How to Create a Marketing Budget for Your E-commerce Business

How to Create a Marketing Budget for Your E-commerce Business

How to Create a Marketing Budget for Your E-commerce Business

What, in your opinion, did make Facebook become one of the world’s leading marketing and advertising platforms and claim no less than 40% of U.S. digital ad revenue in 2018? What has made Amazon the second-largest employer in the U.S., with more than 750,000 full-time employees and doubling its revenue sevenfold from an already existing huge base of $34.2 billion? The growth of e-commerce has no limit. In 2019, e-commerce was solely responsible for around $3.5 trillion in sales and was estimated to hit $4.9 trillion by 2021. In the U.S. only, e-commerce represents over 10% of retail sales, and that number is foreseen to grow to 15% each year! All these never happen overnight but demand an enormous amount of hard work and marketing strategy. When you can’t even build a house without a proper blueprint, why start a business this way? An appropriate strategy of marketing is the basic building block of any business. No matter how good and beneficial products are, a customer won’t buy them until and unless they possess the knowledge of the existence of those goods. That’s where marketing plays its role.

Despite the fact that many online business owners trust social media as the most beneficial tool for marketing mainly because it’s free, the reality is quite different. It’s good to start from there to garner local customers but to build space on the bigger platform; money investment is needed. Not spending too little or too much on marketing to get a high Return on Investment is the crucial role of a brand’s growth strategy. A smart budget for marketing based on a measurable variable, data, and figures will have a more significant effect on the areas that will directly or indirectly impact the business.

Some crucial points to be considered while making a marketing budget are:

  • Effective planning
  • Your position in the market
  • What your ideal customers look like
  • Your marketing goals
  • What your industry generally spends on the marketing
  • How much is your current spending on marketing for the business

Here are a few tips for formulating the marketing budget:

Do some market analysis within your industry

Before adapting, it’s better to know about the environment. It’s better to understand the metrics of your industry. For a good start, knowing about the industry’s spending will definitely help in allocating the marketing budget in your business. Further on, it can be increased or decreased based on the outcome and further planning. This will help the business do well among its competitors.

Roll towards the goal

To achieve success, you must set your goals first and evaluate them. Setting up a goal will give you an aim and gear you up for the challenges, help you track your work, and assess whether it was worth it or not. Your marketing goals can be about increasing website traffic, gaining more social media followers, growing an email list, improving conversion rates, getting more website or social media engagement, or driving more click-through on paid ads.

      Goals should be:

  • Specific: It should focus more on one clear metric.
  • Measurable: You must be measuring the steps you are taking.
  • Aspirational: Your goals should be such that it might go beyond the goal.
  • Realistic: It should not be like a dream with open eyes. It must be somehow accomplishable with the given amount of resources.
  • Time-bound: It must have some marginal date on which the particular task will be terminated, and the result must be visible.

It can increase awareness about the brand, establish the business, and reach out to new customers.

Know the numbers

Stanley Marcus once said, “Consumers are statistics, customers are people”. That’s how numbers should be used to help potential customers. Today, everything is being recorded from the number of times one visited the site, times of engagement, click-through rates to the number of products bought, and based on that, what might one look for in the future. These e-commerce statistics provide essential insights that can further help in framing the marketing budget.

For example, as of 2020, useful statistics recorded were:

  • 38% of people will leave a website if they don’t find the layout attractive.
  • U.S. shoppers spent $5 billion online during 2017’s Black Friday.
  • Image and voice-activated search may make up 50% of all searches by 2020.
  • Mobile shopping hit $2 billion on Cyber Monday.
  • 88% of online shoppers will use webrooming to find the best price.
  • A PayPal study revealed that 43% of shoppers leave the shopping cart because the shipping fee was very high.
  • 23% of online shoppers like to go through social media recommendations.

