46 E-commerce Vocabulary, Metrics and Biz Terms You Need to Know

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Whether you already have an e-commerce business or are planning to launch one, understanding the following e-commerce vocabulary and e-commerce metrics can help you grow.

Whether it’s ROI, CAGR, AOV, or something else that doesn’t come with an acronym, metrics have been around since forever.

The world’s most successful businesses know what metrics they need to measure and follow and what to avoid. After all, you can’t measure everything because that won’t leave any room for the actual sales work.

By understanding which e-commerce metrics matter and using them, businesses can make better sales and marketing decisions.

However, not all metrics help online businesses.

In this article, we’re going to tackle the most-common vocabulary not just for e-commerce but for online marketing, business, sales, and social media.

What is a metric?

Before we get to the e-commerce vocabulary, let’s first settle on some basics.

The first of those is metrics. What are metrics?

Put simply: A metric is a method of measurement.

A metric can be used for online and offline stores. But an example of an e-commerce metric would be average order value or return on ad spend.

The list of e-commerce metrics is ever-growing. Why? Because of social media.

Social media platforms are constantly increasing, which is bringing to life more opportunities for e-commerce marketing and automation.

At the same time, they’re creating new e-commerce vocabulary that businesses need to be aware of.

You see, your online store isn’t the only source of data. Your Facebook page, your Twitter account, and every place which drives traffic to your store or wherever you sell your products, is a source of data and opportunity to know more about your customers.

Metrics vs KPIs

You’ve probably heard other businesses talking about key performance indicators (KPIs) and how they rely on them for measurement.

It’s therefore important to understand what KPIs are and how they differ from metrics.

Both metrics and KPIs are a form of measurement but a metric is the broader term. This means that a KPI is a kind of metric, one that’s often used to measure growth or the success (or failure) of an initiative.

For example, you can see the number of visitors to your site, but the KPI for your ads’ performance would be how many sales are achieved on your website.

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Part 1: Business and E-commerce Vocabulary

Website terminology

First, let’s start with the vocabulary and metrics that relate to your website as a business.

1. Homepage

This is the main page on your website. It’s what customers and visitors first see when they click your website on Google.

Your homepage should use easy-on-the-eye colors and should show what your brand name is, what your website does, and what you’re selling.

An e-commerce business with multiple categories can highlight the types of products they sell.

2. Landing page

Your landing page can be your homepage. But it can also be another page.

Let’s say you’ve created an ad on Facebook. When people click the ad they go to a page, this page is called the landing page.

For e-commerce businesses, the landing page can be a page that directs to a specific product or category of products or that sends customers to a specific discount.

For software-as-a-service (SaaS) and B2B businesses, the landing page usually serves to highlight a specific offer or request for emails in exchange for a lead magnet. In some cases, a business would like their customers to fill a survey so they’d use a landing page for that purpose.

3. Traffic/Traffic sources

Traffic is the number of people that come to your website, whether organically or through paid ads.

The traffic source, on the other hand, is ‘where’ these people are coming from. Are they coming from Facebook, Twitter, or Instagram? Or are they coming from Google search? Or are they being referred by someone or another page on your website.

4. Click-through rate (CTR)

When you run an ad that requires people to click, the ratio of clicks coming from that ad are your click-through-rate. It shows the number of people who clicked on your ad or link and arrived at your site.

The CTR also applies to your emails. If you use email marketing to drive traffic to your site, an important and effective measurement would be the CTR of your emails.

The CTR results in a percentage. For example, the CTR from your email list is 1.5%.

5. Bounce rate

When people come to your website, whether through Facebook or Google or any other platform, do they stay on the site and go through its pages? Or do they leave?

If visitors land on your page and don’t find what they are looking for and leave, then this is the bounce rate. The bounce rate results in a percentage. And unlike other rates, a high bounce rate is bad thing!

Try to keep your bounce rate below 70%.

6. Call-to-action (CTA)

This is the action your visitors take when they come to your website or online store.

For some businesses, a CTA would be ‘learn more’ or ‘buy now’ or ‘click here for more info.’ For e-commerce stores, a popular CTA would be ‘add to cart,’ ‘visit cart,’ and ‘checkout.’

Calls-to-action are all over the internet and social media. Any post you do, needs a CTA to tell the visitor what to do.

Here’s an example from Convertedin’s homepage

Convertedin-CTA-ecommerce-vocabulary

General business-related terminology

This section offers general and business-related terminology. Not all of them apply to e-commerce businesses but are worth going through.

7. Lead

A lead is a person who is interested in your service or product.

A visitor who comes to your website for the first time is a lead. Why? Because something about what they saw (your ad or they searched Google for ‘red fur stilettos’ and your site popped up) caught their eye and got them interested. So they clicked your online store to explore.

That said, not all leads are ‘qualified leads’ and not all of them translate into ‘conversions.’

A lead is any person who indicates interest in a company’s product or service in some way or form. A qualified lead is a person who has bigger potential of buying from you than others.

The term ‘lead’ is often used by SaaS businesses rather than e-commerce stores, with the latter using traffic and conversions instead.

8. Lead generation

Lead generation is the means of attracting leads. This usually doesn’t apply to e-commerce businesses and is often the case for SaaS companies and larger businesses.

That said, some larger e-commerce stores, like an online furniture store, can use lead generation (also called lead gen) to attract customers and get them to give them their email.

The top methods for lead generation include: blog posts, e-books, whitepapers, coupons, live events, and whitepapers.

9. Demand generation

This is where businesses attempt to drive demand for their services and products. The demand generation process is generally part of the business’s entire marketing process or strategy.

LinkedIn’s sales and marketing blog explains the difference between lead generation and demand generation as:

“Demand generation is the process of getting people interested in what you have to sell (creating demand); lead generation is the task of turning that interest into names and contact details (leads) that you or your sales teams can follow up with.”

