e-Commerce Startup Financial Modelling for Successful Investment Evaluation

At Anup N. Amatya & Associates, professional Financial, Business & Management Consultants, we help our clients to develop appropriate e-Commerce Startup financial modelling for investment evaluation.

e-Commerce Startup – Overview

e-Commerce denotes commercial transactions of good & services conducted over the internet. At present, it’s more of the convergence of online and offline retail.

Examples

• Business-to-business (B to B)
• Retail sales – direct to costumers
• Online marketplaces, (third-party Business-to-Customer, e.g., Amazon, or Customer-to-Consumer, e.g., e-bay)

Key drivers behind the e-Commerce Startup evolution

Demographics:

• Ageing population
• Dual earners (Husband/Wife) in a household
• Urbanization
• Smaller households

Consumption Patterns:

• Need for Convenience
• Health & wellness
• Sharing economy
• Hassle-free shopping experience
• Customization
• Simplification of buying behaviour

Technology Availability:

• The proliferation of Mobile devices 
• Advanced Analytics (Data Mining & Warehousing)
• Social media penetration
• Advancement in the field of ‘Internet of Things’

Structural Shifts:

• Direct to consumer (no Middlemen)
• Consolidation to achieve Economies of Scale

Key Terms used in an e-Commerce Startup business

Site Traffic: 

The number of visitors to a site

Conversion Rate: 

The percentage of customers who place an order relative to the total number of site traffic

Bounce Rate:

The percentage of visitors who enter the site and then leave (“bounce”), rather than continuing to view other pages

Order:

A single checkout which may consist of multiple items

Organic Search:

Traffic from search engines that are not paid for

Paid Search:

Traffic from search engines that is paid for

Affiliates:

Paid traffic from other sites

Active Customers:

Number of customers who ordered in the last 12 months

Churn Rate:

Per cent of customers who are no longer active at the end of 12 months

Average Order Value (AOV):

Number of items per order multiplied by the price per item

Life-Time Value (LTV): 

Net Present Value, NPV, of Contribution Margin per customer

Customer Acquisition Cost (CAC): 

Cost to acquire new customers

Total Addressable Market (TAM):

The annual value of all goods/services in the market

Average Revenue Per User (ARPU):

Total revenue divided by the number of users

Net Promoter Score (NPS):

Survey of how likely customer is to refer someone

Order build-up

Email

Organic search

Paid search

Affiliates

Conversion rates (number of orders per 100 visits):

• Number of orders placed (by channel)
• Number of items per order
• Item value 

Customers

Opening balance + New Customers – Churned customers = Closing balance

e-Commerce Startup Financial Modelling Illustration!

Anup N. Amatya & Associates, professional Financial, Business & Management Consultants

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Author: Anup Narsingh Amatya