A dropshipping business can be tracked or measured in various ways, which serve as excellent indicators of how your business is performing. If you’ve recently launched the business, find out how to start a dropshipping business in this model. Whether the business is on the fast track to growth or may need a review leading to changes, here are 5 key metrics to measure business performance.
1. Net Profit Margin
It is useful to know the sales revenue for your dropshipping business; however, it is key to know the net profit margin. This indicator reveals the actual bottom line profitability of sales. To measure, subtract from one month the total cost of sales (including marketing, overhead, etc) from the total monthly revenue. The result will indicate the net profit margin. If it is low, consider either lowering the cost of sales or increasing the prices of services.
2. Customer Acquisition Rate
Much of your ecommerce business revolves around acquiring new clients and retaining them. This key metric is calculated by totaling the full marketing costs within one month, then dividing that total by the number of new clients acquired during that month. If the cost to acquire clients is too high or the number of new clients is measurably low, consider changing marketing strategies to better present the dropshipping to potential clients.
3. Client Conversion Rate
An essential measurement for the dropshipping business reveals how many visitors to the website have become clients. As logistics form the primary mode of business, consider how to improve visitor-to-client rates. Total the number of website visitors in any given period and divide that total by the number of clients acquired in the same period.
4. Client Lifetime Value
A crucial metric is that of the client lifetime value. This measurement will reveal the number of clients who are active and remain as clients for a lengthy period of time. To define the answer, multiple the average order value with the average purchase frequency. This will indicate the number of shipments made on behalf of the client and whether or not that frequency is increasing, static, or lowering. The result will identify a need to improve by initiating a client retention program or marking success if the lifetime value is high.
Check these metrics frequently to observe and initiate necessary changes within your dropshipping business. Doing so will allow the business to continue growing toward long-term success.