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