ROI Metrics vs. How You Feel
Mark Twain was famed for many things, but the one phrase of his I like the best always has been, “there are lies, damn lies and then statistics”.
A good statistician can probably make numbers say just about anything they want them to. In this modern Internet era, the concept of Return on Investment (ROI) metrics has taken on a life of its own. Moreover, as retailers, we’re faced with the esoteric goal of judging whether a particular investment is paying off in the manner we would hope. Expectations can be high and usually are made worse by the sometimes slick sales pitches we here from vendors. “Our solution will increase your sales conversions by 50% or more” or “Many of our customers experience a sales lift of 30% or more” and so on.
Enter the analytics engines and the ROI metrics and the “sales job” to convince you that things are not only better than what you think, but they’ll keep getting better and better as you go. The reality is whatever you’ve invested, whatever your hopes are for a particular solution, take the marketing literature and the quasi-assurances that you can’t lose with a particular solution and flush them. In the end, you have to FEEL the difference in a solution. Empirical data can only go so far, but if you look at your bank account and see not as many $$$$ as you once did then clearly you need to start exploring whether a solution is working or not.
The Cost of Increasing Your Profits
Some solutions are pure cost centers and always will be. If you have a complex sales tax problem spread across multiple states, or have drop shippers and affiliates in some states that are saying they constitute a physical nexus for your operations now, then you need a more robust integrated solution so that you can ensure your business exposure, aka your tax liability doesn’t turn a good year-end profit into a tax audit payment to the state governments. We know the ROI metric for these types of solutions is simple…we do not want the Tax Man coming to our doors at the end of the year. Simple enough. We PAY to have some level of security in knowing that our tax liabilities are being taken care of.
Other solutions are profit centers, and are meant to draw visitors in, to bring them to our doors. These might include SEO work, Pay-per-click (PPC) advertising, or Comparison Shopping Engine (CSE) publishing of your product catalog. Whatever you are doing in this arena, there are associated ROI goals. Marketing dollars are being used fruitfully if you are getting a big return on your investment. Most ROI gurus want you to get a 10-1 return. (Yea, right, and I have a bridge in Brooklyn you might be interested in too.) Don’t get me wrong. A ten-bagger, as it’s called, is the type of investment that one can look back on and say, “yea, duh…of course I bought Google on the opening day.” But the reality is that markets and marketing dollar buys rarely return a 10-1.
So, what’s a good number? Of course, this is a by-product of what you are trying to accomplish with your marketing buys. Sometimes, you want a pure sales conversion, other times you’re simply trying to drum up site traffic, or possibly you’re looking to simply see if a market even exists for your particular offering. In the end, ROI metrics around PPC, CSE or other expenditures comes down to (in most cases) are we at least breaking even.
Generating site visits and even increasing your sales conversions are one aspect to a successful retail operation, but what about once they are there? Are we not only converting them now, but are we engaging with them post-sale? If they’re on the site, and leave are we attempting to rescue the sale with a special offer? What about post-visit, post-rescue attempt? Are we engaging with them with a shopping cart abandonment campaign? Are we cross-sell/up-selling them in our communications with targeted recommendations? Are we attempting to engage with visitors to get them to market on our behalf to their friends? The list of potential ROI metric answering questions goes on and on.
The point here is that each retailer needs to setup a set of ROI metric goals. Obviously, most retailers want to increase sales conversions and average order values, but the very next question I always hear after that is….how can I do that? First, you need to make sure you have a good idea of what people are doing on your site. Where are they dropping out of the buying process? When they do drop out, what do you (if anything) to stay engaged or re-engage? How do you take a first-time shopper/customer and turn them into a repeat customer who recommends your products to their friends? And finally, of all of your efforts in this area, what is and isn’t working?
I can spin yarns aplenty about what your ROI metrics show. I can give you all the ROI metrics that you need to see how your sales conversions are working, how your AOV is increasing if you use a personalization and targeted recommendations for visitors, but in the end, how does it feel to you?
Bad Economies and How “Flat is the New Up”
The last point to consider is that year-to-year comparisons are probably the single worse facet to focus on these days. Our economy is coming out of a Grand Recession as it teeters on the brink of a Phenomenal Depression or even a Cataclysmic Market Implosion….but I digress, this is the news these days, our US economy is battered and bruised, shopping seems better, but then we get a jobs report that has everyone ducking and covering like we’re in a Stop-Drop-and-Roll commercial from the 1950s. The US Government is weighing the options of what a first-ever in our history US default might do to the world economy…and here we retailers sit, trying to convince visitors to part with their money so we can make a buck.
If this is what the people have to hear about day in and day out, is it any wonder Flat is the New Up? Heck, what is the New UP going to be next year? Only a 10% loss? Seriously…the news is no particular friend to our shoppers unless you sell 2012 End-of-the-World Do-It-Yourself Kits…hey, there’s an idea…but seriously, if we got even a single quarter of It’s a Wonderful Life that alone would likely kickstart our collective hearts into another buying frenzy, but that’s not the point.
In a down economy, you simply cannot try and compare year-to-year numbers because McIntosh Apples and Valencia Oranges will simply not compare. So, what do you do? You have to go to the numbers again and see what is and isn’t working. Are your sales orders down? But AOVs are up? Then clearly while your year-to-year numbers might not make it easier to sleep at night, at least you’re doing something right to be increasing your AOVs. Site visits are up, but sales are not closing? Maybe shoppers are comparing prices and it’s time to sweeten the pot with a rescue attempt and the band plays on.
The bottom line is that ROI metrics can be and should be your greatest weapon in the decision-making process. If it feels bad, it very well may be, but without reviewing the actual numbers you may make a bad situation worse by leaping when you should be battening down the hatches and preparing for the long haul. In the end, how we feel ALWAYS impacts our business decisions, but ROI metrics can help us to know if what we are feeling is REAL or if it’s just a changing market position. How we feel should never be the end of the conversation, but simply the beginning. So, how do you feel?