LinkedIn sales and marketing blog

10. Churn

“Churn is the measure of how many customers stop using a product. This can be measured based on actual usage or failure to renew (when the product is sold using a subscription model),” explains Product Plan.

Churn is most often associated with online and subscription-based SaaS businesses rather than e-commerce ones.

11. Churn rate

Remember those people who ended their subscription? The rate in which these people are leaving is called a churn rate and it’s measurable.

You can measure the churn rate by dividing the number of total customers lost in a specific period (for example a quarter) by the total of customers at the beginning of that period. The result is the percentage which is the churn rate.

The churn rate also called ‘churn’ is more often calculated for subscription-based businesses. It’s not among the most commonly-touted e-commerce metrics but it’s worth noting in your arsenal of e-commerce vocabulary.

General e-commerce and customer-related terms

Now let’s talk about your customers and the terms associated with them. This list includes some customer-related terminology. More e-commerce-focused terms are available in the next section.

12. Customer acquisition

The first time customers arrive at your store and buy from you transforms them into acquired customers.

These customers are transformed from merely surfing your site or being aware of your brand to actual buyers.

The process is called customer acquisition.

13. Customer retention

Once you acquire a customer, you want to retain them. A retained customer is one that keeps coming back to your store and in time they become a loyal customer.

According to the book Marketing Metrics, existing (retained) customers are 60% to 70% more likely to buy your products than new ones. The chances of selling to a new customer drops to 5% to 20%.

14. Referral

Referrals are people who are referred to your store through others such as friends or family.

Imagine your customer Mark referring their friend Joan to your store. That’s a referral. And referral marketing, also known as word-of-mouth marketing, is a strong and cost-effective marketing tactic that you can use.

Many e-commerce businesses create referral programs inside their stores to get their current customers to refer others in exchange for some benefits.

15. Conversion

We’ve mentioned what ‘leads’ are. The second part of the equation is ‘conversions.’ These are the people who move from being interested people or businesses to potential buyers.

Most businesses and people think of ‘conversions’ as sales. But they are more than that. A conversion can be a phone call from an interested buyer or a response to an email that results in a proposal or a ‘next step’ in the buying process.

Conversions can also be those potential customers who click on your Facebook ad. They are interested in what you have to offer and are expressing more interest in your service or product.

16. Upselling

As an e-commerce business, you want to sell your products to customers. But there are two well-known e-commerce marketing tactics you need to know: Upselling and Cross-selling.

Upselling is convincing your customer to buy a higher-value item than the one they’re currently buying or considering.

An example of upselling would be showing your customer, who’s interested in a $200-pair of sneakers, another pair worth $250.

17. Cross-selling

Cross-selling is convincing your customer to buy something extra, like a related product, to what they are currently buying.

An example of cross-selling is if your customer, who wants to buy a $200 pair of sneakers, gets a message saying “Customers who bought this pair of sneakers, also purchased two pairs of socks.”

Another example would be a customer wanting to buy a hair dryer and seeing a hair comb.

Cross-selling usually occurs with products that customers would have normally purchased at some point. As a tactic, cross-selling helps businesses increase their sales. It also helps customers see products they may not have been aware were available in your product catalog.

Though cross-selling is a common e-commerce tactic, it’s now used across multiple industries including bank and insurance companies.

E-commerce vocabulary you need to know

18. E-commerce marketing

E-commerce marketing is the process of creating awareness and driving customers to complete a purchase online.

it is what online businesses, like you, are doing to attract and retain customers and grow their sales.

19. E-commerce automation

E-commerce automation is software that helps e-commerce stores with their online processes in a way that saves them time, effort, or money.

Marketing automation is part of e-commerce automation as it focuses on automating the ads process.

Convertedin works in marketing automation as it takes away the hassle of creating lookalike audiences and ads for your online store, segments your customers and targets them through ads.

If you have an online store with a number of products, you can use Convertedin to segment your customers and create audiences based on the people who come to your website or store. It will then create ads for them and target them for you, which saves you time and hard work.

e-commerce-marketing-automation-with-convertedin-e-commerce-vocabulary

20. Dropshipping

Dropshipping or drop-shipping is the process of shipping goods or products “from a manufacturer or wholesaler directly to a customer instead of to the retailer who took the order,” according to a definition from the Merriam-Webster.

In other words, the retailer doesn’t keep or store the products they are selling.

“When a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly,” explains Shopify.

In other words, the retailer or seller buys the inventory they need (or when they get an order for it) from a third party, like a manufacturer or wholesaler. The seller then ships the order or product directly from that third party.

21. B2B/B2C/B2B2C

These are the types of audiences businesses sell to. There are many such types but for the purpose of this article, which focuses on e-commerce vocabulary, we’ll focus on the above three.

B2B means business-to-business. This means that a company sells its products to another company. When Microsoft sells its products to Xerox or Hewlett-Packard, this is a B2B situation.

B2C means business-to-consumer. An example would be retailers and supermarkets. The business, which is the supermarket, sells to consumers.

Wholesalers are both B2B and B2C. Although some may just be B2B, opting to sell to other businesses and avoiding working with consumers.

B2B2C is an advanced form of B2B. This type of business sells to another business, and the latter sells to a consumer.

22. BANT

A sales methodology used by businesses, BANT stands for Budget, Authority, Need and Timeline.

Brands use the BANT equation to see if the leads they are getting are qualified leads.

“BANT is a sales qualification methodology that lets salespeople determine whether a prospect is a good fit based on their budget, internal influence/ability to buy, need for the product, and purchase timeline,” explains HubSpot.

23. Sales cycle

A sales cycle is a number of actions or stages that salespeople go through or follow to close a deal.

The sales cycle is not the same as a sales methodology, which is the bigger picture. A sales methodology is a framework that involves executing the sales cycle.

