If you invest in your ecommerce business without analyzing payoffs, you’re likely to throw money down the drain. How to spend money wisely? This article gets you covered. We reveal how to measure ecommerce ROI and choose the right strategy to improve this metric.
Ecommerce ROI: Definition, formula, meaning, and benchmark
Return on investment (ROI) is a term broadly used in different business industries and areas. When it comes to ecommerce, this term has its specifics.
What is ecommerce ROi?
ROI measures profits over expenses. The higher your ROI is, the more effective your endeavors are. However, when defining ROI in ecommerce, we should pay attention to the goals and expenses associated with this industry. If you run an online store, you would probably have a grand goal, such as boosting your sales – maybe hitting $1 million in annual revenue within the next three years – and a list of associated expenses, such as web development, inventory management, marketing, and more.
How to calculate ecommerce ROI?
The easiest way to understand ecommerce ROI is by breaking it down into its basic formula. ROI is calculated in percentages as a ratio between Net profit (your revenue minus all expenses) over a certain period and investment in your business or some resource at a point in time.
ROI = Net profit / Net spend * 100%
Say, you pay $100 for ads in a month and get three leads who bring you $300 in profit. In this case, the ROI for this source is 300%. In other words, for every $1 spent, you’ve got $3 in profit.
Why should you monitor ROI for your ecommerce business?
You can use ROI in many ways, from evaluating your overall sales strategy to gauging individual channels and efforts. It helps you determine if you are spending your money in the right areas, plan your activities effectively, and adjust them over time.
For example, imagine a merchant investing in developing a Shopify store to sell sneakers. Their expenses include store development, design and content creation, SEO, and promotional activities, such as Google ads. Firstly, they can calculate all the expenses and estimate ROI to monitor if they achieve their goal over time. They can also calculate ROI for a specific channel or activities, such as for ads or SEO. If ROI is below the expected level for some channels, they can either repurpose budgets for another channel or change their strategy for the existing channel.
What is the ROI benchmark?
What is a good ROI for ecommerce? An average ecommerce ROI is around 275%. However, the benchmark depends on industry, and in some cases ROI can reach 5:1 and more.
How to improve ROI for ecommerce: Top 10 actionable tips
Boosting overall ecommerce return on investment implies optimization in multiple areas, from sales strategy to marketing to inventory management. Here, we focus mostly on optimizing marketing activities to improve ecommerce ROI since it’s among the largest sources for customer acquisition.
#1 Optimize your website performance
An ecommerce website is probably the most crucial part of online business success. If you are just starting, pay attention to choosing the right ecommerce platform from the most popular ones, such as Shopify and BigCommerce, to ensure high website performance. Once your store is created, leverage techniques for speed optimization that include lazy loading implementation, code refactoring, CDN integration, and others. Also, make the website's mobile experience as smooth as possible by implementing responsive design and ensuring consistency across different platforms.
At the first glance, driving traffic may seem far more important for boosting ROI than speeding up your website. However, if your site is poorly optimized, customers may leave due to slow page load or arduous navigation, leading to wasted marketing budgets. So, website optimization is a basis for your further activity and it will pay off in the long run.
#2 Lower customer acquisition costs (CAC)
To spend less to get new customers through ads and marketing, prioritize channels with the best ROI for ecommerce. It could be paid ads, social media, SEO, email marketing, and more. The final combination of channels depends on your niche, budget, strategies, and time needed to get the desired results. If you are just starting your business, find an average CAC for your industry and use it as a benchmark for your marketing efforts.
You should also focus your efforts on targeting your ideal audience instead of trying to reach a broad one. Think of the target audience as a group of people who need your product and willingly purchase it. The more precisely you understand this group, their behavior, and desires, the better you can design your store, create content, and craft your marketing campaigns.
#3 Use paid ads smartly
When it comes to online ads, an alternative to ROI for measuring campaign success is Return on ad spend (ROAS).
How to improve this metric if you launch an ads campaign for your ecommerce business? Make sure your ads contain a compelling offer and align with your audience's needs. Your offer and messaging should be easily recognizable and coherent with the landing page. Test different creative elements to find the copy that resonates with your potential customers.
If you use Google Ads, stick to the best practices for finding keywords: be specific but not too much, think like your customers, highlight well-known brands, use multiple keywords, and add location if you don’t use location targeting for your ads. On top of that, combine channels, such as Google Ads, Facebook Ads, and Amazon, and use retargeting to increase the number of touchpoints and bring users back to your sales funnel.
#4 Optimize SEO and content marketing
SEO is typically considered a channel with among the best ROI since it can bring high volumes of traffic for a long time with relatively low investment. SEO expenses typically include team and tools costs, content creation, and link building.
To optimize your SEO strategy, you should track organic traffic and associated conversions and refine your activity plan accordingly. Note that SEO requires continuous efforts and, unlike paid ads, delivers results after 3-6 months or longer. So, it could be difficult to calculate ROI for SEO in the short term.