Keeping an eye on the data and numbers of the business might help in understanding the development of the business. Some key questions related to statistics might be:

  • Number of clients served last year
  • Amount of your client’s spending annually.
  • How long do clients stay with you
  • How much worth your target clients are
  • Percentage of growth in revenue from the last year
  • Expenditure on marketing in the previous year

These statistics will definitely help you in the allocation of budget in different areas of marketing to give a better result.

Percentage of Revenue distribution 

There’s always a debate on how much should be the revenue distribution, but mostly small businesses allocated around 7 to 12 percent of the total revenue to marketing.

A survey by Marketing Sherpa following a research grant from Magento, the e-commerce software provider, found out the percentage of marketing budget distribution of various brands based on their total revenues.

E-commerce brands spending about 10-24% on SEO

Low revenues companies with a turnover of $1 million were spending double the amount of their budget on SEO, i.e., approx. 24%. At the same time, companies with high revenue of approx. $100 million turnovers were spending less, i.e., around 10%. This shows that companies with high turnover were already established and reputed ones and need not spend much on advertising, but newly established companies need to take care of that to get the SEO off the ground.

E-commerce brands spending about 29-57% on paid search

The research data showed that companies with low turnover, i.e., around $1 million spend the highest amount of their budget with 35% on paid searches. Considering the desire of companies to include the product listing ads(22%) to be covered under the “paid search”(35%) the total budget can be taken around 57%. At the same time, companies with approx. $100 million turnovers spend approximately 29% on “paid search”, including product listing ads.

E-commerce brands spending about 39-81% on SEO and PPC combined

Companies with $1 million turnovers spend most of their budget, i.e., approx. 81% on combined SEO and PPC. $100 million turnover generating companies spend more than one-third of the total marketing budget, i.e., approx. 39% on combined SEO and PPC.

Although these data can be useful for you to know about the performance of the competitors, keeping eyes on your own data can be more beneficial. One of the main advantages of this percentage approach is that it is not fixed. As you are establishing your brand in the market and the revenue is increasing, the percentage will increase accordingly. It also restricts over expenditure and maintains profitability. However, things are not always as planned. The U.S. Small business Association recommends using a percent of your budget if the margin falls to 10 to 12 percent. But if there is a worst case scenario, it’s advised not to spend on marketing because it’s all about the expansion of your already flourishing business. For new businesses, estimating revenues might work but it’s very risky. Therefore this technique should be applied to businesses that have been even operating for a while.

Tighten your wallet when it comes to expenditure

A considerable amount of money is spent on marketing. It is of utmost importance to make a profit out of it; otherwise, it will get wasted.

Below are some tips:

  • Always look at the bigger picture, which can take your organization to the next level of aspirations. Allotting the budget in smaller goals will haunt you back when it goes wasted. Planning plays a crucial role in meeting market requirements, and you should make the best out of it.
  • Never try to use illegal or illegitimate ways to rank high in search engine results. Black hat tactics are always recognizable by Google, and it may end asking for penalties from you or even banning the website from the server.

The most prominent tactics that Google discourages are:

  • Keyword stuffing
  • Content spinning
  • Purchasing links
  • Use of low-quality links
  • Invisible texts
  • Cloaking

A new business should be more careful about the expenditure, so the best way is to fix them. In your first years, you can simply spend an affordable amount and stick to it. Do some background research and accordingly frame the marketing plan. Be specific to your goals and aim for them, either gaining a set number of followers in a specific time, increasing sales by a certain percent, or increasing search rankings. Once a target is fixed, it is halfway completed. As far as the knowledge of how much to spend, it depends on the revenue of the company and capital in your hand after covering other costs. Research about your competitors and be realistic in your steps taken.

Check on resources on staffs

One of the most attractive things about e-commerce is that it requires a handful of people to get the business idea off the ground. Although employees might be needed for packaging and shipping products, there are large aspects of the business that you can handle solely. Another might include technology and production cost. But if there is a demand for an in-house team, approximately you would be willing to pay $53,000 to a Web developer, $59,000 to e-commerce manager, and $100,000 to the director of e-commerce. Hiring them, arranging training sessions for them, and paying for benefits might add on some costs. Prefer having a few in-house marketing leaders who can focus both on the overall organization and certain specific tasks and simultaneously outsourcing the bulk of their needs through the gig economy. Carefully plan out things for your teams and determine which strategy works best for your budget and business.

