How to make $645K from video commerce tech in 24 mos by launching 2 videos a month

That title’s a lot more catchy than, ‘ROI of Video Commerce Platforms, Part 3,’ isn’t it?  Thought so!

It has been over a month since Part 2 in the ‘ROI of Video Commerce Platforms’ series, so my apologies up front for the wait.  It took longer than I thought to gather the data required for this post.  Now, I have it, and it’s time to share some revenue calculations and an example for how video commerce technology generates revenue.

Before we get too far into it, two disclaimers are warranted: First, I’m one of the principals of Liveclicker, a video commerce solutions provider.  As such, I’ve populated some example metrics based on aggregated statistics across videos deployed by Liveclicker’s clients in an effort to provide benchmarks as you assemble your own ROI analysis.  Second disclaimer – no ROI model is perfect.  ROI models attempt to predict the future based on a combination of data and assumptions.  Assumptions can change for a myriad of reasons or prove untrue.  Take what I have provided here as a directional guide intended for a generic retail audience, not Holy Gospel or totally reflective of your business ;-)

OK, enough on the disclaimers… Let’s get started!

First, you will need to gather some information to plug into the ROI model.  The more of the below information you can gather, the better, but if you don’t have access to some metrics, don’t fret.  It is generally ‘OK’ to take an educated guess on some things as long as you can explain the rationale behind your thinking and clearly communicate to others internally where you’re plugging in real numbers, and where you’re guesstimating.

Here are numbers you’ll need as a baseline to assist you on the revenue side of the model:

  • Your site’s Average Order Value (AOV) – for all orders, sitewide
  • Your site’s Average Conversion Rate (CVR) – the % of visitors to your site that complete a purchase on your site (this could either be same session purchases, or during the period of time since the initial session recorded your organization has defined as qualifying for the CVR metric)
  • Number of Videos Available to Deploy on Day 1 with a video commerce solution
  • Number of Videos Available to Deploy by the 24th month with a video commerce solution (the ROI analysis we’re generating breaks down anticipated revenues v. costs over a two year period – it is OK to estimate)

The information below is also required to help identify specific video contributions on your site and across some of the most commonly ‘video enabled’ marketing channels.  Your organization may not choose to leverage video in all these ways.  That is fine – any areas you don’t believe your organization will leverage, just leave them blank.

For Video SEO:

  • The number of visits per month per video you expect to receive for each video from organic search, as a result of either traffic coming from universal search (video thumbnails displaying among organic search results – prerequisite is to submit a properly formatted Video Sitemap) or text search results as a result of publishing video.  As a reference point, Liveclicker’s clients average ~20 visits per month per video from organic search (taken from the result set that’s measurable).

For Interactive/Facebook Video:

  • The number of unique visitors to your organization’s Facebook Page each month
  • The % of Facebook Page Visitors playing video.
  • The % of Facebook Page Visitors clicking through interactive video to your web site (for reference, Liveclicker clients average 3.0% of plays on Facebook resulting in a clickthrough – pretty amazing when you benchmark that up against the average CTR on display ads)
  • % of your video library published to your website that are enabled for sharing (includes share option)
  • Share rate for videos on your web site – assumes videos on your site are enabled for sharing.  For reference, Liveclicker clients average a 2.1% share rate for all videos that display a “share” button in the player throughout the duration of the video playback.
  • Average number of incremental plays on Facebook for each organically shared video (videos that are shared by your shoppers from your web site, not posted by your company to your company’s Facebook Page).
  • The % of Youtube video viewers clicking through videos (via click-to-buy/promoted videos) to your web site
  • The % of Twitter followers viewing your videos, and % clicking through to your web site

For Video in Email:

  • How often you envision sending video in email (once a month, once a quarter, once a year, etc)
  • The size of your company’s email list (or, more specifically, the size of the segment you’d imagine sending video email to. (for reference, most Liveclicker clients today send video email in the first campaign to 50% of the list in a promotional campaign – A/B split – to measure performance, and thereafter average sending one video email campaign per quarter).
  • Average clickthrough rate (CTR) of an email audience likely to be tested/used with video when clicking to a landing page (for reference, a generally accepted average email CTR for retail promotion campaigns would be ~7.5% CTR).
  • Incremental CTR from video in email compared to no video in email (two reference points: former Forrester Research analyst David Daniels indicated CTR for video email campaigns was “up to 2X – 3X” higher.  In my anecdotal observation across the Liveclicker client base, CTR tends to  be around 5% – 15% higher when video is used in email as opposed to only on the landing page and influenced greatly by the marketer’s adherence to best practices).

