Return on Investments (ROI)

What is ROI?

ROI or Return on Investment is a metric used by businesses to determine the profits made from investments. It helps you gauge how well your business is doing and which assets are worth taking a risk.

With online marketing and ecommerce businesses taking center stage in today’s digitally forward world, ROI is a term that is fast gaining relevance. 

With ROI, you can measure the profit or loss generated through your digital marketing campaigns. You might want to make a note of this - recent reports have it that organic SEO gives you 5.5 times better ROI compared to paid search ads.

By computing ROI, you can be sure if your budget allocation is sufficient and make the most of your advertising spends.

Therefore, it is one of the main tools in measuring the success of your online advertising campaigns.

How to measure ROI?

Calculating your ROI means being aware of your business goals and understanding your online business’s broader context. It is essential to be focused on what you are trying to measure.

Start with considering which online activity channel you are looking to measure, be it social media, email communications, paid advertising, or organic interactions.

There is a basic formula that is used to calculate ROI, which is :

ROI = (Income − Investment) / Investment x 100

A low level of ROI indicates that expenses incurred exceed the profits. On the other hand, a higher ROI value means that the cost of obtaining a lead is kept low. The higher the value, the better it is for the profitability of your ecommerce business.

That’s not all - ROI of your business deserves a much more in-depth analysis. Bear in mind to consider indicators such as CAC (Customer Acquisition Cost) and CLV (Customer Lifetime Value).

For example, if you have spent $50 for running a paid ad campaign on Facebook and if the lifetime value of a client acquired via this campaign is $200, then the ROI for this investment is 300%. This simply means that for every $1 invested by you, you will earn $3. Pretty neat, right?

This analysis gives you a clear understanding of how effective the marketing campaigns are when run through specific channels.

As an ecommerce business owner, why should ROI matter to you?

For your online marketing to succeed, you need to drive traffic, sales, and revenue. Most digital marketers subscribe to SEO and other similar strategies to monitor ROI. These strategies can be instrumental in helping you make vital decisions. For example, you can decide which investment makes the most sense for your bottom line.

Having the foresight to determine the positive return on the investment empowers you to make informed financial decisions. This way, you will be able to successfully grow your business and take it to the next level. 

How to Increase ROI?

You must be leaving no stone unturned in supercharging your online venture, but are you achieving the desired results and meeting your goals?

If you have detected a low level of ROI, worry not - there are many ways to elevate it. 

Here are a few key strategies that will help you increase ROI :

  • Model your website to be more SEO friendly.
  • There are many metrics by which you can calculate ROI; some are more important than others. Identify the best metrics that result in the health and prosperity of your business. 
  • Build loyalty and engage customers across their buying journey with top-notch customer service.

Once you’ve got your ROI sorted, you would realize that it is essential to keep it consistent. For this, you would need to shift your focus to offering excellent customer service. DelightChat has everything your online venture needs to connect with and service your customers better so that your business can stay relevant in the market.

Streamline Customer Support & Boost Revenues with DelightChat
Easily manage all your customer interactions - WhatsApp, Instagram, Facebook, Emails, & Live Chat - from one efficient omnichannel inbox.

Increase your sales with powerful WhatsApp Marketing: Promotional Broadcasts, Abandoned Cart Recovery, advanced Customer Segments and more, all through the Official API.

More Ecommerce Glossary Posts