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 valueNote: 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 normalize such differences.
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.
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 get 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 jewelry where the basket size generally isn’t more than
It is the average cost of a single item sold. Average unit value = Total value of all products / No. of units held in the inventoryMultiplying 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.
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