Part 2: E-commerce Metrics

Top e-commerce metrics and rate measurements

Now that we’ve covered the most commonly-used e-commerce vocabulary, it’s time to move onto the metrics.

Some of the following are e-commerce-specific metrics, while others are just marketing metrics but that can be used by online businesses.

24. ROI

ROI stands for return on investment. It’s a metric that measures the performance of your investment.

For example, if you invest in software for $200 a month, measuring the effectiveness of this investment over a period of time, translates into ROI.

ROI is different from return on ad spend (ROAS), which we’ll get to in a second.

25. ROAS

ROAS stands for return on ad spend. It’s used to measure how well your ads are performing compared to how much you’re spending.

By calculating ROAS, also known as the ROAS formula, you’ll be able to measure and decide if you’re getting a bang for your buck – or if you’re wasting money.

26. Average order value

Average order value (AOV) is the average amount a customer spends at your store every time they come in.

e-commerce-metrics-and-vocabulary-average-order-value

To calculate your store’s AOV, divide your total revenue by the number of orders you have in a given month, quarter, or year. AOV can be for any time frame.

27. Average basket size

The average basket size is the number of items you sell in a single purchase.

To calculate the average basket size of your business, you’ll need to divide the number of units or items sold by the number of invoices you have.

It’s important to remember that AOV measures the amount of money, while the average basket size focuses on items sold.

28. Customer lifetime value

Customer lifetime value (CLV or CLTV) measures the length of your business relationship with a customer.

It also helps you estimate how much you’re generating from a customer during the length of their relationship with you.

CLV is helps businesses in general to make money-related decisions such as how much to invest on customer acquisition and customer retention.

29. Conversion rate

The conversion rate, sometimes abbreviated to CR, is the percentage of visitors who come to your online store and complete a desired action such as making a purchase, opting into an email newsletter, or even calling your business.

To calculate the conversion rate, you’ll need to divide the number of conversions by the number of visitors and then multiply the result by 100 to get the percentage.

30. Annual recurring revenue (ARR)

Businesses generate revenue. But the annual recurring revenue (ARR) is a metric used mostly by subscription-based businesses.

ARR helps businesses see the money they generate annually for the length of the subscription they have with a customer.

The Corporate Finance Institute defines ARR as “revenue, normalized on an annual basis, that a company expects to receive from its customers for providing them with products or services. Essentially, annual recurring revenue is a metric of predictable and recurring revenue generated by customers within a year.”

31. Retention rate

The retention rate used to measure the percentage of customers you have retained over a period of time.

The retention rate can be used across multiple industries and fields but is an important e-commerce metric that helps businesses see how many customers they’ve successfully retained during a given period.

32. Cart abandonment rate

One of the most important e-commerce metrics is the shopping cart abandonment rate. It measures the percentage of shoppers who have added items to their cart but didn’t complete their purchase.

The people who add products to their cart but don’t buy are considered window shoppers, or virtual window shoppers for e-commerce businesses. They’re considering the purchase but are unable to make up their mind. 

Data by Barilliance shows that 78% of buyers abandon their carts. This percentage differs from one industry to another. For general retail, the cart abandonment rate stands at 72.8%, whereas for fashion, the rate is roughly 68.3%.

33. Return rate and refund rate

Returned products are a business’s nightmare, but even worse are refunds.

The return rate measures the percentage of customers who bought a product and returned it.

Data from Narvar and Return Magic Survey shows that 41% of shoppers buy product variations with the intent to return the items they bought. Moreover, 42% of buyers returned an online purchase within a six-month period, while 89% returned an online purchase between 2015 and 2018.

state-of-ecommerce-returns-infographic
Data from Narvar (2018) and Return Magic Survey (2017)

As an online store, e-commerce metrics like the return rate and refund rate can help you understand what your customers looking for and why they are choosing to return products they bought from you.

A tip: Explain your return and refund policies on your websites because research by Walter Sands found that free returns or exchanges ranked second in the reasons consumers considered when shopping online.

34. Customer acquisition cost (CAC)

We’ve mentioned how a first-time customer moves from awareness to making the decision to buy, making them an acquired customer.

The process of calculating the cost associated with this customer’s acquisition is called customer acquisition cost (CAC).

It’s important for a business to calculate the CAC because it shows them how much they are spending to acquire new customers.

If a store pays $50 to acquire a customer who spends only $20, then be sure that this store is making a big loss.

35. CAGR

The Compound annual growth rate (CAGR) measures the annual growth rate of an investment over a specific period of time that usually extends over one year.

CAGR is “one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time,” explains Investopedia.

The compound annual growth rate helps investors and businesses understand what they will have or get at the end of their investment period.

36. Net promoter score (NPS)

The Net Promoter Score (NPS) “measures customer experience and predicts business growth,” explains netpromoter.com.

NPS helps businesses measure their customers’ perception of their brands.

Social media-related terminology

As an e-commerce store, social media likely plays a major role in awareness, branding, and, of course, selling your products.

In this section, we’re moving away from e-commerce metrics and vocabulary and focusing more on digital marketing and social media-related terminology.

37. Google Analytics

Google Analytics is possibly the most widespread analytics tool on the internet and across the globe.

Why? Because it’s free and it’s by Google. To activate Google Analytics, you’ll want to embed the Google Analytics code into your website.

Google will then start tracking data like traffic, bounce rate, number of unique and regular visitors, average time spent on a page and more.

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A customized Google Analytics dashboard. Source: Google blog

You can even compare different periods of time to see how they fared. Like comparing the first week of April 2021 with the first week of April 2020. You can also compare whole months, quarters, and years.

However, the data only becomes available once the code is embedded into your website. Before that, Google wouldn’t have access.

38. Google AdWords (& Google Ads)

This is an advertising service by Google. It helps businesses set a budget and run ads. Google AdWords allows businesses to determine which keywords they are likely to rank for when creating content or Google Ads.

