The first challenge in growing a business is determining which metrics will help you on the journey. This is where ecommerce return on investment (ROI) comes in. It helps you figure out how much money to budget and where to focus your efforts.
The ecommerce ROI is a method of determining how effective each ad dollar is compared to the revenue generated by that ad. By examining the ROI, you may determine how much revenue each dollar spent on advertising has brought in. Knowing your ecommerce ROI allows you to focus your efforts more effectively such as targeting a specific audience, and distributing resources across several platforms.
Let’s find out what exactly ecommerce ROI is, how to calculate it, why it is important, and how to boost your ROI.
What Is Ecommerce ROI (Return On Investment)?
E-commerce ROI simply refers to a financial return an ecommerce business generates from its sales. The return on investment (ROI) can be determined through data gathered from Google Analytics as well as other relevant sources. The most common way to understand ROI is to compare the cost of products or services to the revenue generated from that sales .
One of the major considerations when calculating ROI for ecommerce is the type of product or service being sold. For example, if you are a software company owner, you should consider the earnings generated from your software application sales, updates, advertising, and subscription fees depending on your sales model. Along with your gains, you need to check your total cost such as marketing expenses, software development expenses, customer services and sales expenses.
How To Calculate Ecommerce ROI?
Measuring ecommerce ROI is the next step after compiling all the necessary data. There are a few ways to measure ecommerce ROI, but generally speaking, higher ROI indicates that the business is more profitable. It can be positive or negative. A negative ROI means that you spent more than you earned. It may be difficult to compute, but you can create detailed reports to reach necessary metrics whether you use Shopify or other platforms.
To calculate the ecommerce return on investment (ROI), firstly you need to identify the returned and invested amount of your money. The net profit (amount gained/return) is divided by the total investment (amount spent), and the result is expressed as a percentage.
You can simply use the following formula:
ROI = (Net Return / Cost of Investment) x100
For instance, if your store has a net profit of $100,000 and total investment of $500,000, your ROI would be 20%. This means that for every dollar invested in your store generates 20 cents in profit.
Keep in mind that you may have different numbers for separate channels. For instance, ROI for your blog articles is -20% while ROI for ads campaign is 40%. Then, you can conclude that your blog articles are not worth the investment.
Why Is It Important To Know Your Ecommerce ROI?
Return on investment (ROI) is a critical metric for ecommerce marketers to consider when making decisions about how to allocate resources. ROI measures how well your company is making money from its expenses. A low ROI shows that your business is not making a significant return on its investment.
Estimating ROI helps you to identify your top-returning patterns. So you can invest more in them. By comparing the ROI of your store to industry benchmarks or your own historical performance, it is possible to make right decisions.
To illustrate, if the ROI of your store is consistently declining, it may indicate that your store is losing market share or that your competitors are becoming more efficient. In this case, you may need to invest in a new technology.
Overall, ecommerce ROI reports can provide valuable insights that can inform and improve your advertising efforts. By regularly tracking and analyzing your ROI, you can make data-driven decisions that drive sales and profitability for your online store.
What Is A Good ROI For Ecommerce?
A good ROI for ecommerce can vary depending on the industry and its goals. That means there is no precise answer to this question and a specific percentage for ecommerce ROI.
However, some factors that could help calculate an approximate ROI for an ecommerce store include the number of unique visitors, the average order value, and the average order size.
A good rule of thumb is to aim for a ROI of at least 10-20%, which indicates that the business is gaining significant profits relative to its investment. A positive return on investment is generally considered good because it means you are making a profit on the money you spend.
For example, ROI that you might consider good in an online advertising campaign can go up to 25-50%. Ultimately, the goal is to maximize ROI, and it depends on the type of investment and how long your company has been generating returns.
