What is ROI and how to improve the ROI of Shopify online store?

In the e-commerce industry, terms such as ROI and ROAs are professional terms that appear frequently to measure advertising performance. For many novice webmasters, they can\’t fully understand the meaning and difference between the two.

This article will take stock of what is ROI and ROAs, the difference between them, and the calculation methods of ROI and ROAs, so as to help businesses better understand the relevant knowledge of advertising and how to better improve the value of advertising ROI.

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So what is ROI?

ROI is the abbreviation of return on investment, which is the rate of return on investment. It refers to the economic rate of return obtained by an enterprise from the investment in an investment business activity. ROI is the ratio used to measure the profitability of an enterprise, and it is also a comprehensive index to measure the operating effect and efficiency of an enterprise.

So how to calculate ROI?

Return on investment (ROI) = annual profit or average annual profit / total investment × 100 %

It can also be further subdivided into:

Return on investment (ROI) = (Sales – input cost) / total investment × 100 %

Among them, the input cost of e-commerce industry includes product cost + taxes + advertising expenses + freight + storage expenses + labor expenses + other miscellaneous expenses.

So what does ROI do?

ROI can reflect the real benefits brought by advertising to the business, so it is usually regarded as the most important data indicator by businesses. The return on investment can reflect the comprehensive profitability of the brand site, and the incomparable factors of profit difference caused by different investment amount are eliminated. Therefore, ROI has horizontal comparability, which is conducive to judge the advantages and disadvantages of the site\’s business performance.

For brands, ROI is the data index for calculating advertising profit and loss. ROI greater than 0 means that the website is profitable. The higher the ROI, the higher the profit brought by advertising,. If the ROI is less than 0, it indicates that the advertisement has been in a state of loss, and the merchant needs to adjust the advertisement and the site accordingly, so as to improve the ROI value.

So what is ROAS?

ROAS is the abbreviation of return on ad spending, which translates to the return on advertising expenditure, that is, the proportion of revenue obtained by each investment of advertising.

How to calculate ROAS, ROAS = advertising revenue / advertising cost.For example, if the brand side spends $100 on the advertising channel and obtains a conversion value of $300, the ROAS of the advertisement is 300 / 100 and the ROAS is 3.

So what is the role of ROAS?

Similar to the return on investment (ROI), ROAs is an indicator to measure the funds invested in digital advertising. Both are key indicators to measure the success of advertising. However, different from the accurate ROI value, ROAS can not directly measure whether advertising is profitable, but the value that an enterprise refers to the effect of an advertisement.

ROAS is a marketing indicator that evaluates the performance and financial return of digital advertising strategies, activities or advertising groups. The enterprise can calculate an advertising ROAs value required for the enterprise\’s expenditure to be in line with its income according to the enterprise\’s operation expenses, commodity transportation expenses, product costs and other expenses.

For example, after calculating the company\’s expenditure and income, the webmaster concludes that when the advertising ROAS is 2, the turnover brought by the advertising is just equal to other expenses, and the enterprise is in a state of no profit or loss. Then, when measuring the advertising effect, the enterprise can refer to the fixed value ROAS = 2 for the measurement of advertising effect. If the background effect of the advertisement shows that ROAS is greater than 2, it means that the advertisement performs well and is in a profitable State. If the ROAS value of the advertising background is less than 2, it means that the advertising is in a state of loss that cannot make ends meet. Businesses should be vigilant and stop the loss in time in combination with their own actual situation to adjust the advertising.

So how to improve advertising ROI and ROAS?

1.Optimize audience positioning

Fcebook, Google, Bing and tiktok are the most commonly used advertising channels for cross-border e-commerce. When advertising on these advertising platforms, businesses will face the selection of audience groups and the optimization of the direction of audience groups in the later stage. According to the estimation of advertising channels, the audience group of advertising is composed of subdivided audience groups or user groups with specific interest, intention and audience characteristic information. Selecting the correct audience group is the fundamental factor for the success of advertising series optimization. Generally speaking, audience groups generally include audience characteristics, subdivided audience groups and excluded objects.

2.Retargeting ads

Retargeting, also known as visitor retrieval advertising, re marketing advertising, repeat customer advertising, etc., belongs to the effect advertising in display advertising.

Retargeting is used by advertising channel providers to track the data of users who have visited your website but have not consumed, so as to help you repeatedly \”remind\” consumers who have not completed their purchase through two, three or even n repeated exposures, so as to urge consumers to click on the advertisement again to enter the E-commerce website and realize the completion of the final transaction.