A crucial question for many retail business owners is: “but how will I know I can make money by doing eCommerce?”

Generating revenue on the Internet is linked to the concept of “converting your online visitors to becoming online buyers”. The keyword here is “converting”.

Conversion is critical for any online business strategy. It is probably the most important online Key Performance Indicators (KPI) for any decision maker.

Your focus should always be on converting visitors into revenue-generating customers. Whether they buy products with an online shopping cart, or just click on an online Ad; online revenue is linked to online conversion.

Fortunately for us, there are some conversion rates for eCommerce that we can use as valuable indicators.

The e-Tailing Group conducts a Merchant Survey every quarter in the US that provides some online conversions rates. The conversion here is defined as the percentage of visitors who buy online. See the chart published in April 2007 by eMarketer.com here below.

It basically shows that, in Q1 of 2007, 68% of the online retailers that were polled reached a conversion rate higher than 2% and that 48% boasted rates higher than 3%.

Here is an exercise on how you can use this information for your online business planning. Note: I’ll be using very conservative figures for the sake of this demonstration.

Let’s say that:
- you have 100 visitors / month on your website.
- you know that the average shopping basket per customer in your “brick & mortar” store is $30.
- we decide to take the 2% figure for our conversion rate

Then we can project that potentially:
- 2 visitors / month will be buying on your website (24 visitors / year)
- they will generate an average revenue of $60 / month ($720 / year)

Here’s the equation for you if you want to play around with it:
- monthly revenue = (monthly_visitors) x (2%) x $(average_basket_value)
- yearly revenue = (monthly_visitors) x (2%) x $(average_basket_value) x 12

Here is a disclaimer that I believe anyone should keep in mind when using statistics: statistics usually describe a trend and therefore they should be used as indicators and not as absolute truths. Also, please keep in mind that the purpose of the exercise is to give you some high-level indication on the potential revenue that you could generate through eCommerce.

Here are some estimated conversion rates for US companies that I took from the Top 500 Guide published by InternetRetailer.com for 2006.
#1 Amazon.com: 3.52%
#2 Staples.com: 9.62%
#3 Office Depot: 7.10%
#498 Broadspan Commerce LLC: 0.35%
#499 Musicnotes Inc: 3.25%
#500 KneeDraggers.com: 0.99%

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