How to calculate roi, ROI Calculate ROI, Ecommerce ROI, calculate ecommerce roi

How to Calculate ROI: & Determining a Good ROI for Your Products

David Arndt, Author David F Arndt, David Arndt Content Marketing Manager
David Arndt Content Marketing Manager

A return on your investment or ROI is the profit you make after all the costs of doing business are taken into account. 

Not to be confused with ROAS or return on ad spending, a return on investment is the amount of profit or losses associated with an investment.

Whether you run a lemonade stand or you manufacture 10,000 units of a product a week, month, or throughout the year it’s safe to say that you want to make a return on your investment.

Every personal and business investment is made with the anticipation to earn more money than your initial investment. To put it simply, a return on your investment or ROI is the profit you make after all the costs of doing business are taken into account. 

To calculate your return on investment accurately all steps in the sales process including sourcing, production, distribution, and referral & affiliate payments must be taken into account to track all sales, conversions, and referral metrics. 

Why You Need to Calculate Your Return on Investment

Calculating a return on investment must take into account all factors from the costs of doing business. If your organization doesn't have a complete picture of your expenses, you’ll never be able to identify if you’re making a profit, breaking even, or having a negative return on investment.

What Information Do You Need to Calculate True Business Costs?

To calculate return on investment you need to know the costs it takes to do business.  The most common costs include:

  • Employee Wages
  • Licenses, Permits & Franchise Fees
  • Cost of Materials/Products
  • Cost of Storage/Building Costs
  • Cost of Packaging & Shipping
  • Cost of Outside Referrals or Loans
  • Additional Ancillary Infrastructure Costs Including Website Hosting/CMS/Database costs
  • Ad, Referral & Promotional Costs

While creating a profitable eCommerce store or any other type of successful business sometimes takes a combination of luck, skill & trial, and error, when you begin to test and implement marketing strategies and develop your products on new platforms is when you begin to get a greater sense of what works and can produce a profit.

Sales Channel Integrations

CPG.IO enables online vendors to expedite integration to over 70 sales channels with expert catalog management, product setup, and sales management.

How to Calculate Return on Investment

With any investment from initial investment to marketing and product optimization initiatives, you want to see profitable results.

The costs of doing business can be an easy-to-understand aspect to calculating your return on your investment for your business, marketing, and eCommerce efforts, however, for accuracy, you need to have reliable data for all aspects of your operations.

The First Method to Calculate ROI

Calculating your return on investment can be accomplished in 2 ways. 

In the first formula, we get our return on investment by dividing  the net return on investment and multiplying by 100%

Calculating ROI method one Net return divided by cost of investment times 100, Calculating ROI, Calculating return on investment, strategies to increase ROI, How to increase ROI

The First Method to Calculate ROI

In the second method used to calculate ROI, the return on investment can be reached by dividing the final value of your investment minus the initial investment divided by the cost of investment times 100%.

Calculating ROI Method 2, ROI equals final value of investment minus initial investment divided by the cost of investment x100%

While the formula to calculate ROI is relatively simple and is an easy-to-understand method of measuring profitability it cannot give you the data from additional information into how long an investment is held which gives investors a better scope of a business's profitability over some time.

Having Reliable Data to Calculate ROI

Having accurate and reliable data from all sources gives you the ability to gain the true costs of operations. 

Whether your organization sells products through your website, Shopify, Etsy or a third-party CPG company handles your sales, you must get complete data on direct sales from each platform your products are being purchased through. 

The data gathered from your sales across all platforms including wholesale, retail & 3rd Party e-commerce sites can be used to calculate your return on investment.  

Problems With Getting Reliable Data to Calculate ROI

If accurate data can’t be obtained to the true costs of every aspect of your operations from sourcing & production costs to wages and distribution costs, your organization can potentially miss out on increasing profits and revenue through new initiatives or exploiting practices that are working well for your business.

How to Optimize Your E-Commerce Site to Increase Your ROI

One of the most important aspects of optimizing your eCommerce store is to gain better insights into your reported data.

A lot of valuable information and insights can be obtained that your organization can be used to optimize your site content while utilizing keywords and ads that can complement your product listings.

Having an experienced eCommerce account manager that can provide you with insights including KPIs. Conversions and valuable keywords can help you quickly establish A/B testing that allows you to optimize your product, collection, and blog pages to incorporate additional keywords to help them be found organically, but also to optimize your ad and promotional spending.

