A repository of acronyms, jargon, and useful definitions perfect for eCommerce founders & marketers like yourself.

Return on Investment (ROI)

Return on Investment (ROI)

Return on investment is a rate that tells the merchant about the money he has earned after investing a certain amount. A high return on investment reflects higher benefits. There are multiple benefits of formulating a return on investment. It is universally understood by people since it is very easy to compute.  On the basis of ROI, you can make a decision whether to invest or retain. There are various formulae for calculating. Most used is-

Return on Investment (ROI)= Net Profit / Amount Invested

For example, a merchant invested ₹5000 in his business. At the end of the year, he had a total sum of ₹6000. His return on investment will be calculated as (6000-5000)/5000  100, it will come out to be 20%. 

Ways to improve return on investment

Here are few strategies to improve your return on investment,

  1. Work on personalization - You should work on creating a separate highlight on your webpage or application, “recommended for you”. This attracts people to purchase more. Here, you can show products related to their previous search or their previous orders which lures them to spend more. 
  2. Influencer campaign - the best marketing strategy nowadays is to promote your products through influencers. Influencers are people with a follower base of nearly 5000. customers are swayed by them.
  3. Sponsored ads - to increase traffic and sales, businesses use sponsored ads as a way to reach users. Social media platforms you use for sponsored ads affect the traffic you get. 
  4. Offers - to increase sales, give offers and discounts to your customers.

What is a good rate of return?

It is difficult to predict one good rate of return. It varies due to multiple factors. The most important is to which sector the business belongs. The average rate of return is considered to be 10%. The rate of return also differs from person to person, young entrepreneurs want a high rate of return while retiring people want money to sustain their lives. The rate of return is also dependent on the risk involved. The higher the risk involved, the higher would be the rate of return. 

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