Measuring the elusive ROI for digital sales


Measuring the return on investment for a B2B ecommerce site is essential in determining whether it is an effective sales channel. Unfortunately, measuring ROI on ecommerce is not easy, as there are multiple metrics that can go into the formula. Those metrics can range from digital marketing costs and click-through rates to actual purchases and the cost of customer support.

The challenge with measuring ROI is that, in the digital channel, you can measure just about anything.

Marta Dalton, global ecommerce director, Unilever

Before starting any measure of ROI for ecommerce, online sellers need to set up a control group and a test group of buyers, each with such demographics as the size of a buyer’s company and how long the buyer has been making B2B purchases online, Marta Dalton, global ecommerce director for consumer products manufacturer Unilever, told an audience Tuesday during the all-virtual B2B Next 2020 conference. This will ensure an apples-to-apples comparison on the profitability of both groups, she said.

“If the ecommerce manager does not have these variables, sales representatives are sure to have that breakdown of information,” Dalton said.

Factoring in the cost of sales rep’s time

Next, Dalton recommends ecommerce managers use comparable periods, such as months or weeks from one year to the next, to accurately measure ROI. Doing so will remove the effects of seasonal influences on purchasing decisions. Any outliers—such as customers that have been purchasing online for less than a year or that are new to the digital channel—should be removed from the test and control groups, to ensure greater accuracy.

Metrics that sellers can use to determine a customer’s lifetime value include click-through, add-to-cart and purchase completion rates. It also helps to determine how much time a sales rep spends acquiring a customer; suppliers know the cost of a sales representative and factor that into customer acquisition costs, Dalton said.

Another metric to consider is churn rates, such as the number of lost customers from the beginning to the end of the timeframe being measured. Churn rate can also include the number of online buyers that moved away from the digital channel but continue to purchase offline during the specified time. The latter is an important factor, Dalton said, because a buyer that is not purchasing through a digital channel is probably less profitable than one that buys online.

A 75/25 online-to-offline ratio

Regardless of whether buyers purchasing offline are less profitable than those who purchase digitally, Dalton said, suppliers should remember that there will always be a portion of buyers that prefer to purchase through non-digital channels. “A good rule of thumb is to figure a 75/25 split between online buyers and offline buyers,” she said.

The cost to service a buyer is another metric ecommerce managers should take into account. “You need to ask what are the administrative, personnel and technical costs associated with servicing the customer,” Dalton said. “Other variables to include are the cost of licensing your software for the digital channel and site maintenance costs.”

Customer behavior patterns, such as frequency of purchase and average ticket size—and any changes in those behavior patterns such as spending less or increasing offline purchases—should also be factored into the ROI equation, Dalton said.

The value of online buyers

Bundling these metrics can help ecommerce managers develop a formula that helps quantify the value of customers that purchase digitally.

“The challenge with measuring ROI is that, in the digital channel, you can measure just about anything, and a lot of people do, whereas a lot of those metrics would not be used to measure ROI for offline sales,” Dalton said. “The metrics used to measure ROI in the digital channel are only valuable if you understand them and how to apply them in the ROI formula.”

Peter Lucas is a Highland Park, Illinois-based freelance journalist covering business and technology.  

Sign up for a complimentary subscription to Digital Commerce 360 B2B News, published 4x/week, covering technology and business trends in the growing B2B ecommerce industry. Contact editor Paul Demery at [email protected] and follow him on Twitter @pdemery.

Follow us on LinkedIn and be the first to know when new Digital Commerce 360 B2B News content is published.

Favorite



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *