Setting Ecommerce Marketing Goals
Target ROI Considerations for Growing Merchants
How much should you spend on advertising to
make a sale?
Though a central influence on your rate of
growth and profit, the target ROI goal is rarely
given adequate consideration by ecommerce
merchants. A simple review of average product
margin is often enough to propose a safe-
sounding metric to be the company’s target ROI.
Heads nod in agreement that this “seems like a
reasonable amount of money to pay for a sale.”
Key Thought
A one-dimensional approach to ecommerce goal setting reveals an
inadequate understanding of the true goal of your marketing and the
true levers of business growth.
Setting Ecommerce Marketing Goals
All advertising programs are then measured
against this target. The director & executives are
happy that their advertising goals are being met.
This makes the manager happy, which locks in
this target ROI figure as the key to professional
f
approval and marketing channel success.
Since a target ROI figure contrived in such a
manner holds precarious underpinnings, stubborn
resolve must often be employed to maintain the
honor of this number. The first rule of the target
ROI is: you do not question the target ROI.
2 | •••••••••••••••••
 LOREM IPSUM

Congratulations!
Your willingness to continue reading implies
your refusal to blindly accept an arbitrary
number as your definition of success. You’re
willing to think through the core tenets of
your marketing goals to uncover any blind
spots. You want to drive real growth.
This report presents critical, yet often
overlooked considerations in determining
your target ROI. Each of the considerations
presented herein assume the following two
core assumptions:

• Profitability is a Deceptive Substitute

for Gross Profit

• Initial Profit is a Deceptive Substitute

for Complete Customer Value *

*Complete customer value encompasses customer lifetime

value plus the value of referrals from these customers.

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 Initial Considerations
The considerations presented in this report
are equally applicable whether your target
metric is defined by Return on Investment
(ROI), Return on Ad Spend (ROAS), Effective
Revenue Share (ERS), Value/Cost (V/C), or any
other revenue-based performance indicator.
Occasionally an ecommerce merchant will
define their goal as hitting a specific amount
of ad spend (per week, month, etc.). Don’t
be mistaken, this is not really the “goal.” Ad
budget is instead a testing parameter when
optimizing to an ROI-based goal.
During initial optimization, multiple goals
can compete with one another. For example,
optimizing for increased ROI often results in
a decrease in ad spend, which in turn may
decrease your sales volume and total revenue.
Oftentimes, however, you need to take one
step back to take two steps forward.
The “investment” part of ROI is pretty
straightforward. The real gains come when you
understand the true nature of the “returns”
part of ROI. Let’s dive in!

Key Thought
You can only optimize for ONE metric at a time. 'But I’d like to grow total revenue by
50% and increase my ROI from 8:1 to 10:1!' No. This can indeed be a long-term goal,
but in a pragmatic sense, you will need to give one of these goals the priority.

Setting Ecommerce Marketing Goals 4 | •••••••••••••••••

 Optimize for Gross Profit, Not Simply Profitability
Consideration 1: Variation in Product Margin
A broad-brush ROI goal assumes your average
gross margin holds steady, even when you
segment orders by brand, category, acquisition
channel, campaign, and ad group.
In truth, however, unless you’re the uncommon
merchant with an identical margin on every
product, it is almost always wrong to set your
ROI goal based on average product margin.
Averages can lie. Campaigns target small
subsets of your product line, with individual
products often driving a disproportionate
amount of sales. Ad groups often attract
orders out-of-line with campaign averages.
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The best way to take this variation into
65% COGS
account is to track the gross profit of every
sale, not just the revenue. “Returns” will then
be normalized as gross profit when analyzing
the data, allowing you to gauge (and optimize)
the real profitability of any segment.
25% COGS
We’ve developed an integration between a 35% Margin
backend product catalog, customer orders,
and Google Analytics for clients to perform
this non-trivial analytics feat in real-time. 50% COGS
But, short of this, you can perform a one-off
analysis in Excel to uncover any outliers.
75% Margin
50% Margin
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 Co ns i d e rat i on 2: C hanne l-Spe c if ic Profit Potential

As you’re well aware, profitability does not equal potential and the expected ROI. Competition Would you rather have...
profit. A “10 to 1 ROI” may look good on paper, will increase with the size of the opportunity,

5 5
PROFITABILITY PROFIT
but companies grow based on gross profit, not which tends to shrink returns.

FIVE
by simply hitting a target ROI. Oftentimes the
volume of sales available at a lower ROI results Great advertising will certainly help boost your
in more total gross profit to the business. ROI. The best strategy, however, involves
unlocking all the revenue potential in your 5 FIVE DOLLARS 5
As a general rule, there tends to be an inverse market.
relationship between the traffic volume 50% of $5
or
Key Thought 25% of $20?

