How much should you spend on your marketing efforts? It's an essential and often-asked question. Put simply, in a competitive omnichannel environment, you cannot get away with spending little to nothing on digital media channels, allowing other brands to crowd you out of a customer journey that often includes desktop, mobile and offline touch points.
But how do you know how much is enough? How can you build a budget that helps you deliver a holistic marketing campaign?
Allocating a Digital Marketing Budget
Your first step in optimizing your ecommerce marketing is to understand the appropriate amount of investment for the size and maturity of your business. The final determination, of course, depends on your product category and the competition. That said, there are several guidelines you can follow to get an idea of your optimal spend.
One industry rule of thumb is to spend between 7 and 12 percent of your revenue on marketing. The variance can be based on the rate at which you want to grow, your desire or need to build your brand, your cost of goods or the amount of inventory you have on hand.
In the end, the answer to determining your ideal marketing spend comes down to your required return on ad spend (ROAS) based on the factors above. From there, you will build a marketing mix that is ideally broad and blends to the return you need to protect your profit margins and contnue to grow.
Building Your Paid Digital Marketing Mix
Digital media spend across industries continues to increase at a rapid pace. In fact, it grows by double digits compared to nondigital alternatives like print and TV every year. But how should that spend be allocated?
Expect to spend a large chunk of your paid media dollars on search engine marketing (SEM). Research from 2014 suggests that the typical ecommerce merchant spends 20 percent of their marketing budget on paid search. This channel brings you intentional traffic, actively looking for the exact products and categories your website offers. The cost can vary greatly across various keywords in your campaign. It is also dependent upon competition and the quality of experience you provide visitors when they get to your site.
Paid social is a rapidly-expanding channel. It allows you to target your audience based on a variety of factors ranging from common demographics to interests and online shopping behaviors. Much is untested, so expect mixed results without the predictable ROAS of search. Plan to spend about as much on paid social as you do on paid search.
Email is another channel that can have multiple tiers of performance, depending on your message. The cost of sending emails is now relatively inexpensive, so with a solid blend of promotional, lifecycle and trigger emails, you should expect extremely high returns on investment. These communications are going to your most loyal customers, so treat your email campaigns like a conversation, not a cash machine.
The last channel you should not ignore is the affiliate channel. The affiliate marketing tactic has historically been scrutinized because of early abuses by publishers to earn undeserved commissions. Those days have long passed and technology is very adept at paying publishers what they've earned and even identifying publishers who deliver you the most desirable (new) customers.
Tracking Relevant Metrics to Determine and Improve ROI
Adjusting your budgets once they are set will depend greatly on analytics. Digital channels work best when they are deployed together, taking advantage of multiple impressions that are required to make a sale.
Crediting the right media for their contribution to the sale requires an understanding of attribution. Don't make the mistake of letting your media vendors be the sole source of your performance data. Use Google Analytics or another 3rd party tool to measure success to get a single version of the truth. From there, you can measure channels against each other and some will clearly outperform others. Ultimately weigh the success of your program by your aggregate ROI across all your channels.
Customer Lifetime Value (CLV) should become one of your most effective metrics. If you can calculate the CLV of customers generated from individual channels, you can more accurately determine which of your channels deserve a bigger investment. You might find, for example, that you generate customers who make a more significant impact on your bottom line through paid search, compared to paid social. In that case, it makes sense to increase your spend on this channel to see if the results can be replicated on a larger scale. Over time, you build a marketing mix that works ideally for your individual brand and audience.
Ecommerce marketing is a complex topic, and one that requires ongoing monitoring and analysis. Armed with the right metrics, you can allocate your budget to make sure that each dollar you spend works directly to grow your business and increase online sales.
Onestop Internet is an end-to-end ecommerce solutions provider, combining web development, creative, photo and video studio, and a full-service performance marketing agency to grow revenue at twice the industry average for our portfolio of brands. Contact us to see how we can help your ecommerce enterprise grow.