Benchmarks · E-commerce / DTC
What investors check first in an e-commerce brand
Healthy ranges for an e-commerce brand at an early stage: gross margin 40%–65%, monthly customers churn up to 7%, year 2 product cost % of revenue 20%–45%, returns rate 0%–10%.
How an e-commerce brand makes money
First + repeat orders x order value, minus returns.
That one line is the revenue engine. Every number in it should be something you can measure today and defend with your own data. Investors rebuild it in their heads in the first five minutes, so your model should too.
The benchmark ranges
| Metric | Healthy (green) | Watch (amber) |
|---|---|---|
| Gross margin | 40%–65% | 30%–75% |
| Monthly customers churn | up to 7% | up to 10% |
| Year 2 product cost % of revenue | 20%–45% | 10%–55% |
| Returns rate | 0%–10% | 0%–20% |
Year 2 product cost % of revenue. Above ~45% leaves little room for shipping, ads and overheads.
Returns rate. Apparel can run 20-30%; most categories are far lower.
Ranges are rules of thumb for early-stage companies, used by the Model Health Score in the E-commerce / DTC edition. They are not market data; check current sources and talk to founders who raised recently.
The drivers in the model
These are the inputs the E-commerce / DTC edition asks for, with the values used for the sample company, Northleaf Goods Ltd. (direct-to-consumer sustainable home goods). Where a value changes over five years, the first and last are shown.
| Driver | Sample | Why it matters |
|---|---|---|
| Customers at start (month 0) | 3,000 | Active customers you already have before month 1. |
| Organic / referral new customers in month 1 | 300 | Word of mouth, SEO, referrals, partnerships. |
| Organic new-customer growth per month | 5% → 2% | Compounds monthly. Above 10% a month needs strong evidence. |
| Paid marketing spend | $40,000 → $230,000 | Ads, sponsorships, paid campaigns (people costs are in Headcount). |
| Paid CAC (cost to win one customer via paid channels) | 45 → 65 | Paid new customers = paid spend / paid CAC. CAC usually rises as you scale. |
| Monthly churn | 6% → 5% | Share of active customers who lapse (stop buying) each month. |
| Repeat orders per active customer per month | 0.12 → 0.15 | 0.12 = an active customer orders about 1.4 times a year after the first order. |
| Average order value, Year 1 | 75 | Before returns. |
| Annual change in average order value | 3% | |
| Returns and refunds | 6% | |
| Product cost (landed cost of goods) | 38% → 33% | Manufacturing, freight-in, duties. |
| Pick, pack & shipping per order | 9 | Shipping you pay, packaging, 3PL fees. |
What the sample model looks like over five years
| Northleaf Goods Ltd. | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|
| Revenue | $1.89M | $4.21M | $7.56M | $11.6M | $15.5M |
| Gross margin % | 45% | 48% | 49% | 50% | 52% |
| EBITDA | -$501k | -$913k | -$825k | -$424k | $338k |
| Cash at year end | $2.24M | $7.77M | $6.51M | $5.60M | $5.60M |
| Active customers (year end) | 12,792 | 26,968 | 45,666 | 64,677 | 83,232 |
| Revenue run-rate (year end) | $2.42M | $5.05M | $8.75M | $12.9M | $16.9M |
| Headcount (year end) | 9 | 16 | 22 | 28 | 30 |
| LTV : CAC | 3.1x | 2.6x | 2.6x | 2.6x | 2.6x |
| CAC payback (months) | 5.3 | 7.1 | 7.6 | 7.7 | 7.7 |
Fictional sample company, Base case. Figures are illustrative and come from the SAMPLE file of the E-commerce / DTC edition.
E-commerce / DTC terms to know
- AOV
- Average order value.
- Repeat purchase rate
- Orders per active customer per month after the first order.
- Contribution margin
- Revenue minus product, fulfilment, payment and marketing costs per order.