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Guide to Marketing ROI in eCommerce-1

Tips & Guides — 13 Apr 2022

Guide to Marketing ROI in eCommerce

Understanding Digital Marketing ROI in an Ecommerce Business

Every ecommerce business has a wide range of logistical questions to ponder. Should we develop an app to run alongside our website? What is .io domain and how can it help our business? What is the ROI of our digital marketing?

If that last question hasn’t crossed your mind yet, now’s the time. Calculating the ROI of your digital marketing is a worthwhile endeavor that can help your business in all kinds of ways and doesn’t have to put a sizable dent in your marketing budget. 

What Is Digital Marketing ROI?

Digital marketing ROI (return on investment), is a way to put a dollar amount on how successful your digital marketing has been. It shows in a straightforward way whether you have made a profit or a loss on any particular advertising campaign in relation to ad spend. 

While it might be a good idea to enlist the support of a marketing agency, this will lower your ROI. 

You can see how much has been made in profit for each dollar spent on advertising. If you want to see whether you’ve been getting value out of your digital marketing investment, an ROI

Digital Marketing ROI

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calculation is the best way to find out. With record amounts being spent on digital advertising, this is now more important than ever.

A positive ROI means that an advertising campaign has been successful in boosting profits. How much of an increase is deemed a “success” will depend on each individual business and their targets and aspirations, we’ll look at this in more detail later on.

On the other hand, a negative ROI would mean that a digital marketing strategy has failed to boost lead generation and in turn increase profits, and has in fact cost more than it has generated in revenue. 

However, some campaigns may still be seen as successful even with an initial negative ROI, if they’ve been selling subscription services or other products that will generate more in profits going forward. 

Importance of Digital Marketing ROI for Ecommerce

There are numerous benefits to calculating the ROI of digital marketing campaigns for an ecommerce business. Any business that invests money into digital marketing efforts needs to analyze which aspects of its campaigns have been most successful, and which have been less so.

This allows the business to adapt its advertising strategy for future digital marketing campaigns. If the most profitable aspects of a particular digital marketing event have been an email campaign, then the business knows to focus in on this area in the future.

While PPC and Adwords are attractive approaches to increasing your ROI, the holy grail of boosting ROI will always originate from organic search traffic.  

Similarly, if a content marketing collaboration with a particular blog or influencer has not produced the desired results, then the business knows to move away from this partnership in the future, and perhaps look into affiliating itself with brands that resonate more with its customers.

How to Calculate Digital Marketing ROI

There are a couple of ways to calculate the ROI of digital marketing. Measuring the gross ROI will give a simple, straightforward calculation that will show the direct relationship between how much has been spent on advertising, and how much has been generated in profit.

Calculate Digital Marketing ROI

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For example, an advertising campaign that has cost $100 to run, but has generated $1000 in sales completions, would have a gross ROI of $10. This means that for every $1 spent on digital marketing, $10 has been generated in sales.

However, in order to build a more complete picture of the actual effect that digital marketing has had on profits, a more complex calculation needs to be carried out. This is known as calculating the net ROI.

Calculating the net ROI of digital marketing can also be done with a relatively simple equation:

Calculating the net ROI

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This will give a percentage amount for the returns on the advertising investment. The higher the ROI, the more successful a campaign has been, generally speaking. Of course, this will depend on several factors, and different businesses will measure success by different standards. 

In order to arrive at the net profit, the cost of the digital marketing campaign needs to first be subtracted from the revenue it has generated.

So, for the same advertising campaign as illustrated above, the net profit would be calculated by first subtracting the various costs, such as the cost of utilizing a shipping warehouse, from the gross income. If the accumulated costs came to a total of $200, then the calculation would be as follows:

Net ROI calculation

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In this instance, the ROI would be 800%, meaning for every $1 spent on digital marketing, $8 has been generated in profit. This seems less impressive than quoting the gross ROI, but it does paint a much more accurate picture and is much more beneficial for working out the cost-benefit analysis of an advertising campaign. 

What Is a Good Digital Marketing ROI?

It’s hard to quantify what is classed as a good ROI for digital marketing, as different companies will have different goals for their digital marketing campaigns. Some businesses will also wish to take into account the other positive impacts of digital marketing, such as increasing brand awareness, which will generate sales further down the line.

New startups and small businesses will have a lower expectation of the ROI from their digital marketing approach as they attempt to build awareness of their brand and develop a loyal customer base. It will take time for a new ecommerce site to make an impact on Google search rankings and with advertisers, so most new businesses will consider anything above breaking even a success for their first few months, or even years.

Digital marketing can be a long-term investment, especially in areas such as SEO, (search engine optimization), where it can take a while for the full effects to be felt.

Good Digital Marketing ROI

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Some digital marketing channels are likely to provide higher ROI than others. Email marketing, for example, has an incredibly high ROI of around 380%. In other words, for every $1 invested in email marketing, $38 is generated in profit

This is largely because email marketing campaigns are relatively cheap to run, and so take up a small chunk of your marketing spend. 