It’s also a Search Engine Optimization (SEO) tool.

As for Google Ads: You know those search results that appear at the top of a Google search with the word ‘Ad’ next to them? These are ads created by businesses to promote their products, services, or even blog posts on Google.

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39. Facebook Pixel

Another method of measuring store visits, traffic, clicks, and other metrics is the Facebook Pixel. This works with businesses who have a store or page on Facebook and use it to direct customers to their website.

The pixel also tracks “user-generated events, such as sites visited, products added to cart, checkouts initiated and purchases made. So much as submitting a lead form on a website with a pixel gets thrown into the mix,” says Adage.com.

40. Facebook Product Catalog

A Facebook product catalog is a catalog of products or services available in your store. You either have a website and you upload your product catalog to Facebook or you’re using the catalog directly on Facebook.

Most businesses use the Facebook product catalog in order to create dynamic ads that direct customers to their e-commerce store.

We’ll touch up on dynamic audiences and ads in a minute.

41. Custom audiences

Advertising on Facebook offers businesses a variety of ad options and targeting methods. One of those is the Custom Audiences feature, which “lets you find your existing audiences among people who are on Facebook.” This is how Facebook explains it.

The Facebook Custom Audience are those people you know and who, in turn, know you and your business.

To use custom audiences, you’ll need to upload information like customer lists and website and mobile app traffic on Facebook to create a custom audience.

42. Lookalike Audiences

Another audience type on Facebook is the Lookalike Audience.

This audience type is similar to your current audiences.

Lookalike audiences are your way of asking Facebook to show your ad to people who similar to your current audiences.

For example: John likes red sweaters so Facebook will show your sweater ads to people who are similar to John.

43. Dynamic Audiences

The last audience type is the Dynamic Audience.

The Dynamic audience can only be used by stores or businesses who have uploaded their list of products or services to the Facebook Product Catalog.

If you haven’t done the Facebook Product Catalog step, then you can’t create a dynamic audience or use dynamic ads.

The Dynamic audience is specifically used to create dynamic ads.

Email marketing terms and metrics

If you’re an e-commerce business who’s using e-mail marketing as part of your online marketing mix, then here are a few more terms and metrics you need to know.

These terms are generic and not limited to e-commerce business. But the metrics will give you a general idea about what to expect if and when you embark on this form of advertising.

44. Email marketing

This is a form of marketing that relies on emails through email automation platforms such as ActiveCampaign, HubSpot, MailChimp, GetResponse, among others.

Did you know that email marketing has an average ROI of around $38 for each $1 spent? (Source)

There are also over 5.6 billion active email accounts worldwide. Of these, around 3.9 billion are checked each day! (Source)

45. Email opt-in rates

If you’re using emails to market your services and products to customers then you need to be aware of the email opt-in rate.

The email opt-in rate is the percentage of people who have signed up to your email list (or newsletter) in a given period of time.

46. Email open rate

As its name suggests, the email open rate is the percentage of people who opened your email.

This percentage differs from one industry to another but the general average is 15% to 25%, according to CampaignMonitor.

What are you measuring & how often

When it comes to measurement, there are few points and ideas to consider.

You should first know ‘what’ you want to measure.

It can be a list. But make sure what you’re measuring is relevant to your business and translates into actual data that you can use to enhance your website, your ads, or your designs.

You’ve seen the list of e-commerce metrics and relevant e-commerce vocabulary, go through them again and decide what you’re going to measure.

Once you’ve picked a few, decide ‘how often’ you’re going to measure these items.

Are you going to measure the traffic on your website and your conversion rate daily? Or weekly or monthly? Maybe even quarterly or annually?

Perhaps you’d like to measure them based on ad campaigns you’re running – which would be a good idea to see how well your ads are performing.

Once you know the ‘what’ and the ‘how often,’ decide on the ‘how.’

How are you going to measure this data? Are you going to rely on clicks or your CTR, impressions, engagements, shares?

If you’re using email marketing, you’ll need to look at more than one metric to measure the effectiveness of your email campaign. For example, email open rates are an important metric but opens without clicks means something is wrong.

These are lots of questions to consider and take in, yes. But they will help you understand and decide what’s useful for you and what isn’t.

It’s important to note that the bigger your business becomes the more metrics you’re likely to consider.

Don’t forget

If you’re just starting out or you’re considering an e-commerce business, you now have a good number of terms and e-commerce metrics in your arsenal.

If you already have a business, then you may have gotten few ideas about metrics you’d like to try out or measure.

The e-commerce industry is growing more rapidly now than it ever was before.

“In June 2020, global retail e-commerce traffic stood at a record 22 billion monthly visits, with demand being exceptionally high for every-day items such as groceries, clothing, but also retail tech items,” Statista reports.

With more people staying at home across the world and more businesses growing their online presence, competition is going to get tougher but there will be more opportunities as well.

Moreover, data from IBM’s U.S. Retail Index indicates that the pandemic has fuelled physical stores’ shift to online by 5 years.

New shopping habits as well as the increase in the number of online marketplaces are but a few of the e-commerce trends for 2021.

As an e-commerce business, you should remember that you have a target. Terminology, tools, and metrics are all means to achieve that target.

Got questions? Come across terms not on this list but that you’d like to learn more about? Tell us in the comments.

A Guide to the ROAS Formula and Improving Your Ad Campaigns

ROAS-formula

If you’re a business, you’re probably familiar with the term return on ad spend (ROAS). Better yet, you’re curious about the ROAS formula. And how it can and should work for you.

Whether you’re an online e-commerce business or if you have a physical store, you’ve probably dabbled in the world of advertising, particularly Facebook ads.

Depending on what you’re selling, you may have even ventured into Google Ads, PPC campaigns, or any other kind of advertising effort.

In this article, we’re going to talk about what the ROAS formula is, what good ROAS is, and how e-commerce businesses can improve their return on ad spend.

