E-commerce is the category where a business can grow quickly, look healthy on gross margin, and lose money on every single order. These are the metrics that catch that — with formulas, benchmark ranges, and what a bad number should make you change.
Topline: what you actually sold
Net revenue
Net revenue = Gross revenue − Discounts − Refunds and returns
What it tells you. The only revenue figure worth managing. Gross revenue flatters any business running promotions, and a discount-led growth month can post record gross revenue while net revenue falls.
Conversion rate
Conversion rate = Orders ÷ Sessions
Benchmark: 1.5–3.5%, heavily category-dependent.
What it tells you. A small change moves everything downstream, and improving conversion is almost always cheaper than buying more traffic. Doubling conversion doubles revenue at no additional acquisition cost; doubling traffic doubles the ad bill.
Average order value
AOV = Net revenue ÷ Orders
Revenue per session
Revenue per session = Net revenue ÷ Sessions
Combines conversion and AOV into one figure, which makes traffic sources directly comparable.
Unit economics: does the order make money?
Gross margin
Gross margin = (Net revenue − COGS) ÷ Net revenue
Benchmark: 40–60%.
Contribution margin — the one that matters
Contribution margin = (Gross profit − Shipping − Payment fees − Marketing) ÷ Net revenue
Benchmark: 20–35%.
What it tells you. The real profit on a sale. Shipping, payment fees and advertising are genuine costs of making that sale, and leaving them out of the margin calculation is how a business scales itself into a loss. If you track one number on this page, track this one.
Return rate
Return rate = Refunds ÷ Gross revenue
Benchmark: under 10% generally; apparel runs far higher, often 20–30%.
What it tells you. Returns cost you the product, the shipping both ways and the payment fee — far more than the refund line suggests. A rising rate is usually a sizing, quality or expectation problem, and it is cheaper to fix the product page than to absorb it.
Marketing: is acquisition working?
CAC
CAC = Total marketing spend ÷ First-time customers
Compare against contribution profit per customer, not against AOV.
ROAS and MER
ROAS = Revenue attributed to ads ÷ Ad spend
Useful per channel. Platform-reported ROAS is optimistic — every platform claims the same conversion.
MER = Total net revenue ÷ Total marketing spend
Benchmark: 3x or better. Blended and unattributable, which is exactly why it is harder to fool yourself with.
Repeat purchase rate
Repeat rate = Returning customers ÷ Total customers
Benchmark: 25–40%.
What it tells you. The cheapest growth available, because repeat customers cost nothing to acquire. A business that cannot generate repeats is buying every dollar of revenue twice, and its CAC has to be paid back on a single order.
Inventory: cash sitting on a shelf
Inventory turns = Annual COGS ÷ Average inventory value
Benchmark: 4–8x a year for most categories.
Days of inventory = (Inventory value ÷ COGS) × 30
Benchmark: 45–90 days.
What it tells you. Inventory is cash you have already spent and cannot use. Too little and you stock out during your best week; too much and your working capital is frozen in a warehouse. This is the metric that most often explains why a profitable e-commerce business has no money.
| Metric | Healthy range | What a bad number usually means |
|---|---|---|
| Conversion rate | 1.5–3.5% | Product page, pricing or checkout friction |
| Contribution margin | 20–35% | Growth is destroying cash rather than creating it |
| Gross margin | 40–60% | Product cost or discounting is too high |
| MER | 3x+ | Marketing is not paying for itself in aggregate |
| Repeat rate | 25–40% | No reason for customers to come back |
| Return rate | Under 10% | Expectation gap between the page and the product |
| Days of inventory | 45–90 | Working capital trapped, or stockouts coming |
Frequently asked questions
What is a good conversion rate for e-commerce?
1.5% to 3.5% is the commonly cited band, but category matters enormously — a considered high-ticket purchase converts far lower than a repeat consumable. Your own trend over time is a much better guide than any published average.
What is the difference between gross margin and contribution margin?
Gross margin subtracts only the cost of the product. Contribution margin also subtracts shipping, payment fees and marketing — the other real costs of making that sale. Contribution margin is the honest per-order profit, and the one that decides whether growth helps you.
What is MER and why not just use ROAS?
MER is total revenue divided by total marketing spend. ROAS relies on attribution, and every ad platform claims credit for the same conversion, so channel ROAS routinely sums to more revenue than the business actually made. MER cannot be gamed that way because it uses your real revenue and your real spend.
How do I calculate customer lifetime value for e-commerce?
Average order value multiplied by contribution margin, multiplied by expected orders per customer over their lifetime. Using revenue rather than contribution margin produces a number that looks impressive and cannot be spent.
Why does my profitable store have no cash?
Almost always inventory or timing. Money spent on stock leaves before the revenue arrives, so a growing store funds an ever-larger inventory position out of cash flow. Check days of inventory and your payment terms with suppliers before assuming it is a margin problem.
How often should I review these metrics?
Weekly for conversion, AOV and marketing efficiency, because they move fast enough to act on. Monthly for margin, inventory and cash, once the books are closed.