E-commerce and subscription-based businesses are complex machines. Often, they require a specialised team and supporting tech stack to keep business moving smoothly.

But e-commerce and subscription businesses that want to go beyond their current operations also need to explore accounting and analytics.

Having an airtight accounting system isn’t just good practice – it’s good business. Combined with analytics capabilities, you can make data-driven decisions and accurate predictions about the financial health of your business.

In this guide, we’ll explain what accounting and analytics look like for e-commerce and subscription businesses, and how you can apply best practices.

Every business owner has a responsibility to keep on top of their accounts. Not just for taxation purposes, but also to maximise profit, identify cash flow issues, and plan for the future.

E-commerce and subscription-based businesses are no exception. But they do require some special attention when it comes to accounting.

These types of businesses often have a high transaction volume. When money flows in and out rapidly, it can mean business owners struggle to map profitability and make accurate cash flow forecasts without the right tools.

E-commerce businesses face the additional challenge of tracking and managing inventory. Maintaining a healthy balance between stock levels and liquidity is what enables e-commerce businesses to meet demand and invest in their future.

For subscription-based businesses, recurring payments, one-time payments, and upfront fees also complicate matters. Income doesn’t necessarily align with when a product or service is delivered.

In a bakery, the cake is made, displayed, bought by a customer, and eaten. For a software company, an annual subscription means users might pay for the service once and be a user for 12 months before another payment. Or, they might not pay until after the first six months.

Users can have their cake and eat it before money changes hands. So this can make financial planning and day-to-day cash flow tricky.

E-commerce and subscription-based businesses have two different accounting models to choose from: cash basis and accrual basis.

Cash basis is a useful accounting method for early-stage businesses and sole traders. Put simply, cash basis accounting involves recording income and expenses when they’re paid or spent. The benefit of cash basis accounting is that it shows you the money you have available to you at any given time – as long as you’re on top of your bookkeeping!

Accrual basis is more complex but provides greater insight into your long-term financial standing. If you use accrual basis accounting, you’ll record income and expenses when you receive a bill or raise an invoice. This can work especially well if you’re tracking Monthly Recurring Revenue (MRR) because accrual basis accounting follows the same timeline.

While cash basis accounting is handy if you want to track cash flow, accrual basis accounting usually serves e-commerce and subscription businesses better. You’ll get a more accurate view of business performance, and it’s much easier to pinpoint whether a month was profitable.

Some businesses will combine cash basis and accrual basis accounting to get a holistic view of their business. Intelligent cloud-based accounting software allows you to switch between both views, so you can see where your finances stand at a glance.

It’s worth noting that you’ll also need to have cloud-based accounting software in place to comply with Making Tax Digital rules.

Combine your accounting software package with Syft Analytics, and you can visualise, analyse, and forecast financial data at the touch of a button.

Every business has unique patterns and cycles. Understanding where, how, and why these patterns occur can help you achieve all kinds of things: attracting new customers, improving profitability, and increasing your conversion rate.

Analytics is the process of identifying and interpreting these patterns. Measuring and exploring certain data points can help you plan for the months ahead, decide where to spend and where to save, and plug gaps in cash flow before they appear.

But before you get started with analytics, you need to decide what to measure. Here are a few ideas to get you started:

Do you know where your customers are coming from? You should. Customer acquisition metrics tell you how and where you attract your customers, so you can spot where you need to be online.

Your conversion rate tells you the percentage of people who land on your site and convert into paying customers. The higher the conversion rate, the better.

This measurement shows how long your customers stick around. Take note subscription businesses: if customers drop off just before a fee increase, you might need to revise your pricing.

This is how much your customers spend on average per purchase. E-commerce businesses can use this data to guide pricing strategy and cross-promote products.

MRR is a critical metric for subscription businesses to track. It shows how much income you earn per month from your existing customers. Knowing your MRR can help you manage your cash flow and mitigate gaps in income.

Gathering data about your business means you can produce rich analytics reports – especially if you use a tool like Syft Analytics to compile the data for you.

Here are just a few of the things you can do when you start embracing analytics:

When you combine an intelligent accounting system with rich analytics, there’s no limit to what you can achieve with your e-commerce or subscription business.

With a clear picture of how cash flows in and out of your business, you’ll be able to make better, data-driven decisions on the stuff that matters most.

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​Written by the Xero Team

Xero is an easy-to-use accountancy software platform for businesses and advisors.