For Site Video Optimization

  • Average monthly unique visits to each page featuring both video and add-to-cart option (for most retailers: product pages)
  • % total visitors on these pages that play a video in the same session (for reference, Liveclicker client average is ~12.5%. Placement of the video on pages can have a large impact on this metric, refer to the whitepaper “Creating E-Commerce Videos that Sell”)
  • Estimated conversion lift of video watchers v. non-watchers for these pages (for reference, Liveclicker client average is 20%)
  • Average monthly unique visits to each page that feature video but no add-to-cart option (e.g. brand, category, lifestyle videos)
  • % total visitors on these pages that play a video in the same session  (for reference, Liveclicker client average is ~12.5%)
  • Estimated conversion lift of video watchers v. non-watchers for these pages (for reference, Liveclicker client average is ~5%)
  • % growth in pageviews featuring video over 24 month period (Liveclicker has no formal data – due to the newness of many clients – anecdotally the rate appears to be around 100% – 150% growth, across e-commerce verticals, for pages w/video)
  • % video viewers incremented with Site Video Optimization technology (for reference, Liveclicker client average is 23%)

For Mobile Video (On-Site):

  • % traffic on site not currently reached by video due to lack of HTML5 video support (for reference, most retailers would be around 2.5% of the total audience as of May 2011).  Many analysts expect this number to rise rapidly.

For Mobile Video (In-Store): (note: mobile video in-store is too new for me to provide reliable aggregate stats – 05/11)

  • Monthly in-store shoppers where mobile video is deployed
  • Existing in-store conversion rate
  • Existing in-store average order value
  • % in-store shoppers scanning & watching mobile video (e.g. QR codes)
  • Incremental in-store conversion rate video watchers
  • % growth in in-store mobile video watchers over 24 month

Production Improvement from Video Conversion/Revenue/Engagement Analytics

  • Expected % improvement from use of video commerce analytics (difficult to measure precisely – an informal/not statistically valid survey of Liveclicker clients showed many clients thought the revenue improvement from use of analytics was around 25%).  Your success with video commerce analytics will depend largely upon your organization’s commitment to pay attention to the video analytics and implement changes to your video production strategy suggested by analytical performance data.

SAMPLE RETAILER VIDEO COMMERCE REVENUE:

Assume the following for retailer XYZ:

  • AOV of $100
  • CVR of 5%
  • 25 videos available to deploy on day 1
  • 50 videos available to deploy at the end of 2 years (that’s 12.5 videos added per year)

(Video SEO – revenue)

  • 20 incremental organic visits/mo from video SEO (note – in this model, it is assumed that all video traffic is incremental, and there is no cannibalization of other organic queries as a result of listing video in search results)
  • Month 1 revenue calculation is as follows: 25 videos * 20 incremental visits per month per video* 5.0% CVR * $100 AOV = $2,500/mo in revenue.
  • Month 24 calculation is as follows: 50 videos * 20 incremental visits per month per video * 5.0% CVR * $100 AOV = $5,000/mo in revenue (note: this model assumes videos will be produced at a steady pace, equal from one month to the next)
  • Straightlining out the revenue over 24 months results in a total of $88,854 in revenue over 24 months.  Each month is calculated as follows: (Month 24 Revenue from Video SEO – Month 1 Revenue from Video SEO)/24 months + Previous Month’s Video SEO Revenue.  For example, Month 2 revenue would look like this: ($5,000 – $2,500)/24 + $2,500 = $2,604.
  • TOTAL VIDEO SEO REVENUE OF $88,854 OVER 24 MONTHS

(Interactive/Social Video)

