In your business, you want to the best return on investment as possible, right? You want to get the most bang for your buck and see a tremendous return, am I correct? That’s the nature of business, after all!
#What is ROI?
ROI, abbreviated for return on investment, measures the efforts of your marketing across the channels you are utilizing. Unlike many other industries, in e-Commerce, measuring the rate of success is actually quite easy.
So, how can a business capitalize on ROI in their operations? With time, dedication, attention to detail, and employing the right methods. Digital commerce is growing at exceptionally fast speeds, and there is no sight in end for this trend to be dwindling. Instead, everyone is looking ahead to the future, implementing ways to improve their sites and abilities to keep pace with the growth.
Continue reading to better understand the importance of addressing the issue of not converting visitors into buyers.
#So, Why is ROI so Necessary?
Calculating return on investment is necessary because you need to know which actions are working best, in order to define the next moves towards creating increasingly expressive differentials. Investing in appropriate, results-driven marketing campaigns and efficient features, as well as in good website infrastructure, are just some examples of the priorities needed in order to increase the return on their online sales strategies.
But how much does this return really represent? How do I measure the ROI of my e-commerce?
#3 Variables on ROI to Consider:
1 - Time Factor: Theoretically, calculating ROI involves using this industry-standard formula:
Revenue generated from a determined investment ÷ Amount spent on its implementation.
(However, "customer lifetime" needs to be considered as a variable upon calculation, especially when it comes to e-commerce.)
Through this analysis, known as the LTV - or "Life-time-value"), determining your best customers becomes easier, and it allows you to improve the channels that appeal to them. However, it is important to keep in mind that LTV is rather difficult to measure, as there are many factors that can play into an inaccurate reading of it. It is impossible to track every purchase in every channel, as well as payment method used, therefore data will be missing. LTV is a very long-term metric, so it is important not to rely on it exclusively.
Customer lifetime can be measured in more short-term ways by evaluating how much customers spend on your company, on average, and for how long they have been buying it. Likewise, using A-B testing, business owners can gauge customer experience and analyze their likelihood of purchasing through its use due to the great information found in comparing platforms. Additionally, using multivariate testing, businesses can test the immediate reactions of their clientele easily and can see first hand almost instantly when testing different variables.
If you want to evaluate the immediate return of a particular action regarding your e-commerce operation, in measuring ROI alone and using the conventional formula, you will get a general overview of that return.
Using this strategy is a simple way to calculate the general ROI, in order to further understand what is missing on your customer retaining strategy, or what is working and needs to be pushed even harder. Having mechanisms that offer a good buying experience and are able to increase customer lifetime will be the most vital to your operation.
2 - Cost Factor: (The intention would be more valuable to look at the cost per product. )
In a deeper analysis, an even more precise ROI measure can be obtained with another variable: the cost per product, or cost of the virtual store. (If total costs are added up, including all costs in the website, how does this affect the ROI- the trick is to go back to the multi-channel aspect. Just because sales are not happening on the website does not mean they are not purchasing elsewhere. If you look at your web costs, they need to be added into all sales channels.
In a physical environment, there are always expenses to be considered beyond the cost of the products, such as utilities and other factors such as energy, water, telephone, employees, etc.
Compared to e-commerce, however, return on investment may be higher, if the expense with the activity is optimized when compared to the first option of cost factor. The many variables and options are endless, and by negotiating with suppliers, or working with a marketplace, you can even purchase only actually sold products, minimizing risks and possible losses. Marketplace selling is becoming the norm across all sales channels, and is opening up additional options for reaching broader audiences. 3rd party selling avails the opportunity for sellers to benefit from a tremendous amount of traffic. Marketplaces such as Amazon and Ebay enable sellers to take advantage of their massive presences; Amazon experiences almost 184 million unique visitors monthly which translates to a great amount of exposure.
This adds to the growth percentage on the number of sales from the virtual store's launching, while subtracting the efforts and expenses of the physical store. In turn, this converts visitors into buyers due to the convenience, and further cuts costs because it is becoming more common that with a good platform, advertising expenses can also be reduced.
