The Revenue Equation
You may get money from your Shopify store every month in your bank account, but do you know what influences that number?
The basic formula for calculating your monthly revenue is this:
traffic x CR% x AOV = total revenue
To increase the total revenue you have to positively influence the variables on the left side of the equation.
Let’s look at what they are in more detail:
- traffic — the traffic to your website can be measured in many ways, but in the case of the equation, this is the total number of visitors that came to your website.
- CR% — this is the conversion rate percentage. It is calculated by dividing the number of orders received by the number of visitors for the same period of time. This gives you the rate at which your visitors turn into customers. These are the the people that landed on your site, maybe looked around, added an item to cart and completed a transaction by going through the checkout. Because of the number of requirements (add to cart, enter info during checkout, payment) the actual number of people is usually low. Industry averages here are between 2 to 4%, but from my practice I’ve seen values ranging from 0.5% to 6%.
- AOV (average order value) — the average amount of money people paid during checkout. Calculated by dividing total revenue for a period by the number of orders for the same period.
Are these familiar to you? These are the numbers I mentioned as important in “Know Your Numbers—Part 2”. The numbers that you should always be aware of, as they measure the pulse of your Shopify store.
Next we’ll take a look at how changing these numbers influence your revenue.