Are you a member at Costco? If so, what was your logic when joining?  You likely estimated how long it will take to recoup your annual membership fee investment.

Your math may resemble this:

• When you join Costco for $99/year, you may save 10%.
• You’ll get your fee back after spending $900, which would cost $1,000 elsewhere.
• Anything spent above that, and you’re getting a ‘free’ 10% off.

We do similar ROI math in other parts of our lives. A movie ticket now costs nearly $20. When I pay Netflix $20/month, I know that if I watch just one movie at home, I’ve already paid for the service. 

The Wall St. Journal, in reviewing a new running app called Runna, extolled the ROI of the app: "Human coaches cost upward of $120 a month. Runna costs that for a whole year."

If a  WSJ reporter were to calculate the ROI for our service, what would they find? Let's find out.

ROI for Online Store Services

Four ROI Calculation Approaches:

1. Labor ROI

If the WSJ were to review us, they could write: "Website maintenance often costs $20 per hour. Shop Local does it for just $1.60 per hour—80% less!" 
They may then add, "Plus, it gives the indie merchant award-winning software, sales leads, a higher Google ranking, and a gift registry service."

I'll explain how I arrived at this 80% savings.

My ROI math:

• A store receives 2,000 Synced products with our starter Shop Local plan.
• 2,000 products =  6,000 minutes of work (each product takes a person about 3 minutes to add).
• Annual maintenance adds 20%, bringing the total to 7,200 minutes.
• 7,200 ÷ 60 minutes = 120 hours
• 120 hours ÷ 12 months = 10 hours/month we provide to the retailer.
• The retailer likely pays $20/hour for labor, so that 10 hours costs them $200/month.
• Our starter plan is just $16/month.  
• Result: Instead of the retailer paying $200/month for a person, they pay $16 for our  service to automatically do the work ($20/hour vs. $1.60/hour).

We want store owners to know they can cut their costs 80%: pay the equivalent of $1.60/hour instead of a real person $20/hour.

Plus, when a merchant pays someone to manually update their products, they still need to pay for software separately. That often adds $100s per month to their existing $200 labor cost. 

2.  Price Changes ROI

We reduce the merchant’s cost by 74%. 

My ROI math:

• Our service often helps merchants avoid losing 9% on an order.
• Let’s imagine a merchant sells $1,000 online per month. Our service will likely help them avoid losing 9% on price changes because our service automatically updates the prices to the correct prices for them. They’ll avoid losing  $90 (9% x $1,000).
• On $1,000 in online sales, they'd pay us $116 total ($100 performance fee and $16 subscription fee).
• They avoid $90 but pay us $116, so their net fee is $26.
• On a $1k order, their gross fee is only $26–just 2.6%. Most merchants pay 4x this per sale (About 10%).

3.  Sales View ROI 

When a retailer signs up for our $16/month plan, they need to sell $32+ to recover their fee. Many stores wonder: How quickly will that happen? 
Answer: Just one sale. And it not only pays for the first month, but pays for four.

My ROI math:

• The average registry sale via our platform is $164.
• At the $16/month plan, we take a 10% performance fee.
• Assuming half of this order pays for the product at wholesale, that leaves the store with $82.
• Subtract our10% fee ($16.40, which we’ll round to $17), and the store gets $65 ($82 - $17). (Note: This $65 doesn’t account for operational costs, such as rent, staffing, etc.; this $65 is a gross margin.)
• $16 goes into about $65 four times.
• Therefore, one sale pays for the service for 4 months.

We want to tell clients this in a sales call: "Just one sale pays for the service for 4 months."

Bonus: The above ROI calculation doesn’t include the labor savings we provide. Independent of making a sale, we save merchants $150 per month in labor costs at the $16 plan. 

4. ROI Comparison: Shop Local vs. Shopify

A. Approach 1: Use ChatGPT to Calculate ROI

I recently asked ChatGPT to compare pricing for Shop Local vs. Shopify. It gave us a great assessment that we put on our website:   https://www.shoplocal.org/shop-local-vs-shopify.cfm.

B. Approach 2: Use My Analog Brain & Primitive Math Skills

Our service provides 33% more value than Shopify. 

My ROI math:

• Shopify's lowest plan is $29/month.
• The average wedding gift purchase is $164. Assuming half of this pays for the product at wholesale, that leaves the store with $82.  
• The $29 fee goes into the $82 gross margin about 2.8 times. Therefore, an order pays for the service for 2.8 months.

Summary: Shop Local's $16/mo. Plan vs. Shopify's $29/mo. Plan

• One sale via Shopify pays for the service for almost 3 months (2.8 months).
• One sale via Shop Local pays for the service for 4 months (We see this math in calculation #3 above).
• Our service provides 33% more value (4 months offers 33% more value than 3 months).

Wanna Skip the Math? Just Listen to the Testimonials...

The ROI calculations above are helpful, but do our clients see these results in practice?

Joe Bernstein, sales director for Salisbury, shared that his brand "get[s] more with Shop Local...“ than with Shopify's registry service. Joe also shared, "Shop Local's service costs us less." 

Jeffrey Bannon, the owner of the shop Jeffrey Bannon, echoed this: "Shop Local is easier than [Shopify's registry app] and costs less."

Clients are experiencing what our ROI calculations prove. My goal is put the world's eyes on our wonderful ROI.

Homework:

• Measure the ROI for a service your company offers.
• Explain your math.
• Make a visual to convey the math findings.
• Compare your ROI to that of a competitor.

Tips on Calculating ROI for B2B:

• Define the investment your client makes. This entails assessing what your client pays for your product or service. In our case, we offer a $16/mo. starter plan so I used that for the above calculations. 
• Define the expected return. In a B2B space, this entails what the client will receive due to using your service or product.  For example, a client using our service receives online orders and synced product data.  Estimate what your client’s return may be (e.g. number of orders received,  labor saved, etc.). You can use existing averages that other existing clients experience.