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Number Crunching: Dissecting Ecommerce ROI
Principal & Founder, Something Digital
Jon Klonsky
AGENDA
• What I’m Presenting & Why
• ROI Calculation
• Where to Invest
• Conclusion
01. What I’m Presenting & Why
Purpose
• Clarify ROI calculation for ecommerce marketing
• Dissect and Demystify opportunities and costs often overlooked by
new or “emerging” merchants.
Justification
Too many merchants incorrectly perceive ecommerce as a
relatively small investment of time/knowledge/money.
02. ROI Calculation
Traditional Formula
My Recommendation
Defined
Return on Investment of the Marketing Initiative
The Revenue “Lift” from the Initiative
Cost of the Marketing Initiative
Variable Costs
Common Mistakes
• Often miscalculated, overlooked, or substituted with
something else
• Many use GROSS REVENUE instead
• Must factor true costs (COGS or UNIT COSTS)
Same Revenue, Same Spend
Revenue = $1,000,000
Marketing plans/spends $250,000
ROI = 300%??
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
2 WIDGET COMPANIES
DS Mktg Spend B Mktg Spend Revenue
Clearly, One Business Looks Healthier
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
2 WIDGET COMPANIES
DS Gross Profit B Gross Profit Revenue
Revenue
In ecommerce, only 3 elements matter in your
revenue planning/forecasting:
• Traffic
• Conversion Rate
• Average Order Value
03. Where To Invest
The Topic Is Legit
More than 80% of ecommerce businesses fail. Top
reason is “No Real Investment.”
(Roggio, Armando, 8 Reasons Why Ecommerce Businesses Fail,
PracticalEcommerce.com, Nov. 7, 2014)
Foundational
• The Build – Minimum Viable Product (MVP)
• Magento License – If you’re serious, use Enterprise!
• Hosting – Too important to cut a corner
• Ongoing Tech Support – Are you a merchant or a tech company?
• Merchandising and Retail Labor** – Don’t rely on the tech guy
• New Features (set-aside budget) – Grow or perish
Smart Marketing Allocation
Smart Money …
#1 - EMAIL MARKETING
(Especially effective if you do incorporate segmentation, personalization,
and mobile optimization.)
• Email is the best channel for ROI (Econsultancy’s Email Marketing Industry Census
2014)
• B2C campaigns have 2-12% CTR, B2B had 5-15% (2014 Email Marketing
Metrics Report from MailerMailer)
• Personalization of content enhanced its click rate. (MailerMailer)
Smart Money …
#2 – RETARGETING
• Focused on individuals who have come to your site, know your brand,
and want to return.
• They represent a higher conversion probability.
• You only pay per click.
• 92% of marketers say retargeting performs the same or better than paid
search and 91% say it preforms as well or better than email. (AdRoll) (Abby
Callard, Marketers Spend More on Retargeting, Internet Retailer, December 16, 2014).
Smart Money …
#3 - MOBILE
• Soon (if not already) more than half of your traffic will visit via a
non-desktop device.
• At Q4 2014, mobile conversion rate for smartphone shoppers on
mobile-optimized sites was 160% higher than for non-optimized
sites.(Bill Siwicki, Mobile Shoppers Convert 160% More Often on Sites Optimized for Smartphones,
Internet Retailer, Oct 1, 2014)
• Don’t forget about optimizing emails for mobile too.
Smart Money …
#4 - SEO
• A #1 spot for a search term used to mean 33% of the clicks (Chitika Study, The Value of Google Result Positioning, June 7, 2013)
• Great brand + feel for content = smart investment.
• Competitive market + content struggles = higher cost
• We encourage focusing on branded terms (e.g., “Jon’s Car
Wash” instead of “Car Wash”)
Smart Money …
#5 – Paid Search
• 62% of online marketers use paid keywords. No other form is
used by more than half. (www.internetretailer.com/trends/marketing/paid-search-marketing-advertising)
• 85% of respondents cited SEM as one of the top three best
ways to attract customers—more than 2x any other channel.
Other Considerations
• Sacrifice ROIMI in exchange for solid acquisition
campaigns (CLV)
• Consider on-page investments in checkout optimization,
site search, merchandise assortment, etc.
• Invest in proper A/B testing
Measure
“Investing without research is like playing stud poker and
never looking at the cards.” —Peter Lynch (Mutual Fund “Legend”)
Measure Well, Measure Often
• Most of you are marketers and merchandisers, so unless you’re
the CEO/COO/CFO, your focus is revenue.
• TRAFFIC – CONVERSION RATE – AVERAGE ORDER VALUE
• More Specifically:
Traffic (unique v return)
Time one site
Traffic source
Page views per visit
Day part monitoring
Page load times
Sales
Cart abandonment
Active email registrants
Competitive pricing
Market share/Market opportunity
04. Conclusion
WHAT I HOPE YOU TAKE AWAY
• ROI Calculation
• A Need to Invest in Order to Succeed
• Smart Money Investments
Principal & Founder, Something Digital
Jon Klonsky
THANK YOU
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