E-commerce business plan elements
Now that you have an overview of how a fashion e-commerce business functions , let’s look at the business plan and it’s core elements.
The first thing you need to know is how to estimate revenue that you will generate through your website. In order to do this you will need to take the number of visits, or sessions as Google Analytics calls them, that your website has i.e. the monthly visits and multiply them for the conversion rate that for this purpose will assume is 1%. The result will be the number of orders on a time period, for example 100.000 visits per month, times 1% Conversion Rate equals 1.000 orders.
It’s important to know that the Visits in Google Analytics are called Sessions and the Orders are called Transactions. If you know it you will understand better the reports that we are going to explain later on in this course.
The other variable that you need to calculate your gross revenues is the average order value (AOV). The average order value is the result of the Average Price of the products sold on your site and the number of products bought in every single order. So for example if the average price of your products is 100 Euros and people on average buy two items, let’s say that people buy 2 jumpers in two different sizes on average, your AOV will be 200 Euros.
Therefore your monthly gross revenue will be the result of 1.000 orders times 200 Euros which makes 200.000 Euros. This value is referred to as Gross Revenue.
The Gross Revenue doesn’t account for the Returns which need to be subtracted from Gross Revenue. To calculate Net Revenue, on which you will calculate your margin and profit at the end of the year, you will need first to wait for the returns to come back to your warehouse and refund your customers. If we assume that you may have 30% returns, your net revenue will be 140.000 Euros.