You often won’t discover new pockets of 20

PROFITABILITY PROFIT
20
revenue potential without testing the amount TWENTY
of gross profit returned at various levels of 20 TWENTY DOLLARS
20
advertising spend and ROI.
50% is the larger number, but not the larger profit.

Setting Ecommerce Marketing Goals 6 | •••••••••••••••••

 Co n s i d e rat i o n 3: Market Share

Every customer you win is a customer lost by a

competitor. They’re still paying for their market
share, so this drives down their ROI and edges
them out of the market. To the victor go the
spoils. Every market seems to be dominated
by one or two big players. You likely want to
be THE major player in your market. As your
market share increases, the increased name
recognition provides a nice bonus in branded
searches and sales.

If it helps motivate you, you can also think

of the inverse: Every customer won by a
competitor is a customer you have lost. Your
reluctance to budge your target ROI has
cost your company the lifetime value of this
customer. Could have been so beautiful!

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 Consideration 4: Cross-Channel Influences and Attribution

No acquisition channel operates in a silo. You must maintain mindfulness and a global
Instead, while the attribution percentages vary, perspective on customer acquisition as a whole.
every channel is both helped by and helps other When performing changes in one channel to

PPC
channels on the path to making the sale. hit certain ROI goals, you may inadvertently
cause another channel’s performance to shift.
• Paid search and SEO
• Desktop and Mobile Don’t fixate on making a big adjustment to ad
spend or ROI without at the same moment
• Category and Branded keywords
closely monitoring the performance of other
• Online and Call Center channels.

Branded Call Cross

SEO Center Device

Setting Ecommerce Marketing Goals 8 | •••••••••••••••••

 Optimize for Complete Customer Value, Not Simply Initial Order Value
Consideration 5: Customer Lifetime Value

Every follow-on order from a loyal customer has
virtually zero additional advertising costs. As such,
this is where the majority of profit can be made. If
your marketing budget doesn’t take into account the
lifetime value of a customer, then it’s safe to say that
your business isn’t optimizing for this key metric.
Of course, you’ll need several months of working
capital to pull this off, but paying to win a new
customer is a fantastic investment when you
KNOW that a predictable percentage of these
customers will become repeat buyers.
Be aware that optimizing to an “average” customer
lifetime value can be a dangerous endeavor. With
some digging, you’ll likely discover variables in the
Lifetime Value
source campaign and initial order which correlate
to customers with lifetime values much higher or
much lower than the average.

30% Marketing 45% 50%

50% COGS Costs 20% Net Profit 55% COGS Gross Profit 50% COGS Gross Profit

Initial Month Month

Sale Three Six

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 Customer Lifetime Value (Continued)
Similar to the method described in the first
consideration (“Variation in Product Margin”),
you can pipe in a predicted lifetime value
number into Google Analytics at the time of
the initial order. This allows you to maintain
a consistent ROI target across campaigns,
while optimizing campaigns and ad groups
which drive higher lifetime value.
These campaigns will now have a higher
value as the return, which produces a very
strong ROI. Such a metric would prompt an
analyst to increase the bid, which in turn will
result in even more sales of this high-value
variety. A win!
Setting Ecommerce Marketing Goals
$$??
As with all “complete customer value”
considerations, which include considerations
below, the “R” in your ROI target takes on
new meaning when accounting for these
additional returns.
Just because you earn money 3-6 months
from today instead of today doesn’t make it
any less real. (Well, in an accounting sense
the present value of this future cash is
diminished by a few percentage points when
you factor in the time value of money—you
could have invested the money and earned
some interest.)
10 | •••••••••••••••••
 Consideration 6: Customer Referrals
Any good ecommerce retailer will benefit
from some level of customers referring other
customers. Happy customers tell others. You
paid for the initial customer. The additional
customer brought to you through word-of-
mouth referrals was actually “paid” for by
your marketing investment for the initial
customer. If referrals are a predictable part
of your business, your advertising goals
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should be taking this into account, as part of
your Complete Customer Value.
For example, if 1 out of every 10 customers
refers a new customer, each new customer
is actually worth the value of 1.1 customers.
In such a scenario, your true returns can be
adjusted up by 10%.
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 The Underutilized Master Lever
Conversion Rate Optimization

More foundational than countless channel- bottlenecks in the flow from visitor to
specific optimization strategies, work done to customer, then implementing the proposed
increase the conversion rate of your website changes as a test (current website vs. hopefully
will increase the ROI of all your acquisition better performing updates). When the test
channels in one fell swoop. This affects your wins, you win more revenue. These results of
top-line revenue, sometimes by double-digit these wins continue day after day. Then you
percentages. test again. Iterative testing compounds your
wins further.
Conversion rate optimization involves
understanding the goals of your site visitors, Yes, it’s a solid strategy. Even so, conversion
proposing website changes to remove rate optimization is severely underutilized.