What is ROAS?

Return on ad spend (ROAS) is a metric used to determine the impact and return from your advertising efforts.

It tells business owners and marketing managers if they’re spending is reaping good results or if they should rethink their digital marketing strategy.

ROAS is different from return on investment (ROI). ROI is about the overall returns and costs incurred by your company or store. ROAS, on the other hand, focus on advertising only.

Check out the 46 E-commerce Vocabulary, Metrics and Biz Terms You Need to Know

If you’re spending money on software, ROI is the metric you use to calculate the return of that software on your employees and your bottom line.

You can think of ROAS as being a part of ROI. But not the other way round. You’d need to know if your return on ad spend formula is supporting your business or not. You’ll then want to use ROI to see how your advertising along with other expenses and efforts and translating into revenues and profits for you – or if they aren’t.

What is the ROAS Formula?

The return on ad spend formula is how you calculate your ad spend.

ROAS measures what you get for every dollar you spend on advertising.

This is what the ROAS formula looks like:

ROAS = revenue from ad campaign (divided by) cost of ad campaign = Ratio

The result of this equation is a ratio. You can also take the result of this equation and multiply it by 100 to get a percentage.

ROAS = revenue from ad campaign (divided by) cost of ad campaign x 100 = %

Let’s see the ROAS formula in action.

If you spend $10 on advertising and get $30 in revenue, then your ROAS is 3:1 or 30%.

That’s a simple example. Let’s take a more realistic one about some retailers’ ad spend.

furniture-store-example

Imagine a furniture store spending $50,000 a year in ads and generating $150,000 in revenue.

To calculate the ROAS for this furniture store, we’d need to divide the revenue from the ad campaign by the cost of the campaign.

That’s $150,000/$50,000 = 3:1 or x100 = 30%

The return on ad spend for this furniture business is 30%.

What is good ROAS?

Now that you know what the ROAS formula is, let’s dive deeper into a commonly asked question:

What is a good ROAS for my business?

To begin, there’s no one-answer-for-everyone for this question.

The reason is ROAS differs based on:

  • The size of the business
  • How long the business has been present in the market
  • The industry of the business
  • The cost per lead
  • The ad campaign itself
  • Overall health of your business

Among other things. But these are the main culprits.

Read 9 E-commerce Trends for 2021 You Need to Know

If you want to know how your ad campaign is performing, that is if it has a good ROAS, then you’ll need to “examine your specific scenario, research competitor ROI, and compare your results to the industry standard,” according to Lemonads.

To know whether you’re generating good ROAS, you need to see if your ad campaigns are generating $1 or more for every dollar spent.

Suffice to say, if you’re spending $1,000 on advertising and generating $500, you’re losing money. If you’re generating $1,000, then you’re not making money but you’re not losing it either. Which is still not a win.

If you’re paying $1,000 on ads and generating anything for $1,100 and more, then you’re making a profit – at least in terms of your ads.

What is generally accepted as good ROAS is 3:1 or 4:1, that’s $3 and $4, respectively, earned for every $1 spent.

Other factors that affect your return on ad spend is your business’s life cycle.

“If you’re a cash-strapped startup, you probably want the most bang for your buck. If you’re an established, healthy business, you may be willing to settle for a lower ROAS in exchange for increased brand awareness,” explains Segment.

Improve your ROAS

You know the ROAS formula and have a general idea about what good return on ad spend means.

Now, it’s time to work on your advertising efforts and get a better bang for your buck.

 1. Know your customers

You’ve probably heard this before – or more times than you can count. But understanding who your customers are plays a major role in how you create your ads.

If you don’t know who you’re targeting and selling to, chances are you’re going to waste lots of dollars.

One way to focus on your target audience is by using your product’s buyer personas and working your way from there.

2. Segment your customers

You know your customers and buyers, now you want to ensure that your ads reaching them well.

To that and get the most from your ad campaigns, you’ll want to segment your customers. Narrow the segments instead of keeping them broad.

Your customer segmentation strategy will help you group customers based on geography, behavior, demographics, and psychographics.

This will help you understand your customers better, create better-targeted ads, and accordingly sell more because you’re offering customers what they want.

3. Use good ad copy

There’s no doubt that ad copy plays a role in how your customers react to your posts and ads. It can get them to engage with you, buy from you, or leave you.

good-ad-is-important-for-your-roas

The best ways to get customers to take action is to have a call-to-action along with one or more of these:

  • Social proof (’25 other customers also bought this product’ or ‘4.9/5 stars, rated by 1,000 happy customers’)
  • Create a sense of urgency (‘offer ends in 3 days’ or ’10 hours left for the 20% discount’)
  • Short, choppy copy that’s to the point and doesn’t bore the customer

A note though: If you use the ‘sense of urgency’ too often, customers will lose faith in your pricing and store. Use with caution.

4. Ensure your website is mobile friendly and loads quickly

Did you know that nearly 49% of e-commerce sales in 2020 were done by customers using mobile phones? (Statista)

It’s true. Data by Statista also shows that by 2021 (this year!), 53.9% of e-commerce sales will be through mobile. And it’s likely the rate will keep growing in the years to come.  

This means that if you ads are sending customers to landing page on your website, your site needs to be both mobile friendly and quick to load.

Customers using their phones will quickly leave a site that they can’t view properly or that takes too long to load.

Read Discover How and When to Use Dynamic and Static Ads

5. Avoid ad fatigue

Ad fatigue is when your customer sees your ad way too many times that they are no longer affected by the ad, the message, or the call-to-action.

You can avoid ad fatigue by changing the images and ad copy for you ads every now and then.

6. Create retargeting campaigns

Retargeting campaigns are for customers who have clicked your ads, engaged with you, or purchased from you before.

To create retargeting ads, you need to ensure that you have the Facebook Pixel installed on your website.

