What e-commerce ROI is and how to calculate it to find out the profitability you obtain from each strategy

Sam Smith

Ecommerce Consultant at Doofinder

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Are you aware that if you don’t properly analyze your online shop’s metrics, it is possible that you may be losing both money and clients?
Indeed, it is exactly as you have just read.
When evaluating the results of each marketing action that you carry out, what you need to analyze is the ROI or return on investment.
You don’t know what this metric means? Or you don’t know how to properly calculate it?
Then, switch off your phone and block out your next 10 minutes because you need to read this post. Today you are going to learn about which strategies actually help you to earn money.
Sounds good, right? 😉

What is e-commerce ROI?

The ROI or return on investment is one of the most important metrics to take into account with your online shop.
In this post about web analytics, we already explained the most important things regarding, but ROI deserves an ever deeper analysis.
Let’s start, as we always do, with the definition.

ROI is the metric that shows the profits generated by a specific marketing action.

Or, in other words, as it is expressed by the term itself, the ROI shows what we get back from the investment—whether it was profitable or not.

How can we calculate the return on investment of an action?

The formula is simple:

ROI = (PROFIT – INVESTMENT) / INVESTMENT x 100

Let’s see an example using real numbers. This way, you’ll be able to see why it is such an important metric.
Imagine that you have applied two different strategies for customer acquisition. On the one hand, you hired a specialist in SEO for e-commerce. On the other hand, you created a Facebook Ads campaign.

• Investment in SEO: €3000.
• Investment in Facebook Ads: €300.
• Number of customers acquired with SEO: 25.
• Number of customers acquired with Facebook Ads: 5.
• Average checkout price in both cases: €100.

Get your calculator ready. We’ll start with the SEO strategy.

SEO = ((25×100 – 3000) / 3000) x 100 = -17%.

That doesn’t look so great, does it?
Now let’s have a look at Facebook Ads.

Facebook Ads = ((5×100 – 300) / 300) x 100 = 66%.

Once you analyze it, the easiest conclusion to reach would be to ditch the SEO strategy and to invest your advertising budget in Ads.
Would that be correct?
No, it wouldn’t. You are forgetting one essential detail: the Customer Lifetime Value.
This is another metric that shows the total amount of sales that a client has generated over time. And this information can completely change the case at hand.
Why?
Easy.
The traffic that you get from Ads is not as good as the traffic that comes from a blog post. This detail that we neglected at the beginning is what can make a client buy over and over again (there is more loyalty).
Let’s go back to the examples with this new variable added.

• Investment in SEO: €3000.
• Investment in Facebook Ads: €300.
• Number of customers acquired with SEO: 25.
• Number of customers acquired with Facebook Ads: 5.
• Average checkout price in both cases: €100.
• Average Customer Lifetime Value for clients from SEO: €10,500.
• Average Customer Lifetime Value for clients from Facebook Ads: €600.

In this case, we would get the marketing ROI this way:

ROI = CLV – Investment / Investment x 100

This formula applied to the example:

SEO = ((10,500 – 3,000) / 3,000) x 100 = 250%.
Facebook Ads = ((500 – 300) / 300) x 100 = 66%.

As you can see, these results have nothing to do with the ones we got before.
When calculating ROI this way you get a more truthful overview of the profitability of each marketing action and how long it can take to start seeing profits.

How to improve your online shop’s ROI

Now that you know how to properly calculate the ROI for each strategy, we have reached another essential step: how to improve this metric.
We want to get the most out of every marketing action that we carry out in order to see better profitability,
Here you have 4 examples:

1. Buyer persona

We will never get tired of insisting on this. Any Inbound Marketing strategy should always be based on the correct definition of your buyer persona.
Why is it so important?
As a matter of fact, it’s because of ROI. If you don’t clearly know to whom you are directing your contents, your content strategy and your sales messages will be too generic. And generic is not usually very efficient.
The more you know what your clients want, the easier it will be to give it to them. It’s as easy as that.
You haven’t created your buyer persona yet? Read this post.

2. Qualified traffic

Visibility is the main concern that you have when you start selling. It is normal—if nobody sees your website, it is impossible to make sales, right?
But watch out, because we don’t want just any traffic.
In order to get a high ROI, you need to focus on getting qualified traffic.
What exactly is qualified traffic?
There is no better way of explaining this than by using an example.
Imagine that you have a shop that sells only apples. Would it serve any purpose if you get people to your website who are interested in buying pears?
Maybe you would sell something, but the ROI of attracting new clients would be quite low.
This is why you need to focus on acquiring your ideal client (the one who wants to buy apples) in order to get the maximum profitability from any marketing strategy that you may carry out.
Let’s see how it’s done.
When attracting organic traffic thanks to SEO, the first thing you need to do is some research about which are the best keywords for your sector.
In this case, since we are talking about ROI, the ideal thing to do would be to focus on these two types of keywords.

• Transactional keywords: those that show the buying intention of the users. For example, “buy iPhone 7” or “cheap reflex cameras”.
• Product keywords: when users look for “Nikon D5300” on Google, it is very probable that they are looking for different prices to compare. And, if they are looking for prices it is because they want to buy.

If you are able to position these two types of keywords, it would be more probable that visitors end up making a purchase… and that, of course, is what raises the ROI.

Qualified traffic from online ads

If your acquisition strategy is based on ads, you should be very careful with how you segment your campaigns.
The conversion power of Facebook Ads has always been talked about for this very reason.
Facebook Ads offer a lot of different audience segmentation options, which allow you to be very precise when trying to reach your target audience.
Do you want to know how to create a Facebook Ads campaign? Click here. Do you prefer Google Adwords? Then click here.

3. Improve your prodcuct cards conversion

Following the Nikon example that we mentioned before, imagine that you want to position the keyword “Nikon D5300”.
The first thing you need to know is that this type of keyword needs to be positioned with a product card and not with a blog post.
If users are willing to purchase, given them what they need to make it happen.
But be careful—just positioning a product card doesn’t assure sales. You still need the user to click the buy button.
Here you have some ideas for improving your conversion.

• Show the final price: with all the taxes included.
• Show how much the shipping is: clients don’t like to start a payment process just to later be surprised with extra costs.
• Pictures: you need users to be able to imagine exactly what the product is like. This requires good quality pictures that show the product from all angles.
• Social proof: show comments from clients who already bought the product. This adds a feeling of calmness and confidence. If you can add pictures of those clients with the products themselves, even better.

And, of course, if you add good copywriting to these four points, your product cards will become sales generating machines.

4. Increasing the average checkout price

If you think about it, when we calculated the ROI, we looked at the average checkout price per client.
It is just simple logic that if we get each client to spend more money each time they buy, the profitability will increase as well.
How do we achieve that?
Let’s see.

• Cross-selling: in the product card, show products that are related to the one they are looking at. For example, the user looking for that Nikon D5300 will probably be interested in a protective cover, an SD card, lenses, a tripod, etc.
• Packs: instead of just showing all the related products, you can create different packs including different products. You can also add a discount to seal the deal. Trick: add those products that are more difficult to sell in the packs. 😉
• Free shipping: a strategy that is as old as it is effective. Offer free shipping when they reach a certain spending amount to increase the average ticket price and consider it done.

If you want to learn more about strategies to increase the average checkout price, have a look at this post.

Start calculating your e-commerce ROI now

Not checking the ROI you are getting from each strategy is like walking through a desert without a compass.
You can’t know which path to follow because you don’t have any reference.
Even knowing that metrics are one of the most boring things when managing an online shop, there is no excuse.
The risk is too high.