So you want to understand sales for your online shop. The simplest equation is:
S = T x RC x AOV – R
[Sales= Traffic (T) * Conversion Rate * Average Order Value – Returns]
The formula is easy to remember and contains the following metrics:
- Traffic (number of users who visit your website for a specific period)
- Conversion Rate (percent of those users who purchase in the same period
- Average Order Value (Should not contain shipping costs)
- Returns – Value of canceled ordered or returns.
It is critical to remember that these are the only parameters we have to play with to increase sales. Options are:
- Increase Visitors, optimize Conversion Rate or increase Average Order Value
- Decrease Returns / Canceled orders.