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How much should you get out of your investments in your online business? Or, in other words, what is a good RoI in commerce?
Well, there's no cut-and-dried answer to these questions. At the end of the day, you're going to be the one who decides what's a good margin. The number can also depend on what the niches of your products are.
An ROI is an acronym used to denote the phrase 'return on investment. Although it might come off as a technical term only people with a certain business acumen would know, it's actually fairly straightforward.
It can be summed up as the percentage that businesses can use to know how much their investments have paid off. A high return on investment means that a particular investment has been profitable to the business, while a low ROI tells the exact opposite story-that an investment wasn't useful to increase revenue/profit.
An ROI is a number and you can find out how much yours is with a simple calculation. That is of course, if you know your business's net income and how much that new investment cost.
Here's the most popular formula for calculating your return on investment - you take the amount of money your business made, subtract your initial investment, take that resulting number and divide it by how much the investment you're solving for cost.
You're going to want to turn that result into a percentage for accounting purposes, so go ahead and simply multiply it by 100%, and voila! That's your return on investment!
Now that you know what return on investment means and how you can calculate your business' ROI, it's time to ask a question with more substance. What's a good ROI for your eCommerce business?
You might be disappointed, but there are no cut-and-dried answers to this question, mainly because the term 'good' is subjective. The higher the better is all we can say right now. An optimal ROI number is not only industry-specific but also business specific.
You and your competitor could be in the same or related business niches yet your conceptions of a 'good' ROI may be different. It could be that you expect a lot from your marketing campaigns because you just started out and would like to acquire new customers. Your marketing campaigns may be a sizable investment.
On the flip side, your competitor may be a seasoned veteran of an online business. It might have a loyal customer pool and won't need to work as hard as your company to market its products.
Now, you'll of course invest a lot, and your expectations for a return on this investment are a lot, given that you'll have spent more than your competitor. So a low ROI for you would be bad, but this same number wouldn't nearly affect your competitor because they already have a chunk of the market share which has been consolidated over time.
The bottom line is a positive ROI can be considered 'good' since you're making profits on the money you spent. Beyond that, it's up to you to say what's a good return on investment and how much isn't enough. Some sources say you should aim for more than 7%. But this depends on the type of investment as well. Take you and your hypothetical competitor we talked about in the previous section.
For an online pay-per-click marketing/advertising campaign investment you made, some estimates say your return on investment should be somewhere between 25-50%.
Most eCommerce businesses have been booming ever since COVID hit and they haven't looked back. The eCommerce market is set to grow even bigger in the coming years as people and companies pivot to join the digital community.
Calculating your return on investment is essential if you're trying to grow any business, not just an online store. The answer to the question what is a good return on investment? Is not a definite one as we've already said.
It depends on the market you're in, what type of investment you're making, and other factors.
If you're looking to grow your online business and see a very good return on investment, make sure to check out Juice, an AI platform that leverages artificial intelligence to take care of your content marketing strategy. Simply put, Juice writes all the content for your blog posts which you can use to bring in new customers.
Juice does this instantly, so you don't have to waste time, money, and energy to write, post, and optimize the SEO of your content. Juice also has other functionalities that you don't want to miss out on if you want your ROI to rise higher than average.