They often target customers who have either purchased before or who have considered purchasing but not carried on all the way through the checkout process. Cart abandonment emails, and other types of triggered email campaigns, generate 306% more click throughs per email than non-triggered emails.

More established brands selling products in a growing market should consider investing more heavily in digital marketing in order to secure a larger market share. In this instance, the ROI should be expected to increase year on year as the market share, and therefore profits, increase.

The best way to monitor how “good” your ROI is, is to compare it to the industry standards, and against those of your direct competitors. Digital marketing is a rapidly changing area of investment, so this is the eBay way to monitor the effects of your campaigns in real-time. 

Alongside this, it’s important to measure ROI against the historical performance within your own organization. Using ROI data downloads to set benchmarks and realistic targets for the future will help you monitor the peaks and troughs of your ROI performance, and keep a realistic picture of how successful different marketing tools have been for your organization.

measure ROI

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Digital Marketing ROI Metrics

ROI is calculated using two key metrics: costs and returns. However, there are several other metrics at play when it comes to digital marketing, and keeping track of these is equally as important when analyzing the success, or failure, of a digital marketing campaign. 

There are many different tools available that can help you track and analyze the various metrics you wish to monitor, from click-through rates to total website traffic.

We’re going to take a look at six key metrics to track when measuring ROI, how to calculate their effectiveness, and what this can tell you about your digital marketing campaigns.

1. Conversion Rate

Tracking conversion rates is a good way to measure ROI over time. Boosting your click-through rates with the power of digital marketing is a great way to convert leads into paying customers, with email ad campaigns and social media promotions playing a large part in driving sales.

When tracking conversion rates it is important to look at which marketing channels are performing well and which are not. Are emails generating the most leads, or is social media marketing performing better? Doing this allows you to focus your marketing efforts where they are most effective and can generate the best results.

You can also track performance by device. Mobile devices are well known to generate high volumes of traffic but are less likely to result in conversions. If this is true for your ecommerce site, then you can tailor your digital marketing more towards converting mobile users.

Conversion Rate

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2. Cost per Lead

Some businesses will operate by using digital marketing to generate new leads which can be followed up on by sales teams. In this scenario, it is important to know how much each new lead is costing the business. 

This is done with a relatively simple calculation. 

Cost per Lead

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Simply divide the total cost of a particular marketing campaign by the total number of leads that have been gained as a result of it. This will give you the cost per lead. 

If the cost per lead is higher than the amount being generated by closing your leads, then the marketing has not performed well, and the ROI will be negative. 

3. Lead Close Rate

Calculating the lead close rate is important, as leads only generate income for your business if they become paying customers. A high lead close rate indicates that your bounce rate is lower, and therefore your sales will increase, as will your ROI.

It is important to keep track of how many leads you need to close in order to achieve your ROI goals. This will help with planning digital marketing campaigns and help give them focus. It is also worth keeping in mind the quality of the leads that are being closed, as some will be worth more to your business than others. 

The lead close rate can be calculated by dividing the total number of conversions by the overall number of leads.

Lead Close Rate

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4. Cost Per Acquisition

Calculating your cost per acquisition will tell you how much it costs your business on average to secure a new customer. If you are spending more on acquiring new customers than they are actually spending with your business, then your ROI will be negative and your digital marketing will need a rethink.

Cost per acquisition is calculated by dividing the total marketing costs by the number of sales that have been generated by said marketing. 

Cost Per Acquisition

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Knowing how much it costs to acquire a new customer helps you understand what your sales targets need to be in order to have a positive ROI.

5. Average Order Value

The average order value is a good metric to track for many reasons, but it can be especially helpful when looking at return on investment. It is simply the average amount in dollars that is spent when a customer places an order.

To calculate the average order value, you simply divide the total revenue by the number of orders placed.

Average Order Value

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Tracking average order value is handy if you wish to try and increase the amount each customer is spending. Even a small percentage increase in AOV can result in a sharp increase in total profits. Small changes to digital marketing, such as increasing upsell through email marketing, can provide these positive changes to average order value. 

6. Customer Lifetime Value

This is one of the most important metrics when looking at ROI for digital marketing. Customer lifetime value gives you a picture of what a customer may spend during their time as a patron of your business. 

Although initial lead conversions are important, they do not always paint an accurate picture of the returns that digital marketing has provided. Customer lifetime value can help you understand the long-term benefits of marketing and the ROI from it, by illustrating long-term gains.

For example, spending $100 to convert a lead to a paying customer, who then goes on to spend $50 on an initial purchase, may seem to give you a negative ROI. However, if that customer spends a further $50 every week for the next ten years, then suddenly marketing to them seems like a much better investment. 

