In this edition of our digital marketing ROI series, we’re going to take a look at how you can measure you return on investment (ROI) for eCommerce marketing. The whole point of running an eCommerce business is to make money, and it’s essential to make sure that your investment in an online store is bringing in your projected revenue. You can’t invest in an online store unless you’re sure, or at least expect it to provide a positive ROI. Furthermore, if returns are low, it is likely time to reinvent your process and try something new. There are many different formulas for measuring ROI. However it is most important to focus on calculating ROI for return customers. They are the target market who will bring you the best returns for your investment.
Calculate Your Consumer’s Lifetime Value
According to HubSpot, the best customers spend 30x more than your average customers. This information was determined when they analyzed data from millions of online shoppers at hundreds of the fastest-growing online retailers. Many ecommerce businesses tend only to calculate the ROI for each sale made. However, depending on the type of business you run, you may want to consider measuring each customer’s lifetime value. Are your customers likely to come back and place more orders? If yes, what kind of measures can you take to improve their experience every time they return? It’s more cost effective to keep a return customer than to find a new one.
Spending money on inbound marketing strategies and paid searches to attract one time customers can end up costing a lot more than the revenue you earn per sale. It’s crucial to identify your returning customers and create strategies that keep them loyal. Special discounts, promotions, and offers are some strategies you can employ. The basic formula for calculating your customer’s lifetime value is: “average product value” x “number of repeat sales per customer” x “average retention time of the product”.
The average product value is an obvious metric, but how can you calculate the number of repeat sales per customer and the average retention time of your product?
Calculating Number of Repeat Sales
Creating a signup form for your eCommerce site that lets customers create a profile before buying an item is an effective way to calculate repeat sales. Allow customers to opt-out of signing up for an account if they would rather not, but you can incentivize the process by offering to send tracking information, receipts, and special promotional offers and discount coupon codes. The data you gain from purchases made by each profile should give you valuable information on repeat sales per customer.
Calculating Average Retention Time of the Product
The average retention time of a product depends on what the product is. What are you selling and how long should it last? If you’re an expert on the product you’re selling then you probably have a basic idea of your product’s expected life span. What if your product is something that can last for years depending on how well your customer takes care of it?
It seems complex, but can be simplified; add other smaller products with a shorter lifespan. If your website sells smartphones, for example, consider selling phone accessories like chargers, phone covers, and other little items. Think about products a customer may need to complement your main product. It will not only increase your revenue, but it will also keep customers coming back to see what new accessories you offer. Try to keep changing the stock, or adding new stock as often as it is feasible.
eCommerce Marketing ROI: Tie it All Together
Now that you have the information needed, you can easily calculate your customer’s lifetime value, but that data is not enough to calculate ROI for your ecommerce store. To have attracted your customers, you must have used marketing techniques to bring them to your site.
Calculate the total amount of marketing revenue spent on all forms of advertising. This includes SEO, inbound marketing, paid searches, and social media marketing. Take the overall figure and divide it by your customer’s lifetime value to get your ROI percentage. The higher the percentage, the better your returns. If your returns are lower than you expected, tweak your strategy and reinvent it. There is no secret strategy for getting good ROI. You need to reinvent your strategy several times before finding one that works best for your business model.
At Cohlab, we fully understand the importance of knowing your eCommerce marketing ROI. That is why we do take the time to ensure you understand both the tangible and intangible results of your digital marketing efforts. We “cohlaborate” with you on proving out your digital marketing ROI, and our strategy has been greatly successful for digital marketing clients. Use our complimentary Digital Marketing Scorecard to gain valuable insight on how your website rank compares to others. Our team would love to speak with you and answer any questions you may have. Our mission is to provide you with Cohlaborative digital marketing solutions to meet your organization’s needs.