-site pop-ups can help businesses do the following to improve incremental profit margins: Grow their email list and help boost customer loyaltyRetarget customers with personalized experiences and maximize customer satisfactionIncrease sales with exclusive customer discounts or incentives For example, a Shopify activewear store can use pop-ups to offer a 10% discount to those who sign up for a newsletter, as well as introduce personalized product recommendations based on customers' browsing habits. Tip: Shopify's built-in discount code feature allows for percentage-based discounts or fixed amounts and can be offered through various channels. 3. Engage On Social Media Social media ads can target specific demographics and interests, so using social commerce can help businesses: Increase conversion rates, brand awareness, and reachDrive traffic to their businessImprove profit marginsEngage with customers on a more personal level Let's say a Shopify store sells handmade jewelry. Using targeted social media ads and discount offers on those who previously interacted with the brand on Instagram and Facebook can lead to more sales and increased profit margins. 4. Upselling and Cross-selling Suggesting complementary items, upgraded products, or product bundles to customers can improve profit margins and customer satisfaction since businesses can: Encourage additional purchases, resulting in higher order values and increased revenueOptimize the overall shopping experience through personalization and offering relevant recommendations For example, a Shopify store selling clothing may use upselling to suggest higher-priced items that match a customer's preferences or cross-selling to recommend accessories that complement their purchase. 5. Referral Programs Referral programs can help boost incremental profit margins by focusing on customer acquisition and incentivizing conversions. Some benefits include: Having existing customers refer their friends and family, therefore lowering acquisition costsBuilding customer loyalty and engagement since customers who participate in the program may feel more invested in the brandHelping improve customer retention For example, a Shopify store selling subscription-based meal kits may offer a discount on the next order to both the referring customer and the new customer they referred. » Want to know more? Check out the ultimate guide to effective e-commerce ads Leverage Advertising to Improve Your Incremental Profit Margins Making the most of Shopify's built-in tools and combining them with simple advertising techniques, like economical acquisitions, incentives, and social media interaction, can help up your sales and incremental profit margins. And monitoring your ad performance can help sustain your positive profit margins. BeProfit offers powerful profit-tracking and can easily integrate with multiple Shopify stores. Staying on top of your data can help you find advertising areas that need reworking so you won't have profits lower than your ad spend.