Get the word out! Get in front of your customers! Build brand identity! These mandates rule the roost when it comes to e-commerce advertising, but they offer little guidance when deciding which advertising methods make the most sense for your business. When it comes to advertising, it’s easy to fall into the trap of throwing everything at the wall and seeing “what sticks,” but that method is not particularly efficient or cost-effective.
I am always reminded of the famous John Wanamaker quote ““Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
So how do you decide which marketing and sales strategies are leading to actual sales and which are failing to connect with your customers? Most e-commerce business owners plan to test their marketing efforts using an iterative data-based approach. But it’s all too easy for the data to get confusing, and next thing you know, you lose awareness of which advertising efforts are paying off and which are not. Working with a knowledgeable bookkeeping team who understands online businesses can be the difference.
Most Businesses Struggle To Measure The ROI Of Marketing
With online marketing, sometimes success is easy to measure. A customer clicks a link in an email or online banner ad that takes them to your product page, then selects their product and purchases it, proving that your message was not just seen, but that it prompted action on the part of the customer. Unfortunately, most of the time, the connection between marketing and customer behavior is not straightforward, and measuring ROI can be challenging. Consumer purchasing habits are varied and browser cookies don’t always fully convey their behaviour. The use of multiple devices can trick metrics into thinking that multiple visits by the same user are unique visits by different users. What works with one customer doesn’t necessarily apply to a broader group. You can end up throwing good money after bad pursuing dead ends and marketing strategies that promise much, but never deliver.
Measuring ROI in E-commerce.
So how do you measure the ROI of your marketing efforts? The first step is to define your metrics for success by visiting your website, social media engagement, word-of-mouth and customer referrals, or simple month-over-month sales. You may decide to break down your metrics by stages of the marketing funnel, with content designed for each step of the process from interest to purchase. In this case, you may measure the open rate of your email campaigns or visits to your blog. You could choose to track browser cookies, which will allow you to see how your customers are interacting with you online. Though, cookies cannot travel across devices or platforms, so you often lose that insight once customers switch from their computer to phone or tablet (and vice versa).
There is an SEO ROI formula that some companies use to measure the effectiveness of their marketing strategies. Essentially, the SEO ROI formula is (Profit – Investment) / Investment x 100. For example, a profit of $500,000 and an investment of $100,000, is calculated as follows: ($500,000 – $100,000) / $100,000 x 10, resulting in an e-commerce SEO ROI of 400%. Generally speaking, a good ROI for e-commerce is 175%, or about $2.75 for each dollar invested.
Calculating Customer Lifetime Value
SEO ROI formula can be difficult to measure because it is often not specific enough and does not work when there are many separate marketing campaigns and products. A better way to measure ROI involves calculating customer lifetime value. Customer Lifetime Value allows you to identify the overall value of a customer over the lifetime of their relationship with you and a key way of identifying your best customers. Customer Lifetime Value is calculated by going to your customer database, finding the channel or campaign that leads to that customer acquisition, and then adding up the total sum of their purchases. Basically, it’s ROI= (CLV/ad spend) -1. With these numbers, you can begin to see precisely how your marketing campaign is performing and make better decisions about where to allocate advertising resources.
Where Are Your Profits Coming From?
Of course, advertising is only important if it can increase profits, which is why it is essential to know where your profits originate. It begins by researching which products or services are your most profitable. You also need to eliminate any products that are losing money or don’t make a high enough margin. Having a bookkeeper who can give you accurate and up to date financial data can help you evaluate your offerings from an objective lens of “is this profitable?” Understanding what is most profitable makes it possible to make better decisions on where to spend advertising dollars.
The truth is, marketing takes specialized skills and talent, and you may not want to bring your bookkeeper in to write ad campaigns. That being said, if you’re going to figure out which ads are working, and make sense of which products are selling and which customers are your most loyal, you need to let your bookkeeper’s talents shine, especially if they are well-versed in e-commerce.
Our skilled bookkeeping team at AIS Solutions stand out because we understand e-commerce.
Call us now to get a free evaluation to see if we will be a good fit for your business.
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