The e-Commerce retail landscape is changing. It’s no longer the wild-wild-web. e-Commerce, once an open play field where anyone can play, has become an organized professional sport for serious brands. Online is not just a channel, it’s also a source of incredible insights about customer preferences that leads to competitive advantage in the marketplace. Our stakeholders want to understand how much we are investing and what we will get in return rather than presenting a “we must be there at all costs” attitude.

Research suggests that e-Commerce professionals feel that size of the marketing budget is the most significant barrier to growth. Yet with retail brands dedicating almost 80% of their marketing spend on demand generating activities, it makes sense to step back and understand what we are getting for what we are spending.

The best idea is to do a comparative return on marketing investment (ROMI) analysis to understand which marketing opportunities have the best return on marketing investment (ROI).

Our analysis will focus on presenting a framework for determining the returns of generating more website traffic via pay-per-click versus improving revenue results by optimizing the shopper’s buying journey.

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ROI analysis: PPC vs. customer experience optimization

Let’s start with some typical assumptions for an e-commerce website.

 

Current Website Analytics
Current Total Annual Sales $15,000,000
Unique Website Visitors/month 500,000
Average order value (AOV) $125.00
Conversion Rate( CR) 2.00%
Gross Margin 35%

And some assumptions about the typical costs of Adwords clicks and of making an investment in Customer Experience Optimization (CXO).

Average – cost per click (CPC) $2.00
Cost for Customer Experience Optimization (CXO) $80,000.00

And what it would take to increase sales performance.

To increase sales by 5%
Incremental revenue needed $750,000.00
Additional orders required 6,000

Trying to achieve a 5% revenue lift from pay-per-click looks like this:

Analysis for PPC
Add’l clicks needed @ CR              300,000 ROMI (return on marketing investment)                1.25
Cost of clicks via PPC @ CPC        $600,000.00 ROI              -56%

With a return on marketing investment (ROMI) of 1.25 we can see that this pay-per-click option fails the rule of thumb that a ROMI of 5X is worth considering and 10X is a no-brainer. Further, when we apply a little more financial rigor, examining return on investment, we can see this is a very bad investment with a negative 56% return.From the data you can see that this is kind of a brute force effort. Yes, we will get $750,000 more in sales, but at a cost of $600,000 in pay per click.

Let’s turn our attention to the kind of results optimizing the customer shopping experience can be expected to yield.

Analysis for improved customer experience
Add’l improvement in CR needed 0.100% ROMI (return on marketing investment) 9.375
Cost of customer experience optimization (CXO) $80,000.00 ROI 228%

Increasing results by optimizing the shopper’s buying journey to deliver the right customer experience to the right user at the right time of their journey is the real leverage point for improving performance of the e-Commerce site. We can see above, that a nudge of conversion rate from 2% to 2.1% yields the same increase in revenue results as our $600,000 pay per click spend. This is looking at directly measurable revenue alone and doesn’t include any assessment of less tangible values, such as what you would learn about customer preferences by playing the customer experience optimization game.

Chart
Tying this back to our cart abandonment rate analysis  we also know that we can have 2x the impact by improving things at the bottom of the sales funnel vs. the top. This should give you a good idea about where you should be investing your efforts to improve e-Commerce performance.

 return on investment calculator, marketer, marketing
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Prior posts in this series.

ROMI makes you a strategic marketer
How can marketers measure the ROI of anything on the e-Commerce site?
Marketing ROI Calculator and How-To