Did you know that Convertedin can help you with segmenting your customers, creating lookalike audiences on Facebook, and with retargeting campaigns?

It’s your turn

Knowing and using the ROAS formula is just the first step in measuring the effectiveness of your ad campaigns.

Knowing your customers and their buying habits is one of the most important aspects of creating a successful ad strategy.

You can also use e-commerce automation to speed-up the process of creating your ads, reaching your customers, and retargeting them.

E-commerce automation is where Convertedin comes in. You can upload your audiences to Convertedin and the platform will automatically create customer segments and lookalike audiences.

Start your free trial now!

What You Need to Know about the Difference between ROI and ROAS

difference-between-roi-and-roas

When you’re running an e-commerce business, there are many metrics to consider to keep your business running, making revenues, and profits.

Among these metrics are two often mixed up terms. They are: return on investment (ROI) and return on ad spend (ROAS).

Let’s focus on the difference between ROI and ROAS and how e-commerce businesses can use each of them and when they should.

What is ROI?

Return on investment (ROI) is metric that measures the performance of an investment.

Investopedia explains ROI as a metric used to “evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.”

Businesses who use ROI try to see whether the investment they made was a good one or not.

ROI is calculated by dividing the investment’s net profit (or loss) by the initial cost. The result is a percentage.

This is what the equation looks like:

ROI formula

It also looks like this:

ROI = profits-costs / costs x 100 = %

Here’s an example of ROI:

Kelly invested $1,000 in a business venture and sold it for $1,300 a year later. To calculate the ROI, we’d have to divide the net profit (the $1,300 – $1,000 = $300) by the investment ($1,000). This would result in an ROI of $300/$1,000, or 30%.

ROI can be used for a variety of things, although most businesses use it as a profitability measure. ROI was an investment measure before everything turned digital. Online businesses use it too.

However, there are some downsides to ROI. “While ROI is a simple and straightforward measure, it does not take into account the holding period or passage of time, and so it can miss opportunity costs of investing elsewhere,” notes Investopedia.

What is ROAS?

Return on ad spend (ROAS) is a metric that measures the impact of your marketing and advertising. Every dollar you spend on ads needs to translate into a return, a result.

ROAS is the metric that measures that result.

Whether you’re trying to track clicks or conversions, ROAS is what tells you if the dollars you’re spending are resulting in high value or not.

ROAS is how your business benefits from every dollar you spend on advertising messages and ads. The higher your revenue from dollars spent on ads, the better your ROAS.

The important thing about calculating ROAS is to know how much you are spending on ads and how much are you earning in return.

How to calculate ROAS

To calculate return on ad spend, you’ll need to divide your conversion value by the total amount of your advertising (or your advertising costs).

How to calculate ROAS – Image via Segment

But what is a conversion value?

The conversion value measures the revenue your business can generate from a single conversion.

This means that the ROAS formula can also look like this:

ROAS = revenue from ad campaign (divided by) cost of ad campaign = Ratio x100 = %

Let’s explain this better with an example:

If John spends $20 on advertising to sell a $100 product, then his ROAS is 5:1 or $5. That’s $5 in ROAS for every dollar spent to sell John’s product.

If your ROAS is less than one, it means you’re not making money; you’re losing money.

If your ROAS is $1, that is $1 earned for every $1 spent, it means you’re breaking even, which again isn’t a good indicator. But you’re not losing money.

But if your ROAS is above $3 for example, then for every $1 you spend, you’re getting $3 back and you’re making a profit. (That’s a 200% return on ad spend).

Discover the 46 E-commerce Vocabulary, Metrics and Biz Terms You Need to Know

If your e-commerce strategy is to achieve profit, then your goal would be to achieve the highest ROAS possible for your business. You’ll need to know what the average ROAS is for your industry so you can see how you average accordingly.

However, the target ROAS benchmarks are usually between 3.0 and 4.0. Again, these can differ based on the industry and the stage where the business is at. Larger businesses can enjoy good profits at a ROAS of 3.0, while smaller businesses might need to achieve a ROAS of 5.0 or more.

The difference between ROI and ROAS

You now have a brief idea of the difference between ROI and ROAS.

Do they sound similar?

Yes.

Are they similar?

Yes. And No.

The main difference between ROI and ROAS is that ROI measures the value of an entire investment. Yes, that investment can be ads as well. But it can also be an investment in a new business, a factory expansion, a new department, and so on.

ROI is profitability measure. It takes into account other types of spending, like new software for your business.

ROAS, on the other hand, is specifically about your ad spend and its performance. It won’t tell you if your ad spend translated into profit for your business.

Here’s another example that shows the difference between ROI and ROAS on application.

XYZ company spends $25,000 in ads and generates $100,000 in revenue from its ad campaign. However, it has other expenses such as software and personnel amounting to $90,000.

To calculate the ROAS: Revenue of ad campaign – cost = ratio x 100 = %

($100,000/$25,000) x100 = 400%

To calculate the ROI: profits-costs / costs x 100 = %

Profits (loss) = $100,000 – $25,000 – $90,000 = -$15,000

Costs = $25,000 + $90,000 = $115,000

-$15,000 – $115,000 x 100 = – 13%

As you can see, the ROAS is showing stellar performance. But once it’s included alongside other expenses to calculate the ROI, we see negative performance or negative ROI.

By calculating ROI, we can see that XYZ Company is making a loss.

Another major difference between ROI and ROAS is that ROI is about the money you make after deducting all your expenses, whereas ROAS compares between how much you’re spending and how much you’re making on ads only.

The sole purpose of ROI is to determine whether the campaign is worth the investment or not. By taking the margin into account, you can quickly determine your overall profits and determine what your actual ROI is.

The bigger picture of ROAS and ROI

ROAS focuses on advertising and its results. It helps businesses determine if their advertising efforts are paying off or not.