Investment in already established e-commerce platform

Selecting a hosting partner for your online business store is one of the biggest decisions. It is highly recommended to choose the ones who have in-built marketing tools which can help your site rank better in SEO results, help you understand site data and allow you to manage social media accounts from a single dashboard. It will ultimately save your money in the long run. There are plenty of websites where you can hire highly skilled professionals at reasonable hourly rates.

Grab your customers tightly!

Why would anyone be interested in your boring content when they have more options? Acknowledging them about your inventory and important product is your responsibility. Creating creative content might coast a bit more in the short-run, but it will be beneficial in the long run when it will invite more clients to your store. Modern customers, due to lack of time and shyness, don’t prefer face to face advertising. Also, they might forget some valuable insights that you told them, and they may ask you again and again, or they may drop out of the idea of buying that.

Engaging customers through content might save the time of both customers and business owners. At the same time, it will be comfortable for shy customers to garner knowledge about the specific product. One of many reasons for investing in content marketing is the result that companies investing in content marketing are observing conversion rates nearly six times higher. It has been proved as an effective marketing strategy in the current scenario.

Keep Return on Investment under surveillance!!

Return on Investment or ROI is an important metric for business activity. It is a simple way to know if the investment they made was effective or not.

The calculation of ROI is done with the formula:

(Attributable sales growth- Marketing cost)/ Marketing cost= ROI

There are few challenges attached to the calculation of ROI in this way. Firstly, calculations could be tricky because it is tough to know which campaign had high returns and which one had low returns. Larger corporates have bigger algorithms making it more complicated. Secondly, calculating ROI manually requires time and access to company finances. Thirdly, the process requires patience. It can take months before one knows which campaign was profitable and which was not. Therefore, the traditional way of calculating ROI doesn’t work well and therefore, nowadays, revenue to cost ratio is calculated. It is the best method to calculate the profit from each penny spent.

Some enlightenment about good ROI

On a bell curve of ROI, 5:1 is in the middle. Above 5:1 ratio is strong and the 10:1 ratio is exceptional for many businesses. Accepting a ratio higher than 10 is somehow possible in a rare case scenario. Your target ration largely depends on the cost structure and will vary depending on the market of that particular industry. This will also fluctuate on the economics and COGS (cost of goods sold) of a particular business.

Content marketing such as social media or blog posts may not show a sudden increment but rather build a healthy relationship with the clients and pave the way for future revenues. Therefore, while calculating the ROI of such revenues, other things are also considered, such as additional followers, page views, re-blogs, and re-tweets. This way, ROI is not only about monetary benefits but more than that.

Self-assessment is necessary

A rigorous assessment of brand assets is advantageous as they show you whether they are leading you towards success or not. It enlightens you about what assets are working well, which one needs improvement and which one is on the verge of getting eliminated.

Start by making the list of all the assets. This should be including:

  • Design assets

Logos, colour choices, typeface etc.

  • Written Communication assets

The written content for materials like emails, brochures, web content etc.

  • Digital assets

Social media content and photography, infographics, hashtags etc.

Performing this evaluation will limelight your loopholes and will encourage you to do the improvement with better planning for future goals.

Time to give back to your customers

It is said that the cost of acquiring customers is less than the cost of keeping the one you already have. One way to keep loyal and faithful customers is to reward them with loyalty programs. It might also add some new customers and keep existing customers happy. For instance, Google Opinion Rewards is a reward giving program by Google, which lets customers earn some credits using which they can buy some paid apps or books from Google.

Marketing is not as easy as it seems. But it can be made easy by using strategies and keeping patience. Once your business gets established, there’s no turning back.