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It is beyond doubt that Live commerce has emerged as a formidable force within the retail landscape. This captivating blend of real-time video demonstrations, engaging storytelling, and seamless purchasing options has transformed the way we shop and has driven sales to unprecedented heights. However, beneath the glamour and allure of live commerce lies a duo of critical metrics - basket value per buyer, return on ad spend (ROAS). Understanding these metrics is crucial for assessing the true success of a live commerce campaign, particularly when factoring in cost of sales and manufacturing expenses.
A lot of time and effort is spent in explaining to the brands and the media buyers the intricacies of determining the true ideal basket value and thereafter arriving at the true revenue on ad spends. This is our attempt to clarify and educate. This will also explain why we sometimes refuse to work on certain categories and why single livestream do not work at all.
What is Basket Value per Buyer?
Basket value per buyer is quite simply the average amount spent by each individual making a purchase during a live commerce session. It is calculated by dividing the total sales revenue generated during the session by the number of unique buyers, thereby revealing how much, on average, each buyer contributes to the overall revenue.
Why Does Basket Value per Buyer Matter?
While total sales figures provide a broad overview, basket value dives deeper, shedding light on individual spending behaviours. This metric holds significant importance for several reasons:
Customer Engagement: A high basket value signifies active engagement where viewers aren't just passive spectators but are actively adding products to their shopping carts. This suggests successful product presentations, compelling offers, and effective interaction with the audience.
Product Assortment:Â A well-balanced basket value indicates a healthy mix of purchases across different product categories. This suggests successful cross-selling and upselling strategies, appealing to a broader range of customer preferences.
Return on Investment (ROI):Â Analysing basket value in conjunction with the costs associated with the live commerce campaign reveals the actual profitability of the endeavour. This insight is invaluable for optimising resource allocation and prioritizing strategies that yield the highest returns.
Calculating ROAS for Live Commerce
Return on ad spend (ROAS) measures the effectiveness of advertising efforts by comparing the revenue generated from ads to the cost of those advertisements. For live commerce, ROAS must consider not only marketing expenses but also the cost of sales and manufacturing. The ROAS formula for live commerce is as follows:
ROAS = (Total Revenue - Cost of Sales - Manufacturing Costs) / Marketing Expenses
- Total Revenue: The revenue generated from the live commerce session.
- Cost of Sales: Expenses directly related to producing or procuring the products sold during the live session, such as raw materials, labour, and packaging costs.
- Manufacturing Costs: Costs specifically associated with manufacturing or preparing the products for sale.
- Marketing Expenses: The expenses incurred in promoting and hosting the live commerce event, which may include advertising costs, platform fees, and host fees.
Live Commerce vs. Traditional E-commerce: A Basket Value Comparison
Live commerce offers unique advantages that can significantly impact basket value:
Real-time Interaction: Hosts can answer questions, address concerns, and provide personalised recommendations instantly, leading to confident purchases and potentially higher basket values.
Urgency and Excitement: Limited-time offers, flash sales, and interactive activities create a sense of urgency and exclusivity, encouraging impulse purchases and larger basket values.
Social Proof and Trust: Live demonstrations and interactions with other viewers build trust and credibility, prompting larger purchases.
Nevertheless, challenges persist:
Attention Span: Short attention spans can lead to viewers dropping out before adding items to their baskets, which can impact overall basket values.
Technical Issues: Platform lag or connectivity problems can disrupt the shopping experience and discourage purchases, potentially lowering basket values.
Product Suitability: Not all products are suited for live presentations. Complex or technical items may require more traditional product pages for detailed information, which can affect basket values.
Breaking Down the Numbers: Real-Life Examples
Let's delve into real-world scenarios to illustrate the mathematics behind basket value and ROAS:
Example 1: A fashion brand hosts a live commerce session showcasing its latest fall collection. They generate total sales of $10,000 with 50 unique buyers participating. The basket value per buyer is calculated as: $10,000 / 50 buyers = $200 per buyer. Additionally, the cost of sales and manufacturing costs for the products sold amounted to $3,000, and marketing expenses totalled $1,500.
Using the ROAS formula:
ROAS = ($10,000 - $3,000 - $1,500) / $1,500 = 4.33
This indicates that for every $1 spent on marketing, the brand generated $4.33 in revenue, considering the cost of sales and manufacturing.
Example 2: An electronics retailer organises a live session to promote gaming laptops. They generate total sales of $5,000 with 20 unique buyers. The basket value per buyer is calculated as: $5,000 / 20 buyers = $250 per buyer. The cost of sales and manufacturing costs for the laptops sold amounted to $2,000, and marketing expenses totalled $1,000.
Using the ROAS formula:
ROAS = ($5,000 - $2,000 - $1,000) / $1,000 = 2.00
In this case, for every $1 spent on marketing, the retailer generated $2 in revenue, accounting for cost of sales and manufacturing.
Strategies for Maximising Basket Value and ROAS
Here are key strategies to boost basket value per buyer and ROAS in your live commerce endeavours:
Target the Right Audience: Ensure that your products and presenters resonate with your intended demographics and interests.
Craft Compelling Narratives: Utilise storytelling and product demonstrations to showcase the value of your offerings and address customer pain points effectively.
Offer Attractive Deals and Promotions: Limited-time offers, bundled discounts, and other incentives can stimulate larger purchases and enhance ROAS.
Leverage Social Proof: Incorporate customer testimonials, live Q&A sessions, and collaborations with influencers to build trust and encourage buying decisions.
Streamline the Checkout Process: Implement seamless payment gateways and provide diverse payment options for a frictionless shopping experience, contributing to higher basket values.
Track and Analyse Data: Regularly monitor basket value, ROAS, and other metrics to identify areas for improvement and tailor future strategies accordingly.
By grasping the concepts of basket value, ROAS, and sustainability, you can unlock the true potential of live commerce. It's not just about impressive sales figures; it's about fostering meaningful customer engagement, nurturing brand loyalty, and ultimately, driving sustainable growth in the captivating realm of interactive retail.