How To Boost Your Ecommerce ROI
If you’re looking to boost your ecommerce ROI, it’s important to consider some factors such as conversion rates, margins. To start with, we highly recommend you to use Google Analytics which allows you to add ecommerce tracking on your website. You can monitor and analyze crucial metrics such as conversions, bounce rate, site traffic, average order value, shopping cart abandonment and so on.
How Cart Abandonment Affects Your Ecommerce ROI?
Before diving into strategies, you should know cart abandonment is a burning issue which has a huge impact on ROI for ecommerce brands. Many online shoppers add items to their carts but do not complete the purchase. According to industry estimates, the average cart abandonment rate for ecommerce is around 70%. This means that 7 out of every 10 visitors leave their carts at the point of purchase. Your ultimate goal is to decrease cart abandonment rate since it leads directly to your revenue and ROI.
Here are several reasons for cart abandonment:
- High shipping costs, fees, and taxes
- Forcing customers to create an account
- Slow page load
- Complicated and long checkout flow
- Return policy
- Lack of trust in the website and entering personal information
Reducing cart abandonment can give you a 52% higher ROI. Well then, the actual question is: how can you do that? The most important tips below will help you to decrease cart abandonment:
- Focus on better customer experience
- Make the checkout process as smooth and straightforward as possible
- Offer different and secure payment options
- Use personalized retargeted ads to bring your visitors back
- Build trust with your customers through clear privacy and return policies
- Boost your conversion rates
Overall, you can reduce cart abandonment rate by providing an easy purchase process, offering different delivery and payment options, and clear information customers need. We suggest you monitor your abandonment via Google Analytics. Read more about tracking the checkout process with Analyzify.
6 Strategies To Improve Your Ecommerce ROI
Let’s have a look at the effective ways you can take to increase your ecommerce return on investment:
1. Offer personalized recommendations: By using algorithms, you can offer suggestions and special discounts to buyers based on their searches and purchasing history. Match the right product to the right customer. You can increase average order value and customer loyalty, leading to higher sales and higher ROI.
2. Focus on qualified website traffic: Increasing traffic to your site can make you happy, but remember that your main goal is to reach relevant and competent customers. Unqualified users increase the number of clicks on your site, but do not make a revenue.
3. Improve the checkout process: Your ecommerce checkout processes must be fast enough, easy to use and mobile-friendly. Also, reduce the number of steps required to complete a purchase and offer customers a variety of payment options such as credit cards and PayPal.
4. Enhance your sales channels and try new campaigns: By investing in different marketing techniques such as e-mail marketing, influencers marketing, SEO, paid ads and social media advertising, you can convert browsers into buyers that lead to higher ROI. With trial and error methods, you can determine the most effective channels and optimize your advertising spend according to your ROI.
5. Use analytics to track customer behavior: You need to understand what motivates people to buy a product or service. Your content must be relevant to what your potential customers are looking for. Examine trends and identify the most profitable items or product categories by regularly tracking.
6. Design an optimal ecommerce site: A well-designed and user-friendly website certainly improves your customers’ journey and leads to increased sales. You should have a proper landing page and it should be easy to navigate. Use a clear language, and educate users about the benefits of buying online, and encourage them to return items if they are not satisfied.
Sum Up
In conclusion, the ROI of an ecommerce store is an important metric for making decisions about how to distribute resources effectively. ecommerce ROI is a measure of the profitability of online activities. It is calculated by dividing the return of the store by the total amount of investment (including costs such as marketing, website development, and employee salaries) and expressed as a percentage.
High ROI can be a sign of a well-managed and successful business. On the other hand, low ROI may indicate that the store is not generating sufficient profits, and may require changes to increase revenue.
There are several factors that can impact an ecommerce store’s ROI. By considering all aspects of running ecommerce such as effective marketing, a user-friendly website, high quality products with competitive prices, and optimization of your website and the checkout process can improve your ecommerce ROI and sales.
I'm a co-founder of Analyzify and a seasoned digital marketing expert with over 13 years of experience. Passionate about helping Shopify merchants navigate data and marketing challenges.