#5 Build social media presence
Platforms like Instagram, Facebook, TikTok, and Pinterest have billions of active users, allowing you to reach your target audience. Social media is beneficial for boosting ecommerce ROI since they’re cost-effective and have advanced targeting options. In addition to organic posts with tagged products, set up Instagram Shopping or Facebook Catalog to enable direct purchases. If you decide to leverage paid ads, start with small budgets to test before scaling.
#6 Nurture leads using email marketing
The average ROI for email marketing is $42 for each dollar spent, which makes it an attractive channel for ecommerce businesses. However, to achieve such results in a competitive market, you must combine different approaches without being too intrusive. The most effective email types to boost your ecommerce ROI are as follows.
- Welcome emails for new subscribers
- Personalized promotional emails
- Cart abandonment emails
- Order confirmation emails
- Birthday and holiday emails
- Upsell and cross-sell campaigns
#7 Invest in conversion rate optimization (CRO)
Shopify CRO services help you make the most of the traffic you already have by improving conversions on every page. This is possible by adjusting website designs and functionality to customer preferences and the best ecommerce practices. This way, instead of increasing customer acquisition costs, you maximize sales and average order value with minor changes, such as making CTA buttons more visible or simplifying fill-in forms.
#8 Boost average order value (AOV)
Encourage customers to buy more from you per purchase by implementing features that may influence their choice. These could be discounts or free shipping for reaching a certain order threshold and limited-time offers for bundled products. You can also implement personalized suggestions and product recommendations to supplement the selected items. Explore more recommendations for increasing AOV.
#9 Enhance customer lifetime value (CLV)
Build strong customer relationships by acting on customer feedback and providing responsive support. Create loyalty programs to retain customers and reward them with points, discounts, or exclusive perks. This will pay off in repeat purchases and reduced churn. To better focus your marketing efforts, break your customer list into different categories based on profitability, such as High CLV, Medium CLV, and Low CLV. Learn more about how to increase your CLV.
#10 Adapt based on customer feedback
Conduct A/B testing on landing pages, emails, and ads to discover what resonates best with your audience and measure the impact on conversions and revenue. Systematically collect feedback by sending post-purchase emails, encouraging reviews on product pages, using heatmaps, and monitoring social media mentions and compliance. Group feedback into themes like product quality, shipping, and pricing, and focus on solving the most frequent issues influencing your ROI, such as cart abandonment due to high shipping costs.
Factors killing your ecommerce ROI
To succeed with achieving a positive ROI you should also be aware of some risks and the most crucial factors that reduce the metric.
Poor website performance
If the page load takes more than three seconds, the bounce rate grows by 32%, leading to the loss of potential customers. The same works for a clunky mobile experience in the times when mobile-first design is no longer optional. You should also avoid technical glitches since that is what frustrates and annoys users and makes them leave without completing the purchase.
High cart abandonment
The cart and checkout page are the final steps in the buying process, and ensuring smooth store operation during these steps is vital. Which factors impact the cart abandonment rate negatively? Too many checkout steps, mandatory account creation, unexpected costs like taxes or shipping, and limited payment options are among the most common reasons why customers leave at this point.
Ineffective marketing spend
Broad campaigns without proper segmentation lead to a waste of money and ROI drops. If you notice that your ads drive traffic but don’t convert, it’s also a signal to change the strategy and better tailor your messaging to landing pages.
Weak product presentation
Low-quality images with vague descriptions on the product pages fail to convince customers to purchase from you. At the same time, if your product pages aren’t SEO-optimized, they won’t drive organic traffic. Also, pay attention to social proof: without a product reviews section, shoppers may lack trust and be hesitant about the purchase.
Customer acquisition over retention
Focusing only on customer acquisition while neglecting repeat buyers can negatively impact your ecommerce ROI. Retaining customers is much cheaper and far more profitable. Studies show that acquiring a new customer can cost five to 25 times more than retaining an existing one. So, establishing a reward program is a smart strategy. If you have no loyalty program, customers have little reason to return. A much better option is to follow up after the purchase and offer further engagement.
High operational costs
Inefficient inventory management that ends up in overstocking or understocking may increase storage costs or lead to a loss of sales. Automation instead of manual processing would be a great solution to this problem. You should also avoid expensive or slow shipping options to prevent eating into margins and reducing conversions.
Ignoring data and analytics
You can't identify what's working and what’s not without monitoring key metrics, such as conversion rates, AOV, etc. Even more, improper monitoring leads to overinvesting in underperforming channels or products.
Competitive pricing pressure
If there are cheaper alternatives to your products, customers won’t pay more without additional value. In this situation, cutting prices is not always the best option. It’s better to look for your value differentiation among competitors to stand out with your offer.
