In today’s fiercely competitive digital marketplace, eCommerce businesses are constantly seeking ways to maximize their return on investment (ROI). Suboptimal ROI not only hampers growth, it can signal underlying inefficiencies in your online strategy. This concern is pivotal for marketers looking to sustain and scale their eCommerce efforts.
In this blog post, we provide effective strategies for boosting eCommerce ROI. You’ll learn how to calculate and enhance your ROI by optimizing various aspects of your online presence, from personalizing content to refining the checkout process. Apply these practical insights to significantly elevate your eCommerce marketing game.
What is eCommerce ROI?
Return on investment in eCommerce is a critical metric for measuring the effectiveness of your online business investments. It’s a gauge of profitability, revealing whether the resources you’ve pumped into your eCommerce venture are yielding fruitful returns. For marketers, eCommerce ROI measures the company’s earnings generated from a specific marketing campaign or channel. And there are several calculations you’ll use to measure your success at meeting your goals. Understanding ROI will help you make informed decisions about where to allocate future resources for maximum impact.
How to calculate eCommerce ROI
Calculating eCommerce ROI for the entire business is a straightforward formula.
Calculation: (net profit / total investment) x 100
‘Net profit’ refers to the revenue from online sales minus the costs incurred from generating those sales. ‘Total investment’ includes all costs related to your eCommerce activities, such as marketing, website maintenance, personnel and other front office costs, and inventory.
You can use a similar formula to calculate eCommerce ROI for overall marketing-related activities to track whether your efforts are improving or declining over time:=.
Calculation: (increased eCommerce sales – marketing spend / marketing spend = marketing eCommerce ROI) x 100
Multiplying by 100 isn’t required, but presenting the data as a percentage is the norm and makes it easier for stakeholders to visualize.
For example, if you had £1,000,000 in eCommerce sales from £250,000 in marketing spend, the marketing ROI would be 300%.
(£1,000,000 – £250,000 / £250,000) x 100 = 300%
Of course, this metric can be positive or negative. If you had £500,000 in eCommerce sales from £750,000 in marketing spend, the marketing ROI would be -33%.
When overall marketing eCommerce ROI is positive, it means your efforts contributed to profitability and marketing-contributed sales exceeded costs. However, a negative ROI means the costs surpassed the eCommerce sales directly attributable to marketing spend.
Which factors impact eCommerce ROI the most?
Several factors significantly influence eCommerce ROI. These include customer acquisition costs, conversion rate, average order value, customer lifetime value, shopping cart abandonment rate, and customer retention rates. Optimizing these areas can lead to a substantial increase in ROI.
But without deeper metrics that show where you are over- or underachieving, how do you make adjustments?
Here are 5 common KPIs and their associated calculators to help you quantify marketing’s contribution to eCommerce ROI:
Customer acquisition cost (CAC) is the cost associated with acquiring a new customer. This is critical for assessing the efficiency of your marketing campaigns. We are always trying to drive these costs down.
Calculation: total cost to acquire customers (marketing expenses) / number of new customers acquired in the time period (i.e., Q1, 2022, etc.).
Website conversion rate indicates the percentage of visitors to your website who make a purchase. It’s crucial to understand the effectiveness of your website and marketing efforts in driving sales.
Calculation: (number of conversions / total number of visitors) x 100.
Average order value (AOV) helps you understand typical spending per transaction, which guides pricing and marketing strategies. You can calculate AOV for your entire eCommerce store or break it down more granularly. Try looking at the metric by customer segment (i.e., new vs. returning customers), product category, time period, campaign, or geographic region. This granular approach allows for more targeted adjustments to pricing, marketing, and customer experience enhancements.
Calculation: total revenue / number of orders.
Customer lifetime value (CLV) is crucial for understanding long-term customer profitability and helps you tailor strategies to retain valuable customers.
Calculation: AOV x purchase frequency x customer lifespan*.