It is also important to keep in mind that many times it isn’t the cost of the marketing campaign infused into the overall costs that presents a low ROI. It lies in the continuity of the process, whether because the platform is not converting visitors into buyers, or due to problems in increasing customer lifetime, ROI can be effected.
3 - Convergence Factor:
The key is to not bet on acquiring customers all at once, and to focus on retaining the ones you have, while attracting new ones through features and added value offered.
Some virtual stores spend more than 20% of their revenue on attracting new customers. This can be a good strategy for beginners, who need more customers for their base, but it's not sustainable in the medium and long terms. The retention cost will always be lower.
There are clients that are gained online and then choose to go offline, for example. Sales channels of modern companies are widely integrated and the e-commerce's ROI also must take the convergence factor into consideration.
This growth is enabling businesses to see the value in diversifying their investments while safeguarding their resources as they expand beyond the scope of digital commerce. Because of this, they are finding that by focusing on the user experience, along with constantly improving it, their overall competitiveness is enhanced.
What this also brings into play is competition, specifically regarding the return on investment. As opportunities increase with e-commerce, so does competition. And because expenses are obviously subtracted from earnings to maintain margin and determine profit, optimizing tools and resources accounts to maximized ROI.
#How Long Does it Take to See Results?
In short, it all depends. There is no easy way to measure the length of results, but you should keep it in mind that it’s about quality, not exactly quantity.
#For Start-Ups & Newbies
Expect a few months before you really start seeing a return, because when you’re brand new, with a new site, you’re new to search engines, new to your potential customers, and new to advertisers. In fact, if you manage to break even in the first months of your campaign, consider that a success. The longer you invest on good content at this stage, the better you can expect your results to be over the long term.
For starters, what should your business take into consideration when considering optimization?
The future of selling is becoming increasingly more unified, and less restricted to specific channels and methods, and it can be simply encompassed broadly as commerce. As retail selling has reached a level of innovation and has become so integrated, selling across multiple channels is now the standard. Beyond just a single method for sales, digital commerce is now so diverse that having a method for selling that covers all avenues allows businesses to reach as many customers as possible, from brick-and-mortar, to their own websites, to marketplace.
Unified commerce presents the most optimized method available, enabling customers the ability to shop at the physical store in addition to an array of different online options. Brick and mortar will not get replaced, but accented and supported with the most innovative of options. Consumers are no longer relying on in-store as the only and the most reliable method for selling; it’s no longer the standard, and digital commerce now works to complement it fluently.
Today’s consumer is savvy, intelligent, and will waive instant gratification purchases at times to do their own thorough research throughout the internet before committing to buying for the most information, and the best price. While this is not 100% guaranteed for every circumstance, it is very much the norm. According to research done by and published by Forrester Research, “74% of business buyers conduct more than half of their research online before making an offline purchase.” And while this percentage reflects the actions of business buyers, it is indicative of the patterns seen in consumers as well.
#Enhanced Shopping Via Reviews
Regarding the consumer buying experience, it is important for sellers to utilize options that enable their customers to leave feedback and share their opinions. Being able to leave direct feedback, even if it means giving them an incentive in doing so about products and purchases, customers are empowered to communicate more, and they feel that their voices are being heard directly. Retailers can then take advantage of this direct information that has been provided, using it to cultivate a more well-developed selection, target customers more directly, see what truly works for their consumers, and to fix any issues as they arise. Reviews and testimonials are very valuable, and they hold much potential in garnering new customers and retaining existing ones, so this avenue should not be overlooked.
#Enriching the Purchase
Utilizing various channels that benefit each other is essential, and using online platforms that make navigation and location of items simple is a must. Platforms should facilitate payments and mobility; and in regards to unified commerce, they should carry out similar functions to the accompanying stores. This all requires a well-thought-out investment of implementation.
#So, How Can I Get the Best Return on Investment?
Some strategies, such as good shopping experiences, ease of payment, mobile technology integration, product description (A/B tests) and impulsive and safe buying certainly have a substantial contribution.
