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Key Performance Indicators for Online Retailers

Terms you should know to guide your business in the right direction

Finding your way around the finance world can be a bit tricky. There are a lot of different terms, and you’re already busy managing your stock levels, orders and everything else that comes with running an online business.

How are you supposed to be an expert in financial terms, too? We know it may seem daunting, but knowing certain terms, or key performance indicators, is good for your business. They’ll help you run a smooth operation and they can help you analyze your business.

Here, we gather a few important financial terms you should know, explain what they mean and tell you why want to be familiar with them. Keeping them in the back of your mind will ease the everyday work of your business and keep you on track to running a good business.

You should aim for a gross margin of at least 50 percent to make sure you can actually make a profit

Gross margin

Gross margin is the dividend between what you pay for a product and what you sell it for. The gross margin does not take related costs into consideration.

You should aim for a gross margin of at least 50 percent to make sure you can actually make a profit on your sales. For this exact reason it’s really important to be aware of your gross margin for your products and understand what this term means.

Net profit margin

The net profit margin is the dividend between what you pay for a product, including all related costs, and what you sell it for. Related costs can be PayPal fees, shipping costs, office expenses, employee wages, eBay charges and basically all costs related to your business.

This number is essentially what determines whether your business is successful, and whether you can make a living from it.

Make sure to keep cash in the company for as long as possible, without causing any debt to your business, of course

Cash flow

Cash flow is the amount of money going in and out of your business. Essentially it’s the amount of cash you have available to buy stock, pay invoices or unexpected costs.

You can maximize your cash flow by managing it strategically. Make sure to keep cash in the company for as long as possible, without causing any debt to your business, of course.

Managing your cash flow is extremely important to make the most of your business. The more cash you have available, the better. A solid cash flow management is important for growth.

Sales cycle

Your sales cycle applies to the amount of time you usually spend selling a product. This can be calculated from the day you place an order for a product or from the day the product arrives to you, depending on how you want to calculate it.

It’s important to know your sales cycle because it can make a large difference when managing your cash flow. There can be a huge difference in purchasing stock from China or from the U.K., in terms of delivery time, and this can affect the amount of cash you will have in your company.

Business loan

It’s extremely important to understand that business loans can differ in terms, interest rates and length. To find a business loan that suits your needs, you should spend time shopping around

Finally, business loans are, as the name indicates, loans aimed at business entities. They can be unsecured or guaranteed with some type of business-owned collateral or with the business owner’s personal assets.

They can be closed or open-ended, meaning that they can either have a fixed maturity date, or be available for borrowing and repayment again and again.

For many businesses, taking out a business loan can become a natural part of the company’s expansion. But from the company’s perspective it’s extremely important to understand that business loans can differ in terms, interest rates and length.

In order to find a business loan that suits your needs, you should spend time shopping around and talk to different companies.

Remember, learning these key performance indicators and keeping them in the back of your mind will ease the everyday work of your business, and will help you better understand your operations.

About the author

Camilla Gilbro
Camilla is the community manager at iwoca. Since graduating from Copenhagen Business School, with a degree in business communication, Camilla has been working to make life easier for small and medium enterprise businesses by offering advice and sharing experiences via entrepreneur magazines and websites. She loves a good chat about anything, from business plans to social media. Opinions expressed here may not be shared by The Online Seller and/or its principals.



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