The return on investment in e-commerce

The most important question – whether in business or in e-commerce – is always the same: How can I increase profitability and thus sales with sensible investments? For online shops, the focus is on the long-term increase of traffic and conversion through online marketing measures. Investments are made in SEO, ads and the like. However, not all of them have the same potential to support your goals. If you run several campaigns at the same time, it becomes difficult to differentiate their effectiveness in detail. The so-called return on investment, or ROI for short, can help. It is one of the most important key figures for companies and online retailers.

But what is return on investment, why is it so important, how is it calculated in e-commerce and how can ROI be increased? Find out in the following article.

What is the return on investment?

Return on investment is a business indicator that can be calculated with the help of a formula. The result of the calculation provides information about the profit in relation to the capital invested, viewed over a defined period of time. With the ROI, you therefore receive information about whether an investment was profitable or can make a forecast about the profitability of future investments.

In the field of online marketing, the focus is on the performance of a marketing campaign. The calculation aims to put the effectiveness of a campaign in relation to the marketing costs used. If you use e-mail, SEO or display marketing measures, you can calculate the return on investment for each one and thus understand which activities are really worthwhile.

The return on investment shows you whether a campaign has really paid off financially in the long term. This opens up the potential for you to take a closer look at what the reason for insufficient performance was and to adjust the next measures according to the results.

The basis for the calculation we show you below is your collected and tracked data such as the conversion rate.

How do you calculate ROI?

You now know that return on investment can be used to calculate the profitability of an investment, in your case in an online campaign. Now let’s take a look below at how you calculate ROI.

A formula is used for this purpose:

Return on Investment = Return on Sales × Capital Turnover

The return on sales reflects the ratio of profit to turnover. The value shows how much profit you make with a certain turnover.

To do this, use the following formula:

Return on sales = turnover/profit

The capital turnover, also called total capital turnover, represents the ratio between turnover and your invested capital.

The formula for this is:

Capital turnover = capital/turnover

Here is a simple example:

You invest 5,000 € in Google Ads every month. The campaign brings you 15,000 € turnover and thus a profit of 20 %.

Return on sales: 3,000 € / 15,000 € = 0.2

Capital turnover: 15,000 € / 5,000 = 3

ROI = 0.1 × 3 = 0.3 or 30%.

If you invest 1 €, you will get back 1.30 € from your investment.

The higher the return on investment, the more successful the marketing strategy and measure is rated.

In online marketing, it often takes some time for a campaign to take off. It is important not to cancel an investment prematurely because of a negative return on investment, but to first look at where there is a need for optimisation.

The same applies to SEO measures, where it usually takes several months before positive effects become noticeable. Here, the calculation of the return on investment often reaches its limits, as the costs incurred during the time until the measure takes effect are not taken into account. In addition, conversions generated via SEO cannot be clearly attributed. If you still want to calculate SEO campaigns with the return on investment, you must take all marketing channels into account in the budget, track the complete path of your visitors and define the conversion precisely.

How can the return on investment be optimised?

To increase your return on investment, set yourself the goal of increasing your conversion rate and generating leads. With this, the ROI will automatically follow. Therefore, take a look at those possibilities that convert visitors in or around your online shop into customers or leads. In the following, we will give you some examples of how you can sustainably optimise your return on investment.

Email marketing

Email marketing tools are still one of the most effective measures to reach your potential customers and existing customers directly. In particular, personalised email campaigns that address the recipient personally and even present offers tailored to them have a great effect in increasing ROI. Email marketing tools support you in creating campaigns easily and quickly. Through immediate tracking via links within the email, you can allocate use, turnover and profit and measure the return on investment.

Proactive customer service

Identify the needs and challenges of your customers and implement measures to address them in advance and increase customer satisfaction without the customer having to explicitly ask for it. Helpful measures are target group analyses or customer surveys. Proactive customer support also helps you to increase the return on investment. Important with proactive customer service: Find the balance between positive perceived efforts and those that quickly annoy a visitor. In addition, there must always be added value. The right timing is one of the most decisive factors of effective customer support. This should not be selected immediately upon entering the page, but should also not drag on endlessly until the customer is perhaps already dissatisfied.

The solution to this is automated software such as that provided by uptain. The algorithm recognises when a customer really needs support and plays him a personalised and individual exit intent pop-up with the appropriate type of communication. The customer is picked up from where he is at the right time, receives a tailor-made added value and continues his shopping journey with satisfaction until the conclusion. To do this, the tool recognises what the actual added value is for the customer. Price-sensitive customers, for example, receive a voucher, while visitors in need of service are shown preferred, direct contact channels via WhatsApp, telephone or email and can make use of them with just one click.

Your advantage: The return on investment increases, because with a minimal investment you receive significantly more conversions. In practice, this often results in an increased conversion rate of more than 30 %.

Optimise shopping cart

Did you know that 70% of all customers fill a shopping cart but abandon the purchase before completing it? You may be investing a lot of money in a campaign that is actually well received, but is failing at one of the most important touchpoints in the customer journey. Therefore, pay attention to a well thought-out checkout that is convenient for the customer in order to increase the return on investment.

Here’s what you should look out for:

• Checkout process in a maximum of 5 steps
• Implement all preferred payment methods of the target group
• Offer different shipping options
• Provide transparency on shipping costs and delivery times
• Enable free shipping (above a certain order value)
• Offer guest orders
• ask for as little customer data as necessary
• Ensure intuitive navigation with meaningful buttons

Should a shopping cart abandonment still occur, you can win back shopping cart abandoners in a targeted manner with an automatically sent and personalised email that provides the right arguments for closing the sale. In the long term, this has a positive effect on the return on investment, as even potentially lost visitors convert into customers.

Increase order value

In addition to email marketing, proactive customer service and shopping basket optimisation, you can increase the return on investment by increasing the order value per customer. Cross-selling or upselling is suitable for this. With cross-selling, you offer your customer complementary products to his or her selection that support functions in a meaningful way or enable improved handling. Someone who buys a smartphone may need matching headphones or a protective cover.

With upselling, your customer is given the opportunity to upgrade to the next higher variant based on his product. For example, if they opt for a 5 GB tariff, they will then receive an offer for a 10 GB tariff.

Equally worthwhile is putting together product sets, where you put together complementary items and give a discount on them. The advantage is a higher sales value, despite the discount, and the customer has everything he needs in one go.

Use the return on investment to increase your turnover

Return on investment is an important tool to identify which investments and campaigns are really worthwhile. Always bear in mind that you often do online marketing on different advertising channels. To get a separate picture of each measure, the calculation of the ROI supports you. This gives you the opportunity to identify inefficient campaigns more quickly, adjust them or completely redesign them. Ultimately, the return on investment is your key figure for optimising the conversion rate. Because if you increase it, the return on investment will also increase. Don’t forget that some efforts only generate profit after a certain start-up phase. Always take this into account when calculating the return on investment.

Do you still have questions? Then get in touch with us. We will be happy to help you.