  • This example assumes 100% of the videos are product videos, not branding/awareness/lifestyle/entertainment videos – just to keep the calculations easier.  Awareness videos tend to drive lower incremental conversion than product videos. Liveclicker observes product videos, which are generally placed on product pages, result in an average incremental conversion lift of ~20%, compared to only ~5% incremental for non-product videos, which are typically higher in the funnel, for example on brand/cat/home pages.  Also, entertainment/lifestyle videos may not feature content designed to drive purchase, which could also explain why CVR from these video viewers may be lower.
  • The example also assumes videos are only shared to Facebook (YouTube and Twitter would yield even more traffic)
  • 250,000 visits/mo to Facebook Fan Page, 5% of visitors viewing video = 12,500 video views/mo from Facebook
  • Growth in visits proportional to the growth in video volume (in this example, we’re going from 25 videos in month 1 to 50 in month 24.  I believe most organizations would consider a 2X increase in Facebook Page traffic to be conservative, but if you prefer to keep your growth rate on Facebook separate, that would be even more reliable).
  • 3% of views resulting in a click (CTR) = 375 site visits/mo from Facebook Fan Page in month 1
  • 3% of views resulting in a click (CTR) = 750 site visits/mo from Facebook Fan Page in month 24
  • 100% of videos on the web site are sharing enabled (that’s 25 videos in month 1, 50 videos in month 24)
  • 2.1% share rate (Liveclicker client average)
  • Each Facebook share results in 2 incremental plays (conservative – consider the average Facebook user that shares a video has over 200 friends – but also consider that most product videos are not ‘viral’ and will not result in many incremental shares past the first 1-few shares)
  • 5,000 page views/mo per page featuring video (that’s 125,000 page views in month 1, with 25 videos, and 250,000 page views in month 24, with 50 videos)
  • Month 1: 125,000 on-site page views on pages with video + share option * 12.5% play rate = 15,625 video views/mo * 2.1% * share rate = 328 shares/mo.  328 shares * 2 incremental plays per share = 656 incremental plays/mo on Facebook.  656 incremental plays * 3% CTR = 20 additional visits/mo (this model assumes the plays occur in the same month as the share)
  • Month 24: 250,000 on-site page views = double the views/mo = double the shares/mo = double the additional visits/mo to 40 additional visits/mo
  • Month 1 revenue: (375 visits from Fan Page * 5% CVR * $100AOV = $1875) + (20 visits from organic shares * 5% CTR * $100AOV = $100).  $1,875 + $1,00 = $1,975 in month 1 revenue
  • Month 24 revenue: (750 visits from Fan Page * 5% CVR * $100AOV = $3,750) + (40 visits from organic shares * 5% CTR * $100AOV = $200).  $3,750 + $200 = $3,950 in month 24 revenue
  • Straightlining out the revenue over 24 months results in a total of $64,270 in revenue over 24 months.  Each month is calculated as follows: (Month 24 Revenue from Interactive/Social Video – Month 1 Revenue from Interactive/Social Video Revenue)/24 months + Previous Month’s Interactive/Social Video Revenue.  For example, Month 2 revenue would look like this: ($3,950 – $1,975)/24 + $1,975 = $2,057.
  • TOTAL INTERACTIVE/SOCIAL VIDEO REVENUE OF $64,270 OVER 24 MONTHS

(Video in Email)

  • List size of 1,000,000
  • CTR of 7%
  • Video email sent once a quarter to the entire list in a promotional campaign
  • Incremental clickthrough on video email compared to non-video email in A/B test yielding 10% average incremental (midrange of observances)
  • 1,000,000 subscribers * 7% CTR = 70,000 visits/qtr
  • 70,000 visits/qtr * incremental 10% CTR (midrange between 5% and 15% for video in email) = 7,000 incremental visits/qtr
  • 7,000 visits/qtr * 5% CVR * $100AOV * 4 quarters/yr = $140,000/yr
  • TOTAL VIDEO IN EMAIL REVENUE OF $280,000 OVER 24 MONTHS

(Site Video Optimization)

  • Video viewers convert 20% higher than non-viewers (Liveclicker client average)
  • 23% incremental monthly plays from site video optimization (presentation optimization)
  • Month 1 : 5,000 pageviews/mo/video @ 12.5% play rate (before optimization) = 625 plays/video/mo (unoptimized) * 25 videos = 15,625 plays/mo
  • Optimized video presentation = 15,625 plays/mo*23% = 3,594 incremental plays
  • Month 24: 5,000 pageviews/mo/video @ 12.5% play rate (before optimization) = 625 plays/video/mo * 50 videos = 31,250 plays/mo
  • Optimized video presentation = 31,250 plays/mo*23% = 7,188 incremental plays
  • Now we need to determine how the incremental plays impact revenue compared to if those same visitors did not view video.  Using the 20% higher conversion metric for video watchers v. non-watchers, we’d perform the following calculations:
  • Month 1 incremental revenue = (3,594 incremental plays * $100AOV * ((5%CVR*20%)+5%CVR))) – (3,594 visits that did not include a video view * $100AOV * 5% CVR) = $21,654 for the video viewers – $17,970 for the non-viewers = $3,684 incremental revenue in month 1
  • Month 24 incremental revenue = double that amount (we are doubling the video count from 25 to 50 over 24 months) = $7,368
  • Straightlining out the revenue over 24 months results in a total of $119,884 in revenue over 24 months.  Each month is calculated as follows: (Month 24 Revenue from Site Video Optimization – Month 1 Revenue from Site Video Optimization)/24 months + Previous Month’s Site Video Optimization Revenue.  For example, Month 2 revenue would look like this: ($7,368 – $3,684)/24 + $3,864 = $3,838.
  • TOTAL SITE OPTIMIZATION VIDEO REVENUE OF $119,884 OVER 24 MONTHS

