Revenue isn’t the same as profitability. Even major businesses like Peloton sell hundreds of millions of dollars in products every year but lose money or barely break even. Return on investment is a better way to measure how healthy your store is. This guide explains what a good ROI is for ecommerce and how to boost your profitability.
What Is Considered a Good ROI for Ecommerce Businesses?
The average ecommerce ROI varies a lot depending on the type of products or services you offer. A good target is about 10%, which is the average ROI of the stock market. That said, when accounting for inflation, the average annual ROI for businesses is closer to 7%.
How To Calculate ROI for Your Business
ROI compares revenue with costs. Many businesses use it to calculate annual profits. To do this, you subtract your company’s total costs from the money you made in the year, then divide the result by your investment:
- Total revenue: $250,000
- Total costs (product costs, marketing, overhead, etc.): $200,000
- Net revenue: $250,000 – $200,000 = $50,000
- ROI: 50,000/200,000 = 0.25 x 100 = 25% ROI
You can also calculate ROI for specific business activities. For example, compare the cost of Facebook Ads versus the total sales they bring in.
What Is the Average ROI for Ecommerce and Other Industries?
On average, online retailers have an annual net profit of 6% to 8%. This is slightly lower than the average ROI for in-store retailers of around 10% to 12%.
Technology companies have a whopping ROI of over 25%. Financial businesses average around 11% ROI.
What Factors Affect Your Store’s ROI?
It’s not easy to nail down a concrete benchmark to measure your Shopify store against, mainly because ecommerce is such a broad category.
Business Model
There are many ways to create a successful Shopify store:
- Dropshipping
- Print-on-demand
- Premium goods
- Branded items
- Handmade products
There are even Shopify merchants that have small retail shops, selling to local clients and online customers at the same time.
Products
Some dropshipping stores have lower profit margins but make money by selling a higher volume of trending products to a wider audience. Other stores deal in luxury goods, branded items, or customized products, making more money per sale even though they have fewer clients.
Economy and Consumer Habits
E-commerce businesses often have to deal with consumer volatility. In other words, your store may be more profitable at certain times of year, such as around Black Friday.
Operating Costs
One way to boost profitability is to lower the costs of running your business. E-commerce solopreneurs don’t have to worry about hiring costs, unemployment insurance, or building insurance, which helps a lot with ROI.
Time in Business
Established Shopify stores with a loyal following tend to have better returns on investment. It can take a while for startups to become profitable.
What Is a Good ROI for Your E-Commerce Business?
When working with new Shopify store owners, we recommend setting specific, reachable goals for revenue. A good ROI for e-commerce is mainly about making progress. If you’re at 5% ROI now, try to reach 6% over the next three months. Use e-commerce apps to increase your average order volume, such as Bundle Builder and Automatic Discounts & Upsells. At StayTuned Digital, we can help with everything Shopify.