To calculate CLV, you should multiply the average yearly spend of a customer by the number of years that somebody typically remains a customer. Then, subtract the cost per acquisition of one new customer. This will provide the customer lifetime value.

calculate CLV

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How to Improve Digital Marketing ROI

Now that you know how to calculate the ROI of your digital marketing, it is time to look at how it can be improved. Improving the ROI of digital marketing will lead to an increase in total profits across the business.

Improve Digital Marketing ROI

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Begin by Setting Your Goals

The first step when looking to improve the ROI of your digital marketing is to set clear goals. By having a clear idea of what you wish to achieve with your digital marketing, you’ll be able to guide your efforts and better structure your campaigns.

This not only means setting goals for what marketing materials you wish to produce, but also for what impact you wish for them to have. Research benchmarks for your sector of the ecommerce industry, and set realistic goals for website traffic, conversions, average order value, and any other metrics you are measuring.

When coming up with your goals, it is important to make sure they are SMART. This means setting goals which are:

SMART

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    • Specific – don’t use general targets such as ‘increase ROI’. Set specific goals such as “increase ROI by 40%”.
    • Measurable – use metrics that have quantifiable values so you know when you’ve achieved your goals. 
    • Achievable/Accepted – set targets that can be realistically achieved. Having goals that are too far out of reach will set you up to fail before you even begin.
    • Relevant/Reasonable – use metrics that align with the goals of your whole business. Make sure your ROI targets are relevant to your overall business plan.
  • Time-bound – set targets for when these goals should be achieved. This will focus your efforts and help provide accountability.

Identify Your KPIs Based on Your Goals

KPIs, or key performance indicators, are the metrics by which you will measure how close you are to achieving your goals. Be sure to use KPIs which are relevant to the goals you have established. For example, if one of your goals is to increase your average order value, you should monitor metrics that directly affect this, such as the lead close rate.

You’ll need to use different KPIs depending on which type of digital marketing you’re monitoring. For example, KPIs for SEO will be different from those for partnership marketing or email marketing.

Having clear KPIs will help keep all members of your marketing teams working towards the same goals, and will enable everybody to see what progress is being made. It will also allow everybody to know exactly what is expected of them and the marketing they are working on. 

There are a variety of third-party services available to make the process of collating data from across different advertising services simpler.

Always Test Your Strategies

Trial and error may seem like a costly strategy to adopt for any aspect of your business, but with digital marketing, it really is the only way to proceed. The good news is, by tracking your KPIs and monitoring your ROI, you can quickly react to any aspects of your digital marketing campaigns that are not as effective, and reduce the amount of money you are wasting on them.

Running A/B tests on your digital marketing is a good way to do this. By developing two different versions of Google Ads or a landing page, for example, you can see which generates the more positive results and then proceed with adverts that reflect that. Google Analytics is an awesome tool for tracking open rates, site traffic, click through rates (CTR).

You can carry across what you have learned to other areas of your marketing, too. If you find that using more informal language in adverts generates better ROI than an advert with a formal tone, you can begin using more informal language in your email campaigns.

Test Your Strategies

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Evaluate and Improve

Generating data to measure your KPIs and your ROI is only beneficial if you act upon it. Testing your strategies will give you a good idea about which areas you can improve to generate better ROI on your marketing activities. This should be a continual process so that you are constantly evaluating how to make better returns on your investments. 

Once you’ve tested one aspect of an advert, such as the images used, implement the changes that your research suggests will be most positive, and then move on to testing other parts of the advert, such as the language used. 

Once every aspect of the advert has been tested and revised based on what you have found, apply those changes to other areas of your digital marketing campaign.

You’ll be surprised at the findings that your data may lead you to. For example, the timings of adverts may impact how successful they are. Different channels may produce differing numbers of leads depending on the time of the day, week, or month. All this data can be analyzed to your benefit, so don’t overlook any findings.

Final Thoughts

So there we have it, as we mentioned at the beginning, you had plenty of questions to ponder, and now you have a whole host more. But be assured that these questions are essential queries to think about. 

If you were debating what domain name to choose for your website, you would do your research and realize that having, for example, a .ae domain means that your website instantly becomes more global and opens up new markets to you. Similarly, doing your research around your ROI on digital marketing will tell you how you’re performing as a business, and what areas you can improve in.

Be sure to wisely choose the metrics you will monitor, and set KPIs that are relevant to your business and its goals. Monitor as much data as possible, you never know what conclusions you may be able to draw from it.

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Lisa Baltes -  Marketing, OnlyDomains

Written by

Lisa is a part of the marketing team in OnlyDomains, an ICANN accredited registrar that provides top-of-the-line domain management solutions for business owners to establish their online presence. She’s the definition of a jack of all trades. Lisa enjoys content writing, social media marketing and is always looking for opportunities to learn. Based in Sankt Ingbert, Germany she enjoys hiking in her free time.