(Mobile Video Commerce)

  • This example assumes no offline mobile video QR code campaigns, since there are not yet enough case studies to provide even good “guesstimate” ROI – if you have one, please submit in the comments
  • This example does include incremental plays from a mobile audience on-site, at 2.5%, specifically from HTML5 video support for iPhone/iPad
  • (from previous calculations for Site Video Optimization): 15,625 plays in month 1, 31,250 plays in month 24.  Incremental 2.5% of each yields 390 incremental mobile plays month 1 and 782 incremental mobile plays for month 24.
  • Now we need to determine how the incremental mobile plays impact revenue compared to if those same mobile visitors did not view video.  Using the 20% higher conversion metric for video watchers v. non-watchers, we’d perform the following calculations:
  • Month 1 incremental revenue = (390 incremental plays * $100AOV * ((5%CVR*20% incremental)+5%CVR))) – (390 visits that did not include a video view * $100AOV * 5% CVR) = $2,340 for the video viewers – $1,950 for the non-viewers = $390 incremental revenue in month 1
  • Double that amount for month 24 (this assumes an unchanged % of site visitors using mobile devices over the next 24 months – unlikely, and therefore conservative): $780 incremental revenue in month 24
  • Straightlining out the revenue over 24 months results in a total of $12,691 in revenue over 24 months.  Each month is calculated as follows: (Month 24 Revenue from Mobile Video – Month 1 Revenue from Mobile Video)/24 months + Previous Month’s Mobile Video Revenue.  For example, Month 2 revenue would look like this: ($780 – $390)/24 + $390 = $406.
  • TOTAL MOBILE VIDEO REVENUE OF $12,691 OVER 24 MONTHS

(Production Improvement from Analytics)

  • Your success with video commerce analytics will depend largely upon your organization’s commitment to pay attention to the video analytics and implement changes to your video production strategy suggested by analytical performance data.
  • This example only includes expected performance for on-site video.  If you intend to use video beyond your own site, this would be a conservative measure
  • This example assumes an overall 25% improvement in video performance over 24 months, beginning with a 1% improvement in month 1, 2% month 2, 3% month 3, etc.
  • First we need to calculate the overall on-site video revenue from video over this time period.  Keep in mind we are not taking this number into our final calculations; we are only interested in the incremental revenue made possible by a video commerce platform, not video itself.
  • 25 videos month 1 * 5,000 page views per video * 12.5% play rate *(((5% CVR * 20% incremental CVR from video)+5% CVR) -5%CVR)*$100AOV =$15,625 incremental revenue from on-site video in month 1
  • Double that number to $31,250 for month 24 (due to number of videos doubling, all other multipliers remaining constant)
  • Straightlining out the revenue improvement over the course of 24 months from $15,625 in month 1 to $31,250 in month 24, we get  $508,464 in incremental revenue from video
  • Then assuming a constant rate of increase of performance improvement per month, until 25% in month 24 (25% total improvement relative to baseline performance over a 24 month period), the incremental revenue from video commerce analytics is $80,184.
  • TOTAL PRODUCTION IMPROVEMENT FROM ANALYTICS REVENUE OF $80,184 OVER 24 MONTHS

Did you read this far?  If so, now it’s time for a subtotal:

  • Video SEO revenue of $88,854
  • Interactive/Facebook video revenue of $64,270
  • Video in Email revenue of $280,000
  • Site Video Optimization revenue of $119,884
  • Mobile Video Revenue of $12,691
  • Production Improvement from Video Analytics of $80,184

Total 24 month revenue of $645,883 attributed to investment in video commerce technology.

The revenue in this example actually eclipses the revenue from video itself (not video technology), looking only at on-site deployment on product pages.  That amount is $555,338 over 24 months.  The amount of revenue from video would be much higher if viewed across channels.

So there you have it – an revenue calculation for video commerce technology.  If you happen to be a fan of Excel, I also have a handy calculator I could share with you to automate the calculations so you can put one together for your own business.  Just shoot me an email at justin [at] liveclicker [dot] com and I’d be happy to send it to you – or just submit an inquiry on the Liveclicker web site here.

  • Part 4, the next in the series, will provide the calculations and examples for the cost savings side
  • Part 5 adds sample cost information (the cost of your video commerce solutions vendor or in-house development) and plugs those costs into an example case showing the completed ROI analysis over a 24-month period.

Until next time,

Happy selling!

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