Guessing an E-commerce company’s revenue

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Not knowing the revenue range of a company you’re selling to can be a major handicap for any salesperson. With so many private e-commerce companies cropping up, the revenue numbers have been guarded almost as religiously as Coca Cola’s recipe. Finding out the exact e-commerce revenue without any inside sources can be a pain. Not impossible, just a pain. What you can do is use a little bit of math and a little bit of logic to land a rough margin within which the revenue falls. In simpler words, guesstimate. There’s a lot of room for error. This blog post is going to help you reduce that and land a good enough range within which an e-commerce company’s revenue falls.

First things first, here’s the math formula:

Total annual revenue = Total traffic x Conversion rate (%) x Average basket size x Average unit value

Note: We choose annual revenue over monthly revenue because holiday months tend to have almost 2x the sales over the rest of the months. Annual revenue estimates normalise such differences.

Conversion rate (%)

The number of final transactions that happen for every 100 sessions/users you get is the conversion rate. Now, it could be session conversion rate or user conversion rate.

Sessions are visits.

Users are visitors.

If a person visits a site 4 times and purchases something the 5th time, the session conversion rate is 20% and user conversion rate is 100%.

For an outsider, It’s difficult to find out the exact conversion rate of each e-commerce firm. Thanks to companies like Monetate, you get free quarterly reports of Benchmarks and research. They evaluate big e-commerce companies and put together a report of conversion rates by each device (Smartphones, tablets, PC/Laptops) and each platform (iOS, Linux,etc.). They do that each quarter.

Use the benchmarks if you don’t know the company’s conversion rate.

conversionTotal Traffic

Traffic is essentially the footfall (or a click) a website or an app gets on a regular basis. This could either be the number of users or sessions. This is fairly easy to find with sites like Siteworthtraffic giving you a detailed information about any website’s traffic.

Average Basket Size

Average basket size is the number of items that gets sold on a single purchase.

Total units sold / Number of invoices = Average Basket Size.

This metric is more relevant to e-commerce companies like Amazon where the basket has more than 1 item than companies that sell exquisite jewellery where the basket size generally isn’t more than 1.

Average Unit Value

It is the average cost of a single item sold.

Average unit value = Total value of all products / No. of units held in the inventory

Multiplying all of the mentioned elements (Total traffic x Conversion rate (%) x Average basket size x Average unit value) will give you a ballpark of where the revenue lies. Obviously, this needs a lot of homework and research before you get started.

Companies like PipeCandy deep crawl hundreds of thousands of e-commerce companies and automatically calculate average SKU price, estimated basket size (based on the categories sold by the e-commerce companies). With the underlying data and empirical metrics, calculating revenue range becomes easier.

Schedule a demo of PipeCandy and we’ll walk you through how you could arrive at the revenue of an e-commerce company and many such variables that your sales team would find valuable.

 

Author Bio

Ashwini Murthy

A writer by day. Illustrator by night. Currently trying to conquer the B2B marketing world one baby step at a time. Loves everything outside her comfort zone.