ROI is short for return on Investment, and this is what the three letters stand for. It refers to your profit earned from any investment. In the case of an e-commerce ROI, this would refer to the profit one has collected from their online store. This profit can come from sales, marketing, or advertising. You can use the ROI metric for any investment you make, whether it is stocks, bond or real estate. Anything you invest in, the total profit that you earn from that investment will be your return on that investment.
Calculating e-Commerce ROI
The purpose of e-commerce marketing should be to generate an ROI which is why the calculations are integral to your digital marketing decision making. Marketing without E-commerce ROI is therefore a very unsuccessful strategy. Fortunately, digital marketing gives you the best opportunity to track marketing ROI.
The data which stems from E-commerce tools help you perform instrumental tasks and analysis. The level of analysis that e-commerce business owners can do simply by using free tools is insane. For a basic and standard e-commerce ROI calculation, you will simply need Google Analytics. If you take many of your sales over the phone, then you are also going to need a phone tracking service like response tap.
This plugs into Google analytics and helps you judge the quality of the leads coming over the phone. Before you start digging into marketing ROI, make sure to look at some metrics before. These metrics include the average order value, AOV. This is the average price of how much a buyer spends on your business.
What is Online ROI?
Your online ROI for an E-commerce store will heavily depend on your advertisement ROI. Marketing is critical when it comes to managing online stores. Measuring success therefore becomes a matter of how much profit from sales you are getting back from the amount of money you are splashing on advertisements.
Calculating ROI helps you determine how much more you should get back for the amount of dollars you spend. Before you throw your money at some online advertiser, you need to be able to compute how you will make the money back. You will also have to decide whether it was worth it in the first place.
Leads and Sales
It is important for you to understand the difference between leads and sales. Leads are qualified prospects that are contacting you. When you talk about sales, it means actual purchases on your website. This is where people use a credit card number.
Calculating Online E-commerce ROI for your Sales
Before you learn how to calculate ROI for your sales, you need to talk about what margin is. A margin is the difference between the price you are charging for a product, and the actual cost of making it. Then you have to figure out how many extra of those things do you need to sell in order to cover the cost of the advertising and make it worth it.
Not only do you have to cover the cost of advertising, but also earn an extra profit to make it worth it. This is usually a time when you have to discuss AOV. When you sell something online, your goal is not necessarily to sell a ton of it, but the aim is to make more money on each shipment you make. In other words, it may only cost you one box to sell one product, but sometimes you are able to get three or four products inside the box.
Sales ROI Example
An example from a sales standpoint will be that you sell cookies, and when you sell them, you do it by the case because you do not want to ship one cookie at a time. Before you sign up for advertising, let’s say that you sell 100 cases each month.
The price per case that you are charging is $50, and the cost of each case when making it and shipping it will equate to $20. The total amount that you will have into this will be $20, and the price you charge will be $50, making your margin about $30. You can then get an offer of a person that will try to sell you some advertising that will cost you $100 a month.
If you calculate the ROI on the $100 dollars a month advertising, you will find that you need to sell at least 4 extra cases to break even. This means that you will recover the 100 dollars that you paid for advertising after you sell 4 cases, which in turn means that you will have to sell much more than that to make the advertising worth it.
Improving ROI of Your E-commerce Platform
There are plenty factors which impact the ROI of your eCommerce website. It first begins with analyzing and optimizing your marketing funnel. Your funnel is what eventually generates prospect leads for your business that can be converted into prospect sales. Having a good funnel means that you are able to draw people’s attention to your website from multiple different platforms.
Multiple Marketing Strategies
There are multiple marketing strategies available, and thus, sticking to just one is not the best move when trying to maximize the ROI of your online store. Depending on your product and target audience, one single marketing strategy is unlikely to work for your business. This means that relying on a single marketing strategy will be detrimental for your ROI.
Overall, e-commerce ROI will only get better if your marketing or advertisement is strong. It also greatly helps to have a lead generation tactic that helps you attract prospects that can easily convert into buyers.