The Author: Anne Golombek
Anne Golombek is COO at minubo, the Commerce Intelligence Company. As an expert in data-driven commerce, she is one of the initiators of the Commerce Reporting Standard project.
The question might sound all too banal, but maybe it’s just so banal that nobody actually dares to ask it. The result? The fact that a lot of companies struggle when it comes to concrete definitions and terminology of even basic transaction metrics remains invisible. The good thing: With the systematization that we worked out in our first forum topics and our first project workshop, we’ve finally created common ground here – and a framework that everyone can turn to when questions come up. That’s a great achievement already – but as good old prose definitions sometimes are more helpful than pure systematizations, I’ll put some key metrics from this field into words here.
The Revenue Cascade
The first secret on the above question: There’s not just one “revenue”, but many. Of course, this isn’t really a brand-new insight and the simple explanation for the fact that marketing tends to understand something different by the term than category management who, however, don’t mean the same thing when they say “revenue” like management does. In fact, that’s totally fine. For every role, different kinds of revenue are the relevant ones. The only problem is that if all those metrics are called the same, chaos is inevitable. Well, let’s clear things up and define the revenue cascade from top to bottom (all complementary metrics can be found here):
Original Merchandise Value (OMV) // Ursprünglicher Warenwert
The original merchandise value (in orders resp. sales, net sales) is the cumulated value of all orders (resp. sales, net sales) expressed in terms of the original pricing before deductions of any kind. For many retailers, this is the static RRP, other retailers use a dynamic sales price as calculation base for this metric.
Merchandise Value (MV): OMV – Markdowns // Warenwert
The merchandise value (in orders resp. sales, net sales) is the cumulated value of all orders (resp. sales, net sales) expressed in terms of pricing after deduction of markdowns (to be distinguished from discounts – find more information here).
Discounted Merchandise Value (DMV): MV – Discounts // Rabattierter Warenwert
The discounted merchandise value (in orders resp. sales, net sales) is the cumulated value of all orders (resp. sales, net sales) expressed in terms of pricing after deduction of markdowns and discounts.
Order Value: DMV + Fees // Bestellwert
The order value is the cumulated value of all orders expressed in terms of pricing after deduction of markdowns and discounts as well as after addition of fees accruing for the customer.
Revenue: Order Value – Open Order Value – Cancelled Order Value // Umsatz
With that, we’ve finally arrived where we wanted to go in the first place – at revenue itself. Or let’s say: at what we call “revenue” following the Commerce Reporting Standard. Namely, revenue is the cumulated value of all sales (meaning after deduction of open order value and cancelled order value) after deduction of markdowns and discounts as well as after addition of fees. In short: after all deductions, but direct costs and returns. Quite simple, actually – right?
Net Revenue: Revenue – Returned Revenue // Netto-Umsatz
Net revenue is the cumulated value of all net sales (so after deduction of open order value, cancelled order value and returned revenue) after deduction of markdowns and discounts as well as after addition of fees. In short: after all deductions, but direct costs.
Those are the most important revenue metrics. In the next step, this cascade is carried on with profits [Warenroherträge] (deduction of cost of goods from merchandise value resp. discounted merchandise value) as well as contribution margin I-III [Deckungsbeitrag I-III] (revenue minus cost of goods resp. cost of goods and transaction cost resp. cost of goods, transaction cost and marketing cost). Contribution margin IV (additionally deducting general cost) is a pure financial metric and, as such, not part of the Commerce Reporting Standard.
Please Mind the Gap: Time References
As if those various kinds of revenue weren’t complex enough yet, we have to deal with various kinds of time references on top of that. Due to the fact that every order is not just associated with one, but multiple dates (e.g. in addition to the order date, there’s also the invoice date, the shipping date and the delivery date), certain metrics should be accounted for by multiple time references. For transaction metrics, those are primarily the order date, the invoice date and the return date as well as the combination of invoice date and return date – so with that, the number of revenue metrics is multiplied again. If you want to dig deeper into this topic, you can find detailed information on time references in the context of transaction metrics in this article.
To understand the full systematization of transaction metrics, you might also want to take a look at the transaction metrics matrix as well as at the beginning of our metric glossary and our term glossary.
I hope, these definitions could help – just leave a comment, if there are any questions left.