(*Customer lifespan data is tracked in your CRM, including purchase history, engagement patterns, and duration of the relationship. Advanced CRMs use historical data to predict customer lifespan).
Shopping cart abandonment rate measures the percentage of shoppers who add items to their cart but do not complete the purchase. Although it’s impossible to completely eliminate shopping cart abandonment, a high or rising number here can signal issues in the checkout process or other areas impacting the customer experience, so this is a crucial number to keep your eye on.
Calculation: [1 – (completed purchases / total carts created)] x 100.
Customer retention rate measures the rate at which existing customers continue to buy over a period. It’s crucial for understanding customer loyalty and business stability.
Calculation: (number of repeat purchasers / total number of customers) x 100.
Tracking these metrics and others will provide you and your stakeholders with a view into your eCommerce marketing ROI, helping you make informed decisions to optimize your marketing strategies and enhance overall profitability.
9 Strategies to increase marketing ROI for eCommerce
1. Apply deeper content personalization.
Tailoring content to individual customer preferences and behaviors can dramatically enhance customer engagement and sales. Personalization can range from product recommendations based on browsing history to personalized email campaigns. This approach makes customers feel valued and increases the likelihood of conversions.
2. Improve the checkout process.
A smooth, hassle-free checkout process is vital. Simplifying form fields, providing multiple payment options, and ensuring a secure transaction environment can decrease cart abandonment rates and boost conversions, positively impacting ROI.
3. Optimize product pages.
High-quality product images, detailed descriptions, and customer reviews can significantly enhance the attractiveness of product pages. SEO optimization for these pages can also increase visibility and traffic, leading to higher sales and ROI.
4. Offer chat support.
Implementing live chat support can significantly improve customer experience. It allows for real-time problem-solving and personalized assistance, which can increase customer satisfaction and sales.
5. Add social proof elements to the site.
Incorporating customer reviews, testimonials, and user-generated content on your site can build trust and credibility. Social proof is a powerful tool for influencing buying decisions and can increase conversion rates.
6. Optimize for mobile.
With a growing number of consumers shopping on mobile devices, having a mobile-optimized website is essential. A responsive design that adapts to various screen sizes can provide a seamless shopping experience, leading to higher engagement and sales.
7. Segment your lists better.
Effective email marketing relies on delivering relevant content to the right audience. Segmenting your lists based on customer behavior and preferences can lead to more targeted and effective communications and recommendations, which improve engagement and ROI.
8. Implement effective CTAs.
Calls-to-actions (CTAs) are crucial in guiding potential customers to a purchase. Clear, compelling CTAs can significantly increase conversion rates. Experiment with various designs, placements, and messages to find what works best for your audience.
9. Do more A/B tests.
With Fresh Relevance’s Auto Optimize tool, you can automatically test and optimize individual pieces of content, or the entire customer experience, across channels using AI. Choose from many different optimization goals, such as increasing AOV, conversion rate, identification rate, site visits, average time on site, or reducing bounce rate.
In this blog post, we’ve equipped you with the knowledge to make data-driven decisions. But knowledge alone isn’t enough. The real impact will be felt when you apply these strategies to your business practices.
This means diving into deeper content personalization to engage your audience, streamlining the checkout process to enhance the customer experience, and optimizing product pages to more closely mimic in-store shopping.
It’s about building trust using social proof, ensuring your site is mobile-friendly, segmenting your communication lists for more targeted messaging, and then converting them with compelling calls to action.
Finally … it’s about testing to make sure you’re getting it right. Testing is the last on the list, but it’s not the last tactic you should think about. Use it every day. Put it in every campaign plan. This is the tool that fine-tunes your other strategies to perfection.
Your eCommerce success story is waiting to be written, and it starts with these nine strategies. By embracing these approaches, you’re not just aiming for incremental improvements; you’re paving the way for transformative growth and sustainability in your eCommerce marketing program.
Experiment, analyze, and adapt. With these tools at your disposal, you’re more than ready to maximize your eCommerce ROI and set new benchmarks in your digital journey.