Most people don’t get too excited when they think about annual reports - the documents a business prepares at the end of the year to share their performance with shareholders, board members, internal leadership or team members. Annual reports can be dry, with pages of data and graphs, or difficult to understand, full of industry jargon. But annual reports also contain some really important information - the kind that should leave you feeling like you have a good grasp on your business’s performance over the past year, as well as what you need to do to drive your business forward the next one. This is especially important for ecommerce businesses, who rely on a range of data points to determine their performance and build their strategy.
If you’re tasked with helping put together your ecommerce business’s annual report, you might have some serious questions - like what data should you include in an annual report, and how do you find it? That’s kind of our area of expertise, so don’t worry - we’re here to help.
What’s included in a typical annual report?
Typically, an annual report for any type of business will include information like:
- The organization’s mission statement
- The organization’s growth over the past year (as it relates to people, products, and finances)
- The organization’s business segments
- The organization’s target market or customer base
- Information about the organization’s executives or team
- Information about the organization’s stock and dividends, if applicable
- Major wins (and losses) from the year
- Various financial reports and other key data points that help tell the story
The financial reports included are usually:
- A balance sheet, which provides a big-picture view of the organization’s financial situation
- An income statement, which shows the revenue for the year in relation to the expenses that were incurred
- A cash flow statement, which details the liquidity of funds that were generated and spent during the year.
What should an ecommerce business include?
In addition to what’s listed above, there’s some additional information that’s helpful to include in an annual report for ecommerce businesses. Analyzing the following metrics regularly over the course of a year - and then looking back at them in your annual report - will help you better understand how your business is doing, and what you need to do to drive growth in the coming year. (PS - these metrics are all easily accessible in Glew. Start a free trial today to check them out).
Customer acquisition cost (CAC)
This metric tells you how much you’re spending to obtain a new customer. You should be keeping a close eye on this number throughout the year, but looking back to see how you’ve done year over year can provide you with insight about the effectiveness of the dollars you’re spending to gain new customers. At the end of the year, you’ll know if the marketing strategies you prioritized for the year are working the way you want them to - and if you need to make changes going into the next year.
Ratio of customer lifetime value (LTV) to CAC
This metric allows you to compare the lifetime value of a customer for your store to the cost it took to acquire that customer. This is an especially important metric for online businesses that sell subscription products or services, or that have customers who typically make repeat purchases. In general, you want to shoot for a LTV to CAC ratio that is greater than 3X - that means you’re getting a good return on your investment. However, if your LTV to CAC ratio is too high, it may mean that you aren’t spending enough on sales and marketing, and you could be growing your business faster.
Glew's new LTV Profitability by Channel table, showing LTV to CAC ratio as well as LTV-based ROAS (available soon in the app).
Length of time to pay back CAC
Another important consideration? How long it takes you to recoup the amount of money you spend to obtain a new customer. If the payback time is too long (typically, more than a year, although it depends on your business), you may need to rethink your marketing budget, product or service pricing, or expenses to lower your CAC.
This metric gives you a measure of the effectiveness of your specific marketing efforts, taking into account LTV as well as just straight transactions. Whereas return on ad spend is typically calculated by dividing revenue by ad spend, LTV-based return on ad spend is calculated by multiplying your total number of new customers by your lifetime value, and then dividing that by ad spend. It gives you a better idea of whether you’re getting a return on your marketing dollars over the lifetime of a customer. You can see and compare this for each channel that you’re spending money to advertise on, like paid search or paid social media.
Average order value (AOV)
Your average order value, or AOV, tells you the average amount a customer spends when they place an order on your site. What your AOV should be depends entirely on your product - if you sell something at a relatively low price point, your AOV will be lower than someone who sells something at a higher price point. Some businesses may want to see their AOV go up over time, and some may be satisfied with it remaining steady. In any case, it’s an important metric to track because it allows you to spot trends in your customer’s purchase behavior and modify your strategy accordingly. [caption id="attachment_30482" align="alignnone" width="1033"]
A sample Average Order Value table in Glew.
Getting the most out of your company’s annual report means looking for the right information - especially if you’re the one creating them. The basics of an annual report should always be included, but so should other data that’s specific to your company. For ecommerce businesses, that means that key ecommerce performance metrics, like the ones listed above, need to be included. Doing so allows you to not only see where your business has been and where it’s headed, but also where you can make changes to correct course along the way. Want to get help tracking these metrics and more to get a head start on your annual report this year? Start a free trial of Glew today.