Flexibility is one of the key factors, since demand rises at certain periods when platform access increases, however the performance may drop if good infrastructure support is lacking; in this case, a cloud-based platform can help with this need for scalability.
Mobility is another important factor as mobile buying will only continue to be done more frequently as the technology becomes more user-friendly. Using Black Friday 2016 as an example, a survey pointed out that 11% of the last edition of sales orders were made from smartphones or tablets. This is a blatantly expressive installment that requires a responsive platform.
After all, 11% less in sales would have some negative impact on your ROI, right? So the increased importance of opting for excellent platforms remains, as causing limitations impacts user experience. Offering as many options that appeal to the customer, while making purchasing swift and simple contributes to greater sales conversions.
The customer journey refers to how the customer travels through platforms and channels, along the course of their purchasing. According to Gartner, through search, display, TV, email, and direct mail, how the customer works through each of these through their final destination- the purchase, enables retailers to understand them a little bit better, and to assist in targeted marketing in order to serve them better. THe customer journey is not just a short-term one, however. It also covers the long range relationship between the customer and the retailer. Establishing brand loyalty and a certain level of love for it allows the brand to capitalize on the relationship by having the customer aligned with them, also being able to drive future sales based exclusively on this loyalty.
#Understand the Customer
In order to sell directly to your customer and channel your selection and offerings, you need to understand who they are, and what they want. Researching their habits, current trends, and what they are going to want in the future is essential. Today’s customer is sophisticated, ready to research, and is seeking a high-level experience. They want excellent selection, faster service, and they expect the retailer to be as transparent about the tracking and shipping as possible. Simply, you cannot get anything past today’s shopper.
Shoppers now spend a great amount of time researching before making purchases, and they are known to utilize a variety of channels before buying. Retailers know that customers who purchase across channels are the most valuable, and this trend is only becoming more common.
#What’s the Best Calculation for My E-Commerce Return on Investment?
Are you interested in knowing the return of a digital commerce business? Are you concerned with its platform expense and media investment, and the performing turnover analysis on it? Well, in order to figure these out, you need to first understand the so-called ‘added cost’.
Thinking of investment as a conjunction of what is spent on the platform, plus advertising, plus the effort necessary to integrate e-commerce – it’s apparent that cost that can't be based on only one variable.
Note: the return on investment of an e-commerce endeavor includes its costs on platform and media, followed by an analysis of the revenue generated over these two factors.
If one of the factors seems to be incurring greater costs on the immediate terms, but is able to increase or double the revenue in the future, the equation becomes even more dynamic.
For example: 2 companies, company A and company B make the same monthly amount, $100,000.
Regarding Platform: A spends $8,000 on its platform (8% of its $100,000 revenue). B spends only $3,000 (3% of its revenue) on the same expense.
Traffic Generation & Media Factor:
Company A spends more on platform which allows for more functionality, converts more visitors, and spends only $5,000 on media, or 5% of A's revenue.
Company B opted for cheaper technology so they need to generate a greater level of traffic. Conversion power is low so more hits are necessary. Company B spends $15,000 on media, or 15% of its revenue.
Weighing the Costs: Company A spends 8% on platform, plus 5% on media. A total of 13%. Company B spends 3% on platform, plus 15% on media. A total of 18% This comes out to Company B spending 5% more than company A, as a result of their strategy. This example offers a complete ROI of the different online sales strategies and their results.
Many companies sell exponentially more with e-commerce and greatly increase their conversion rates, even in an economic crisis. In this scenario, utilizing the most effective optimization becomes fundamental for those who want to remain competitive.
In conclusion, when it comes to retailing, getting the best return on investment is essential. We hope you have found this piece informative and helpful in regards to measuring and maximizing your ROI in today’s diverse and unified commerce outlook. Digital commerce continues to grow incredibly fast, and understanding the climate now will enable you to understand the trends and expectancies to come in the near future.
Did you find the information provided to be interesting regarding how digital commerce businesses spend and operate in regards to returns on investment? Have you taken these insights into account when measuring your own digital commerce's ROI?
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