Key Thought
Conversion Rate Optimization can be performed by anyone, yet the biggest wins usually flow from
tests following specific, experience-proven principles and methodologies. The Conversion Rate
Optimization team at ROI Revolution possesses such experience with ecommerce merchants.
Email cro@roirevolution.com to set up a free consultation.
Setting Ecommerce Marketing Goals 12 | •••••••••••••••••
 Pulling it All Together
Devising Your Target ROI
Note that any adjustment to your expected
returns in light of the above considerations
does not mean your marketing investment
must raise proportionally. Instead, let your
eyes adjust to the newfound light source
placed upon your business as you make
sound business decisions to maximize your
revenue as a whole – not just your initial
order revenue.
You may now have much more ROI wiggle
room to test. As explained in the second
consideration (“Channel-Specific Profit
Potential”), certain channels may never
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provide a great ROI – yet these channels
may provide substantial volume to grow
your market share. It is conceivable that
certain channels may even have a negative
ROI where you actually lose money to make
the sale.
While this would be an absurd proposition if
you were simply looking at initial order value
as the measure of your returns, a knowledge
of the full value of new customers can make
such channels an incredibly compelling
opportunity. Or not. Either way, you know
your business better.
13 | •••••••••••••••••
 Communicating Your Target ROI with an In-House/Agency Team

Once you formulate your target ROI based on these considerations,

it is most helpful you communicate this to front-line campaign
analysts as a “range.” Since it is virtually impossible to hit an ROI
target on the nose, every analyst is going to feel out the accepted
range anyway in order to do the job.

ROI is best communicated as a percentage. A 5:1 ROI is better

expressed as 400% using the calculation of ($5 Revenue - $1
Cost)/$1 Cost. You don’t want to lock yourself into a whole
number just because it sounds better. A percentage-based
ROI allows you to say 350% with a straight face, whereas the
corresponding ROI of 4.5:1 sounds so weird it wouldn’t be used.

Key Thought
Take the lead by communicating the ROI range you’d be comfortable with, along with
a hard-limit that should never be crossed. For example: “I’d like to hit between 425%
and 500% ROI, and I NEVER want to go below 350%.”
Setting Ecommerce Marketing Goals 14 | •••••••••••••••••
 Communicating Target ROI (Continued)

Additionally, even though the advertising
budget itself isn’t a legitimate “marketing goal,”
it is definitely a solid business concern for all
stakeholders.
So, when communicating the target ROI range,
also communicate your comfortable budget
range. Something like, “Let’s keep the monthly
ad spend between $45,000 and $50,000.”
(Budget can be controlled more directly than
ROI, so the top-end figure is assumed to be
your budget cap. If it isn’t, say so!)
Once your ROI goals are met, consistent
budget increases are the most scalable way to
grow revenue. As such, a growing company will
almost always be marked by an ongoing growth
in ad spend.
And, as has been a major theme in this entire
report, you want your front-line analysts to
consider your true business interests. You don’t
want to encourage a machine-like fixation on a
specific profitability goal.

Key Thought
Unless you’re trying to pad your revenue or customer stats for an acquisition, gross profit is the
real name of the game. Assuming great back-and-forth communication, give your analyst the
freedom to test the variables of your campaigns. This, in the end, is the surest path to growth.
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5 Underutilized Developments
in Ecommerce Marketing
The ecommerce digital marketing landscape
changes constantly. Early adopters gain a
competitive advantage; stagnant merchants
slowly lose ground. For this report, we compiled
the top marketing strategies that remain underutilized by most
merchants.

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 Company Profile
ROBUST TECHNOLOGY. RESPONSIVE EXPERTS.
ROI Revolution is an e-commerce-focused digital
marketing agency providing expert full-service
management of paid search, online shopping,
social media advertising, and search engine
optimization.
ROI’s dedicated experts use a full suite of proprietary
software applications to deliver exceptional results
for our 270+ clients. This ever-growing list of clients
includes: Peter Millar, Vermont Teddy Bear Company,
Silver Jeans, and many others.
Most campaigns can gain at least 20% efficiency
almost immediately with the right tactics in place.
Meet with ROI Revolution for a complimentary
campaign review & gift.
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Dedicated to Achieving Client Success Through:
• Industry-leading paid search management
of Google, Bing, and Yahoo.
• Reaching and expanding your audience
through Facebook Ads management.
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through Amazon Marketplace management.
• Giving clients a competitive advantage with
our ecommerce-empowered proprietary
software suite.
• Offering expert resources, special reports, Learn more at ROIRevolution.com
and white papers.
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Setting Ecommerce Marketing Goals
Target ROI Considerations for Growing Merchants