24 Jun 2016

Unit Economics – Now a key focus area for E-retailers

Gone are the days when companies looked revenue as the key parameter for measuring their performances. "Unit Economics" is latest trending parameter being used by many eCommerce companies now a days, to measure their growth.

After a considerable time focusing on GMV (Gross Merchandise Value - Total sales value of goods sold through the platform or marketplace), now the companies have started focusing on unit economics.

To clarify what is Unit Economics:

It is the difference between direct revenue (LTV) and the cost associated (CPA) with the business on per unit basis. When we say "unit", we mean 1 user or customer.

Basically for an E-retailer, the term:

LTV translates to the amount of revenue generated by a single customer throughout the period of usage of the platform or marketplace.

And CPA is the cost incurred by the company to acquire a user or a customer.


Unit Economics = LTV – CPA

So if the "unit economics" value of any company is positive, the business stands well. Otherwise, the company needs to chalk out a different strategy to turn it positive.

As per a report, now a days, companies are working more towards retaining customers and recalling back the old lost customers. Customer satisfaction being the key component of the above mentioned metrics, the e-commerce companies are trying hard to deliver the products at the earliest without losing focus on the associated Operational Cost optimization aspects.

Last month, Flipkart was reportedly said to have adopted NPS (Net Promoter Score) as one of their metrics (Source: Economic Times).

As per my opinion, more is yet to come. Metrics parameters would evolve a lot in the coming days owing to the ever changing and evolving business models.

Do let us know, what's your say on this...
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