Ecommerce ROI: What is it?
Having a solid grasp of the ROI in eCommerce is a fundamental skill. ROI, or Return on Investment, is a metric that helps you understand how profitable your online business is.
For an understanding of ROI meaning in eCommerce, this is how you work it out:
ROI = (Net profit / Cost of the Investment) x100
Net profit is what you earn minus what you spend
The cost of the investment is how much you’ve invested, such as marketing costs
As an example, what would be a good ROI for AdWords eCommerce? In this context, achieving a high ROI means your ad spend is translating to valuable customer conversions and sales. A ratio of every $% earned for every $5 spent is considered a healthy ROI. However, it varies depending on industry and individual goals.
When all is said and done, determining ROI isn’t just about crunching numbers. It’s getting to the bottom of what works best for your business.
eCommerce ROI Benchmarks
It’s important to have a grasp on the key benchmarks that define what a good ROI for eCommerce looks like.
Like many things, ROI isn’t an exact science. In fact, benchmarks for ROI in eCommerce vary significantly. It’s often based on industry, business model, and other market dynamics.
However, a general rule of thumb is a positive eCommerce website ROI is anything above a 1:1 ratio. Basically, to achieve a good eCommerce ROI, your profits have to be higher than your spending.
It’s generally accepted that a 5:1 ROI is solid across industries. Following the calculation we looked at previously, this means your business is earning $5 for every $1 it invests.
You might be asking, ‘how does my business achieve the biggest ROI in eCommerce’? This requires a careful approach to strategy and spending. It’s about finding the sweet spots to yield the best results.
ROI eCommerce Marketing: 5 essential steps
ROI eCommerce marketing in 2023 takes time, investment, and planning. Below, we’re going to tackle some of the ROI measures for an ambitious eCommerce website looking to grow.
1. Understand your buyer persona
The first thing to do is understand your buyer persona. Understand their preferences and motivations. This will enable you to tailor strategies to suit the needs of your audience. Down the line, this forges stronger connections with your customers, driving conversions and sales. Ultimately, this is how you achieve eCommerce marketing highest ROI.
Age, gender, location, and education level are all important factors. However, it’s important to understand ‘why’ your customers behave the way they do.
Explore common pain points, challenges, and aspirations across your target audience. Doing so will allow you to develop targeted and effective marketing campaigns. For example, does your audience hang out on a particular social media platform? If so, you’ll want to invest in the particular platform for a positive eCommerce ROI for social media marketing.
Or, if your audience is typically younger, they might have emotional triggers, driven by a fear of missing out. Leverage emotional drivers by evoking urgency through striking visuals.
Nevertheless, refining your buyer personas is a continual process. As market trends come and go, so do consumer preferences.
KPIs to track:
- Repeat customers
2. Implement an SEO strategy
Implementing an SEO strategy is a game-changer for enhancing eCommerce ROI. It acts as a magnet, pulling in high-intent traffic and allowing businesses to rank higher in search engines.
By optimizing products for relevant keywords and crafting user-friendly experiences, businesses capture and convert more browsers to buyers.
To optimize for SEO success, it’s crucial for online stores to eCommerce measure ROI for content, ensuring product content (product descriptions, product titles) is engaging and drives discoverability and conversions.
KPIs to track:
- Web traffic by channel (organic)
- Conversion by channel (organic)
3. Optimize website performance
Optimizing web performance means refining every digital touchpoint, from landing page to the checkout process. By monitoring KPIs (cart abandonment/average order value), you fine-tune every part of the customer journey.
This includes improving site speed, mobile responsiveness, and overall site usability. For instance, checkout pages should be simple, fast, and secure for a frictionless experience.
KPIs to track:
- Average Order Value (AOV)
- Cart abandonment
- Bounce rates
4. Offer Intelligent Product Recommendations
Another strategic lever is intelligent product recommendations to boost eCommerce ROI. The process involves using data-driven insights to suggest relevant products to customers, enhancing their experience, and driving average order value.
Below are some examples of product recommendations to boost AOV:
- Customers who bought this also bought: Present items customers frequently bought together
- Recently viewed: Showcase products the customer has recently browsed, allowing them to navigate across your eCommerce store
- Bundle recommendations: Propose bundle deals and complementary products (ie. a mouse/laptop bag on a product page for a laptop
KPIs to track:
- Revenue per Visitor (RPV)
- Conversion Rate
5. Develop a best-of-breed tech stack
Finally, a dynamic eCommerce tech stack is crucial for driving eCommerce ROI. Composable commerce allows eCommerce platforms more flexibility than ever to set up a tech stack in line with their requirements.
This modular approach to eCommerce sites allows businesses to respond to market changes and deliver unmatched customer experiences.
To make sure you invest in the right technology, identify key business areas where you’re experiencing problems. Are you managing product information in spreadsheets? Then check out PIM. Are marketplaces causing you problems? Maybe Feedonomics is for you, and so on.
KPIs to track
- Market agility
- Operational mistakes (lost parcels/delayed deliveries, product returns, etc.)
What is a good ROI for eCommerce?
The average ROI percentage for eCommerce is somewhere around 20%. If your business is operating at this level, business is healthy.
However, It’s essential to view eCommerce ROI both quantitatively and qualitatively. In other words, consider not only the average ROI percentage for your eCommerce business but also the value to customers and the brand’s overall reputation in the market.
The bottom line, your Return on Investment (ROI) isn’t all about numbers. It also involves customer satisfaction and retention, market presence, and brand reputation. Combine these aspects and balance them against your profit margins. High customer satisfaction levels and strong brand loyalty are key to well-rounded ROI.