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The E-commerce industry is currently experiencing a period of rapid growth. As can be seen from the graph below, Amazon, Amazon India and Amazon Mexico have reported a year-on-year increase of 300% in their business volumes. However, this rate has been achieved at a cost of reduced profits for the seller. Amazon's aggressive promotions have had an impact on the pricing followed by sellers on their platform - it has been observed that these prices have reduced by as much as 50% since 2010. In this context, understanding some key features of the e-commerce industry as well as some e-commerce metrics may help us to formulate strategies for maximizing profits from selling online products/services using Amazon platform. In this context, the e-commerce metrics described below may come in handy for sellers to understand the dynamics of the online retail industry and adjust their business strategies accordingly. Metrics: Average Order Value Average Order Value: When we see the Average Order Value chart, we see that it is rising over time. This means that customers are spending more on each order and hence we can conclude that they are becoming more loyal customers. As the customers spend more per transaction it is imperative for us as sellers to improve our product quality and service aspects in order to retain these customers. We also need to improve our marketing efforts so as to attract new customers and at the same time retain our existing ones. Revenue per Customer Revenue per customer is calculated by dividing the total revenue earned by all the orders placed by a customer (i.e. total revenue / number of orders placed by the customer) This metric tells us exactly how much money we earn on average from each of our customers. This metric is also trending upwards over time, indicating improvement in product quality and service aspects of our business which helps in attracting new customers and retaining existing ones. Stagnant or declining revenue per customer indicates poor quality/service, which may result in dropping off customers, thereby reducing overall business volume. We can then work on improving our product quality and service aspects to retain these customers. Revenue per order Revenue per order is the total of revenue earned on all orders placed by a customer divided by number of orders placed by that customer. This metric tells us how much money we earn on average from each individual order our customers place. It also helps us to understand which of our products are more popular with customers and thus, helps us to understand what products need to be promoted more heavily in the future. Stagnant or declining revenue per order indicates poor quality/service which may result in dropping off customers thereby reducing overall business volume. We can then work on improving our product quality and service aspects to retain these customers. Using these metrics we can understand how we can increase sales and revenue. For example, if we see that our average order value (AOV) is increasing, we will want to promote more of our higher priced products and also try to retain these customers by improving quality or service aspects. We can then decide whether to reduce the number of products that we offer or focus on improving just one product. It is highly recommended that sellers working with Amazon conduct case studies using these e-commerce metrics based on their business strategy and strategies followed by other sellers – this will help them formulate an optimized business strategy and hence increase profitability.
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