Strategies to Increase ROI

Unless you have unique products that no other company can produce, procure and sell your organization needs to implement best practices for every part of your operations to reduce internal costs to maximize profits.

By prioritizing data your business can take a more personalized approach to your e-commerce business with content strategies and campaigns that utilize the insights and data to tailor your online advertising efforts more than possible to achieve 4 to 10 times the return on investment.

CPG.IO has developed a World class agency and consulting team to help brands optimize their listings, improve the content, measure results, and grab more market share. Our analytical and creative capabilities are second to none.

Connecting With Your Customers to Increase ROI

When customers are shopping online for a product to purchase, there are seemingly endless options for consumers to choose from. Creating a personalized approach to your eCommerce products, content, and marketing approach limits the percentage of abandoned carts while helping users stay on your pages and finalize their purchases.

Accenture highlighted this in their report that found over 90% of potential customers are more likely to shop with brands who recognize, remember and provide relevant offers and recommendations.

This may sound simple in theory, however, multiple aspects must be considered to better connect with your customers, build trust and turn first-time customers into loyal returning customers.

Not all online shoppers are the same.  Knowing the needs of every customer may seem impossible because online shoppers differ in their preferences and interests. 

This is the biggest challenge online retailers face because they try to create multiple relevant customer experiences to engage multiple customer segments.

This can become a challenge with content personalization, as brands have to create relevant experiences for multiple customer segments. How is this accomplished? 

Tracking the Customer Experience

By analyzing user behavior, eCommerce businesses need to track and understand multiple layers of data to better understand customer experience

If your website has a poor user experience (UI), or poor navigation, or customers have a problem finding what they want, your site will almost certainly suffer in sales.

Accurately collecting data including entry pages (landing pages), exit pages (bounce rate, and the pages users visit is a good starting point to better shape your product offerings and your brand to increase your ROI.

This data coupled with additional insights from Analytics can help you identify which organic, ad, referral, affiliate, or social channels create the most value in sales.

Organizations that have a more active presence on social media even create online polls, email questionnaires, and create online focus groups to gain better insights into their products.

Optimizing the Customer Experience

It takes a visitor 5 seconds or less to decide whether they want to even stay on a website or product let alone make a purchase. Whether a potential customer is viewing your products on your website or viewing them through Amazon, Targetor a Shopify store, you want to provide a rich user experience while promoting trust in your brand and your products.

Site & Branding Optimization

Does your website look professional?  Is it easy to use? To Navigate?  Is it easy for users to checkout without interruptions? Major features on marketplace websites some organizations take for granted are crucial to the success of a product, website, and brand.

Product & Page Optimization

Creating & optimizing product and landing pages should be one of the highest priorities for any sales team.  The former is to create a unique and engaging keyword and optimization-driven experience and the latter to not only drive organic traffic but the opportunity to promote your brand's trustworthiness while increasing confidence in your brand to lead to additional revenue. 

Eliminating Wasted Costs With Reliable End-to-End Marketplace Logistics

The goal of every business is to make a return on investment but to ensure your business making a profit, you need to understand your true costs of operations from employee wages, procurement, and production to marketing and fulfillment to get the “cradle to grave’ data to make the best decisions to improve your return on investment.

Everything from processes to PDPs is evaluated, tracked, and optimized to create new brand opportunities. We make experiential services like subscriptions, membership, and sampling programs quickly a part of your brand efforts.

Consistently Winning Sales Momentum

Gaining momentum with brands is something we do well. We take credit for originally helping Amazon define its Grocery category taxonomy - deciding which products will work best in various categories. Over time, winning over critical categories and moving up the ranks are all part of our long-term distribution process.

Building Marketplace Strategies Backed By Data & Optimization

Data captured and analyzed by CPG.IO allows us to optimize every aspect of your business from inventory sales forecasting, content performance, review monitoring, and everything in between. 

Rely on our proven model for scaling low-cost, high-volume CPG goods while optimizing every aspect of your product’s journey to drive more sales and repeat customers.

CPG.IO is the leading CPG-focused distributor and 3PL growth partner for brands accelerating in eCommerce. For more than ten years, we have helped large and small brands capture opportunities, expand their operations and build their customer base.

Develop New Sales Capabilities With CPG.IO

Start the conversation with CPG.IO by requesting a quote to learn how our advanced marketplace strategies and product initiatives guide your brand’s growth.

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