By focusing on ROAS, e-commerce businesses can make better future decisions, see where they need to invest their dollars, and how to better invest them.

That said, relying on ROAS only can be misleading for a business. Why? Because ROAS is about advertising results only. Your ad campaigns may be resulting in a high conversion rate, but the cost of each conversion is quite high resulting in an overall loss for the company.

An example of this is a business selling a product for $30 but generating leads at $50 per lead. Each translates into a $20 loss for the company.

The loss doesn’t necessarily have to be in the cost of the lead in the ad campaign. The loss may come from additional aspects such as production and shipping.

This is where ROI comes in. It factors in the other expenses that aren’t just related to the ad spend.

“When you consider ROI vs. ROAS, it’s important to remember that it isn’t an either/or situation. Whereas ROI can help you understand long-term profitability, ROAS may be more suited to optimizing short-term strategy,” notes GoCardless.

Next steps

There are many differences between ROI and ROAS. As a business you can’t rely on just one metric.

We recommend using both. Using ROAS to see how your ad campaigns are performing and then using ROI to see how your overall marketing budget and other expenses fit in the equation.

This means that an effective digital marketing campaign would rely on both ROI and ROAS.

Another metric you should include in your digital marketing efforts is customer lifetime value (CLV). CLV combined with ROI can offer great results for your business.

Want to know more about the metrics and means to help your e-commerce business? Tell us what you’re struggling with in the comments and we’ll share our tips with you.

Want to read more? Discover the 9 E-Commerce Trends for 2021 You Need to Know

9 E-commerce Trends for 2021 You Need to Know

e-commerce-trends-2021-online-shopping

The past 12 months have had more impact on e-commerce and customer behavior than any other time in the years and decades before.

In fact, recent data from IBM’s U.S. Retail Index shows that the coronavirus pandemic has sped up the shift from physical to online stores by around 5 years.

The sudden shutdown of physical locations and the shift to online helped the global e-commerce industry grow. Consumers who were forced to stay at home had to find another route to getting their daily needs.

That route was e-commerce and online shopping.

But as these shifts took place, new trends both for e-commerce and advertising emerged.

In this article, we’ll be tackling the e-commerce trends for 2021 that you need to know to help your online store make it through the year and beyond.

How has e-commerce changed in 2020?

As buyers turned to online shops for their needs so did physical stores.

On-ground stores resorted to the internet not only to be in contact with their customers but also to stay afloat and grow their business.

Many physical businesses who launched their website or rather refurbished their websites to handle the move to online shopping reported doing well in April 2020, according data by Brightpearl.

Small and average-sized e-commerce retailers said their annual revenues grew by 15% in April 2020, the report adds.

But e-commerce wasn’t the only industry or segment that was affected by the coronavirus. Online payments witnessed leaps across the globe.

According to the Q3 2020 COVID-19 Impact on Global E-commerce and Online Payments report, US consumers said they were “willing to change their shopping behaviors to adapt to the new reality.”

e-commerce-trends-2021-online-shopping

They also said they were likely to continue using “contactless payments even when the health crisis wanes.”

A Business Insider report on digital payments projects that credit card payments will grow to $1.82 trillion in 2024 from $1.75 trillion in 2019.

“High credit appetite and robust rewards programs…will entice spending and help the segment tick up, though growth will be slower than inflation,” it said.

E-commerce statistics you need to know

E-commerce was massively impacted in 2020.

To see the e-commerce trends for 2021 clearly, let’s first look at some e-commerce statistics to denote the impact.

–         Shopify reported a 94% year-on-year surge in revenue in Q4 2020 to $977.7 million, it said in February.

–         Sales across Shopify in the Black Friday-Cyber Monday long weekend recorded $5.1 billion compared to $2.9 billion in the same period of 2019.

–         In the UK, online retail sales jumped 74% year-on-year in January 2021, marking the largest growth rate since the first lockdown in March last year.

–         The UK’s “online sales accounted for a record 35.2% of all retail in January 2021,” according to data from the ONS

–         E-commerce penetration in the US accelerated by 10 years in a 90-day period in 2020, reaching around 33%, according to data from McKinsey.

E-commerce trends 2021

2020 was a year unlike any other. But 2021 picks up where its predecessor left off – in a way.

The year 2020 laid the foundation for e-commerce and e-payment growth for the years to come.

Here’s what experts and reports predict will be the e-commerce trends of 2021 and beyond.

1. New shopping habits

It’s no surprise that shopping habits or rather ‘new shopping habits’ are at the forefront of the 2021 trends for e-commerce.

The pandemic has forced customers and consumers to shift the way they buy, whether it’s groceries or clothing or furniture. Everything has changed.

Want to know the top e-commerce vocabulary and terminology out there? Check out our list of 46 e-commerce and business terms

“The biggest catalyst for e-commerce growth has always been the industry’s ability to break the general consumer’s time-worn habit of physically visiting stores,” notes Kevin Zhang, e-commerce entrepreneur and creator of the Branded Niche e-commerce program, in a Forbes piece.

Older generations who previously preferred in-store purchases are now discovering the benefits and convenience of online shopping.

e-commerce-trends-buying-online

It is likely that these older generations will continue their e-commerce shopping behavior even after physical stores reopen at full capacity, Zhang adds.

Another trend that’s been clear in 2020 was the buy online, pick up in-store (BOPIS).

Research shows that the BOPIS e-commerce trend is likely to continue well into 2021. Data from Brightpearl shows that 41% of consumers plan to increase their BOPIS trend in 2021.

BOPIS is likely to become “a mandatory requirement” for retailers who want to grow their overall sales.

2. Marketplaces are on the rise

Although many businesses are creating websites to accommodate online shopping, consumers look at what’s more convenient for them first and foremost.

Many of the newly-created e-commerce sites are unable to keep up with increasing traffic. They also struggle to provide adequate shipping options.

