Profitability in eCommerce store - As I understand it

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Tourist
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Fellow eCommerce experts/ Shopify store owners

 

I am trying to understand common problem of profitability as well as common-sense practice to balance cost vs. income so that we, store owners don't operate at loss for long term. Following are my newbie thoughts. Can you please comment or suggest better model

 

In my mind, If I have 500 visitors with 5% conversion rate and each conversion session results in $50 amount sale, I am expected to collect $1250 in revenue (from 25 visitors each buying $50 on average)

 

To breakeven, if my goods are bought at 75% of listed price, I have maximum 25% margin left for all cost (marketing, operation, sales operation, etc.). Correct? If I am spending more than 25% in other costs, I am operating at loss. 

Am I thinking correctly? What are common ways people operate their eCommerce stores?  What levers to focus on this model? # of visitors? Conversion rate? Marketing Cost?

Thanks in advance,

Dave

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Hi Dave,

 

Well, as a general business rule....the two most important metrics is (1) how much does it cost to acquire a customer and (2) what is the lifetime value, otherwise known as LTV, of those customers.   If your LTV isn't 3x what your cost of acquisition is....you're probably out of business after awhile so track that balance like crazy and look to optimize.

 

At Answerbase we help with both of these with our product question and answer app as we increase conversions of customers who are on your site and then naturally growing content which brings you organic search traffic which we've seen has up to a 2x higher average LTV than other Google search traffic (we have case studies on our site).   Not sure whether you're just starting out or established, but wish you the best and hope this was helpful.

Shopify Technology Partner | Answerbase.com
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