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IRP Ecommerce Fundamentals (9)
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The IRP formula for success

Ecommerce Fundamentals

Ecommerce is the fastest-growing area of business, supercharged by innovations in technology and changing consumer behaviour.

‘Back to basics’

More products are bought and sold online every day. It started with books in the 1990s and it has moved to almost every market and sector of industry.

Ecommerce is the fastest-growing area of business, supercharged by innovations in technology and changing consumer behaviour. The Internet, the World Wide Web, user-friendly websites, secure online payments, broadband, smartphones and tablets have arrived and now more people are choosing to ‘shop online’, as well as ‘be online’.

Looking at it from the retailer’s perspective, the market forces of supply and demand are no different for ecommerce. If there is demand, and you can supply it, the Internet creates an ever-expanding opportunity. Anyone can sell anything to anyone online.

Ecommerce offers many benefits over traditional retail, including exposure to new geographical and international markets, a streamlined buyer-to-seller relationship, and unlimited growth potential.

Whether you are a high street multichannel retailer, an established or growing pure play site or a start-up considering targeting a particular niche, you will need to devise, implement, measure and manage your online project constantly.

Three guiding principles for ecommerce success

IRP Commerce recommends a dedicated focus on three guiding principles that will help deliver success in ecommerce.

1. The IRP equation

The most simple and important equation to understand online sales is:

The IRP ecommerce equation - Visitors x Conversion Rate x Average Order Value equals Sales
The IRP ecommerce equation - Visitors x Conversion Rate x Average Order Value = Sales

You calculate the total value of sales that you get by multiplying the number of people who buy items by the amount, on average, that they spend (the Average Order Total). To work out ‘the number of people who buy items’, you multiply the total number of visitors you receive by the percentage of those visitors who convert into purchasing customers (the Conversion Rate).

You can use the IRP Ecommerce Calculator to help you predict your costs and profits by manipulating the key variables in the fundamental IRP ecommerce equation.

It is critical to remember that these are the only parameters we have to play with to increase sales. The key is to either increase VISITORS, increase CONVERSION RATE or increase AVERAGE ORDER VALUE (AOV). The AOV should then be turned into Customer Lifetime Value (CLV) to maximize repeat business.

2. Traffic, conversion and retention

This equation is supported by an ongoing and dedicated focus on three key strategic areas: traffic, conversion and retention.

The IRP ecommerce strategic areas - traffic, conversion and retention

3. The four cornerstones

Underlying the key equation and the three key strategic areas are the four cornerstones for creating a winning and successful ecommerce business:

The four cornerstones of ecommerce success - Technology, Investment, Product and Customers


  • Secure, reliable, scalable and proven technology
  • Multichannel, device, language and currency capabilities
  • User-friendly with an expansive and innovative features list


  • Investment in people (Ecommerce Manager and Web Team)
  • Investment in product
  • Investment in marketing


  • Competitive pricing or uniqueness
  • Expanding your product range, categories and brands
  • High-quality product information, images and data as well as useful content.


  • High-quality customer service
  • A focus on customer acquisition
  • A focus on customer conversion and retention

The IRP formula for success

The formula for IRP success

As with any offline retail business, you will make or break your online offering based on how strong your team is, your buying power and access to product. You also need efficient stock control, pricing, fulfilment, shipping, delivery, and returns services. Effective nurturing of your supply chain plays an important role, especially if you want to sell cross-border and into international markets.

Price is often a major focus and talking point. Almost everyone goes online to get the best deal, so it is vital to make sure that you remain competitive and profitable, taking into consideration the cost of sourcing, packaging and delivering the product.

However, price is not everything. The experiences you provide from the minute a visitor arrives on your site, through to checkout, delivery and aftercare go a long way in establishing a best-of-service brand with a loyal customer base.


At the core of your online business will be the construction, continued improvement and evolution of your ecommerce website. This will ideally be tied into your whole retail operation – from in-house stock control to till systems – providing you have a retail presence.

The development of a strategic plan focusing on traffic acquisition, on-site conversion and customer retention is a key and ongoing concern. Each of these aspects will cover many areas and open much debate, but all are part of the formula for success.

All ongoing changes and improvements to your website should always be to the benefit of the visitor. Treat the look and feel of your website like you would do your shop or your home and, in doing so, you will convert more visitors into customers and existing customers into bigger and more frequent spenders.

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