That’s why many shoppers are looking at marketplaces like Amazon and Etsy.

“As shoppers realize [that] shopping in a marketplace is easier and more convenient than shopping on multiple e-commerce stores – with the mental satisfaction of 2-3 day shipping and free returns on most items and most marketplaces, consumers will expect the same from all other e-commerce sites,” RANDYS Worldwide’s Nick Hayes explains.

3. Delivery is key to success

One of the e-commerce trends of 2021 is delivery. And the way businesses deliver their products is key to their success.

However, in 2020 as many businesses were faced with a shift to online and the need to deliver and ship their products to consumers, new problems arose. One of those was unreliable delivery.

This lag in delivery resulted in a weakening confidence among consumers, many of whom were only just starting to shop online.

Nearly 40% of online shoppers suffered order delays in 2020, according to BrightPearl.

E-commerce businesses should put delivery and shipping at the top of their strategies for 2021 if they wish to succeed and grow.

They’ll need to be flexible and focus on the speed of their delivery, having various fulfillment options like home delivery and BOPIS.

4. Trust is essential for consumers

Consumers like brands they trust. When shifting to online, they’ll search for retailers who can deliver “a consistent buying experience,” according to My Total Retail.

This consistent buying experience was badly affected by the move from physical to online stores.

The top buying experience issues reported were: delivery problems, issues with returns, communications, online payment, and general poor experiences.

If you’re an e-commerce business and want to offer a memorable experience and create loyal customers, then these points should be at the top of your list.

5. More tech spend for e-commerce businesses

It’s no surprise the spending on technology will increase in 2021.

Around 68% of retailers are projected to increase their spending on technology over the next 12 months, according to Brightpearl.

The top initiatives e-commerce businesses will focus on are social media marketing, web personalization, and expanding their online payment options.

6. The need for analytics is ever-growing

One of the best tools for measuring the impact of anything online is analytics.

The need for effective analytics that support online shopping and growth will be a major e-commerce trend for 2021.

e-commerce-trends-analytics

Many e-commerce stores look at the click-through-rates (CTR) and where their sales are coming from.

E-commerce businesses will need to focus more customer segmentation and use it to better understand their customers and drive their business and marketing strategies.

2021 trends for advertising and marketing

Not only will e-commerce trends for 2021 be affected by consumer behavior but also by marketing and advertising.

Check out Convertedin’s Guide to the ROAS Formula and Improving Your Ad Campaigns

Here are some trends that play a role in the e-commerce marketing and advertising sphere.

Dentsu’s Ad Spend Report 2021 expects ad spend to increase by 10.8% in India compared to 2020, which is the highest rise in ad spend globally.

The UK is expected to see the second highest rate of 10.4% in 2021 from a year earlier. Ad spend in France, Canada, and Italy are likely to “experience healthy growth” at 8.9%, 7.2% and 5.9%, respectively, the report says.

In terms of ad market share, the US dominates with 37.9%, followed by China in second place with 17.6%, and Japan and the UK at third and fourth with 9.9% and 5.1%, respectively.

7. More marketing as more people shop online

The pandemic has changed the way people shop and where they shop. It has changed both their behavior and their buying psychology.

This, in turn, has offered new and massive opportunities for small businesses.

In addition, new niches have come into play or rather niches that didn’t have much traction. An example of this is the rising need for sanitation products as people seek to keep themselves safe from the pandemic.

8. Video ads are on the rise

With more people going online and more social media platforms coming to the forefront, e-commerce businesses have an opportunity to reach more and conquer more.

Video marketing is making major headway across platforms like Snapchat, TikTok, Instagram.

The social platforms themselves are making deals and taking advantage of the growing number of video viewers worldwide. In 2020, Facebook announced the launch of Instagram Shops, while Shopify announced a partnership with TikTok.

video-marketing

The Shopify-TikTok deal allowed merchants to “create and connect their TikTok For Business account and deploy In-Feed shoppable video ads directly within Shopify. Merchants select which product they would like to feature, and video ads are automatically generated that drive to their Shopify stores for checkout,” explains Shopify.

9. Using AI for better experiences

In the past few years, there’s been a rise in artificial intelligence (AI).

In 2021, AI will take the e-commerce space by storm. Many apps and startups have already emerged on the scene.

The main application and use of AI in e-commerce has been machine learning and chatbots.

Here’s What You Need to Know about the Difference between ROI and ROAS

If you have an online store and you’re offering recommendations to your customers based on previous purchases and their search history, then you’re using AI. And kudos to you!

Did you know that Convertedin uses AI to power customer segmentation to create automated ads for businesses like you?

Make these e-commerce trends work for you

Whether it’s e-commerce or marketing trends, it’s important to make these ideas work for you and your business.

But how?

One of the top benefits of e-commerce in general, and e-commerce marketing in particular, is the presence of analytics.

Every day analytical tools emerge and offer strong opportunities to measure the impact of marketing, sales, as well as internal efforts to improve products and services.

Using analytics, like segmenting your customers and looking at where your traffic is coming from, can help you understand your customers better.

This means you can offer them better experiences and build long-term relationships which translate into higher customer lifetime value.

Seize the opportunity

The pandemic has changed many things. Some for the worse and maybe some for the better.

For one thing, it has sped up advancements and offered new opportunities in the world of e-commerce.

It has made people think, buy, shop, spend, and live differently.

As an e-commerce business, it’s your job to heed these trends and use them to your advantage.

Business is a learning process and with a pandemic there’s more opportunity to learn and experiment. Businesses who didn’t change and adapt their model and advertising to the new norm were hurt badly, while many had to close shop.

Though this year offers many obstacles for e-commerce, it also offers many opportunities.

You can start seizing one of these opportunities when you sign up with Convertedin and explore our AI software that segments your customers multiple audiences and lookalike audiences for your business.