It is well known that in today’s overcrowded global market, the biggest challenge is to sell your product or service. Many people are capable of producing fine products, but not all of them are good at selling them successfully. And that is the key to a successful business. The evolution of sales started centuries ago, but real diversification of sales channels exploded during the 20th century. From traditional retail sales, over direct sales, B2C and B2B sales, telesales, marketers have been struggling to find the best way to acquire customers for their products or services. Internet brought new opportunities and dramatic changes for the world of sales. That’s how we got eCommerce. But what is the next step that perfectly follows and undergoes the habits of modern humans from 21st century? Yes, you’re right. It is Mobile Commerce, which in fact is, Online Commerce optimized for mobile devices.
As a business owner or manager, you must be thinking about investing in Online / Mobile Commerce. But before that, it would be nice to understand the possible ROI for Mobile Commerce platforms. We will try to provide enough relevant information to help you understand all crucial factors and make the right decision.
We will talk about:
- Right way to calculate ROI
- How to plan ROI for new Online / Mobile stores?
These essential information may help a lot in understanding critical factors that influence your decisions in different stages of your online store.
1. Right Way to Calculate ROI for Mobile Commerce
Believe it or not, the wrong way to calculate ROI for your online store is the one that seems tenable: measuring the quantity of customers, or new purchases (first transactions). Analysis and studies have shown that most of new customers acquired through paid search won’t become your returning customers. So, you might find yourself investing huge amounts of money in paid advertising that will bring you lot of one time buyers who will spend little and never come back to your store. And your best customers who are loyal to you might spend up to 30 times more than the previously mentioned ones. Looking at the situation like this, it probably makes you wonder how to make your best customers come back to your store and increase their purchases. And this question might get you back on the right track.
In order to maximize sales to your best customers, the ones who spend more and come back to shop again and again in your store, you will have to analyze the data stored in your store’s database and combine them with your web analytics tools. You have to know your customers, where they come from, what they like, how much they spend in your store (per purchase and in total, eg. annually), how often they buy, how many different products they bought, which types of products they prefer, and a lot more information. Then combine these information with analytics and find out how much did you spend on acquiring customers and from which channel they came to your store.
Now we come to the point. The right way to calculate ROI for your store is to first calculate Customer Lifetime Value, CLV.
And the formula for it is: (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)
Every customer has its value for our store, and loyal, returning customers are the most valuable. We should focus on them and nurture them. There are lot of mechanisms that could serve as great tools for that.
Example infographic for CLV
Knowing the CLV, we are now prepared for the ROI formula:
ROI = (CLV) / (Ad spend)
Example infographic for Mobile Commerce ROI
It is well known that sharing great content and establishing a reputation of trusted and authoritative company among your competition may help you attract and retain a significant number of customers loyal to your brand. While spending on paid search, you should think about spending on creating great content as well: blog articles, whitepapers, e-books, with usable knowledge and advice shared with your audience (customers and potential customers). The infographic on ROI is based on the analysis of a large number of eCommerce / Mobile Commerce stores, and among them, even Starbucks. Numbers don’t lie.
2. How to Plan ROI for New Online / Mobile stores?
Investing in gaining new customers is essential for an eCommerce / Mobile Commerce store in the initial stage, first months, or even first few years (depending on many factors). During this period you should be happy if you are making enough revenue to brake even with your marketing investments. However, you will have to invest, and be patient until you start receiving positive ROI.
When your ROI raises to about 8-10 times your marketing spend range, you may say you have an established online business. At this time, your marketing investments should turn more to creating satisfaction for loyal customers, as you have a good customer base. You certainly won't forget new customers, but they will be out of focus, as returning customers, your best buyers.
To make even greater ROI, you will have to do a lot of analysis, and invest in those channels which bring you more customers, better customers, more revenue. The ROI of an established eCommerce / mobile Commerce store might even be higher than 15 times your marketing spend range. If you achieve this, you may consider yourself a very successful online marketer.
What is your store's ROI? Tell us. We want to hear from you.