Poor customer experience
Such factors as bad support with slow responses or complicated return policy could be deal breakers for customers. Lack of personalization may also lead to unsatisfactory user experience. AI tools like chatbots for customer support and AI-powered product recommendations can help you solve these problems. Learn more about AI chatbot development to enhance your customer experience
External factors
Every merchant faces difficult to predict challenges, such as rising ad costs or supply chain issues. However, you can take measures to prevent ROI drops during demand fluctuations within different seasons or holiday slumps by adapting your marketing and sales strategy.
How to assess the impact of optimizing your ROI
Assessing the impact of your ROI optimization efforts in ecommerce requires a mix of tracking key metrics, analyzing data, and comparing performance over time. Here is a step-by-step guide to evaluate your success effectively.
1. Track key performance indicators (KPIs)
Are you aiming to increase revenue, reduce costs, improve conversion rates, or boost customer lifetime value? Clarify which activities you prioritize for boosting ecommerce ROI and track relevant KPIs, such as conversion rate (CR), CAC, AOV, CLV, cart abandonment rate, or ROAS.
2. Establish a baseline
Record your current ROI and related KPIs before implementing any changes. For example, if revenue is $10,000 and costs are $5,000, baseline ROI is 100%. Choose a consistent period (e.g., 30 days) to measure before and after making changes.
3. Implement tracking tools
Use tools like Google Analytics or Shopify Analytics to monitor traffic, sales, and customer behavior. Tag marketing campaigns, such as ads and emails, to track their specific impact on conversions and revenue. Set up funnel tracking to see where improvements occur.
4. Measure post-optimization performance
After implementing changes, measure the same KPIs against your baseline. For example, if the conversion rate rises from 2% to 3% and AOV increases from $50 to $60, calculate the new revenue impact. Then, use the updated revenue and expenses to determine the new ROI percentage. For instance, your new revenue = $12,000, expenses = $5,000, and your new ROI = ($12,000 - $5,000) / $5,000 x 100 = 140%.
5. Break down results by strategy
Assess the impact of your individual efforts. Did retargeting ads lower CAC? Did loyalty programs boost CLV? Use multi-touch attribution to understand which channels or touchpoints contributed to the results.
6. Analyze trends over time
Check immediate changes, such as implementing a new checkout process, and long-term impact, such as CLV growth over 6 months from a loyalty program. Account for external factors like holidays that may influence short-term data.
7. Gather qualitative feedback
Ask customers about their experience to ensure perceived improvements align with the data. Monitor if complaints drop after addressing pain points, such as slow load times.
8. Iterate based on findings
Double down on high-impact changes. For example, if personalization boosted AOV by 20%, expand it. If a strategy didn’t move the needle, such as expensive ads with low ROAS, refine or cut it. Set continuous monitoring for ROI optimization to keep improving.
By combining quantitative data with qualitative insights and regularly reviewing results, you’ll get a clear picture of how your efforts are paying off – and where to focus next.
Summing up
Let’s sum up all the strategies for boosting ecommerce ROI and recall what you should avoid to prevent ROI drops.
- Optimize website performance to enhance customer experience and avoid slow load times and technical glitches.
- Lower customer acquisition costs, focusing on the channels that work for your business and reaching the right audience. It’s better to prioritize customer acquisition over retention.
- Use paid ads smartly by creating compelling content that is coherent with your landing page and selecting the right keywords. Avoid broad campaigns that attract traffic without converting.
- Optimize SEO and content marketing to drive continuous traffic to your website. Avoid using low-quality images and vague product descriptions.
- Establish a robust social media presence across relevant channels with both organic posts and built-in shopping options.
- Nurture leads using email marketing by combining different approaches and email types. Avoid being too spammy.
- Invest in conversion rate optimization to improve conversions at every touchpoint. Avoid factors that break smooth user experience, such as inefficient customer support.
- Boost average order value by implementing upsell and cross-sell features. Avoid factors that increase cart abandonment rate.
- Enhance customer lifetime value by building strong relationships and implementing loyalty programs.
- Adjust based on customer feedback. Avoid ignoring data and analytics to prevent overspending in underperforming channels.
A good ecommerce ROI is an ideal balance between costs and profits, so invest in automating processes and reducing operational costs where possible without compromising efficiency and customer satisfaction. If you need help setting up your ecommerce store for success, contact the DigitalSuits team for a consultation.
Frequently asked questions
Which marketing channel has the highest ROI for ecommerce?
Roughly 29% of marketers claim that organic search shows the best ROI across all marketing channels with around 700% ROI for a comprehensive SEO campaign.
How long does it take to see ecommerce ROI?
Typically, for long-term activities, you need over 6 months to have an impact and evaluate ROI and patterns associated with your efforts.
How can we increase our ROI?
To increase your ROI, optimize your ecommerce website for speed and conversions, and use the most effective channels for attracting (e.g., retargeting ads) and retaining (e.g., emails and loyalty programs) your target audience.
Written by
Anastasiia Moskvichova
Content Marketing Specialist
Anastasiia is an enthusiastic content writer who diligently researches and curates valuable information to craft engaging content tailored for readers with a keen interest in marketing, sales, and technology.
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