The Return on Investment (ROI) is an essential metric that businesses use to measure the efficiency and profitability of an investment. It provides a tangible, measurable value to assess the financial returns and gains from an investment.
In the case of Fit Quiz, the ROI metric shows the overall impact Fit Quiz has on your store's sales and returns.
How is ROI calculated?
The traditional formula for calculating ROI is:
ROI = (Net Profit / Investment) x 100
This formula expresses the ROI ratio as a percentage.
In the context of Fit Quiz the formula expands to:
ROI = ((Additional Sales + Return Savings) - Fit Quiz costs)/Fit Quiz costs x 100
Here's what each term means:
Additional Sales – calculated by subtracting the sales conversion of shoppers who didn't use Fit Quiz from those who did. This difference shows the impact of Fit Quiz on overall sales and is used as the basis to calculate the "Additional Sales".
Return Savings – calculated by subtracting the return rate of items purchased without the Fit Quiz from those with it. This difference indicates the amount of returns prevented by the Fit Quiz. Based on market benchmark, we assume that cost associated with the return (shipping, packaging, warehouse expenses etc.) is about 15% of item's price and use that to calculate the "Return Savings".
Fit Quiz Costs – this represents the cost of using Fit Quiz for a given period. For pay-as-you-go subscriptions the costs will include both fixed and usage fees, and for annual subscriptions the costs will be calculated pro rata
Interpreting the ROI Metric
To understand the monetary value, simply divide the ROI metric by 100%. For example, an ROI of 1,200% means that you gain $12 in additional sales and prevented returns for every $1 spent on the Fit Quiz.
What is a Good ROI?
The answer varies, but here are some general benchmarks:
Below 500% – below average. Consider reaching out to the team for improvements.
500-1,000% – average. Fit Quiz's performance is on par with the market average.
1,000-2,000% – great. Fit Quiz is delivering between 1x-2x of net gain.
Above 2,000% –excellent. Fit Quiz is performing exceptionally well.