We’ve spent the last few articles covering building a marketing strategy and creating your first ecommerce marketing plan. However, as you don’t have unlimited cash to spend, you’ll need to determine your ecommerce marketing budget before you start testing tactics.
Not having a budget is one of the biggest mistakes I see with new ecommerce brands. It’s a mistake I made when launching my first store. So I’m passionate about helping start-ups better understand the topic!
Here’s the thing about budgets. They are a rough prediction that act as a way to solidify your assumptions, thinking, and expectations. Your ecommerce marketing budget will expand or contract based on the feedback you get from the market.
So while having a budget is helpful, you shouldn’t treat it as gospel and be willing to constantly tweak it, just like you should be doing with your marketing plan.
By the end, you’ll have a much clearer idea of how to set your ecommerce marketing budget, what to include in it, and how often to update it.
Is There A Recommended Figure For Marketing Spend?
As a new ecommerce brand, you might wonder what others are spending on marketing or if any general figures will help you with a ballpark number.
According to data compiled by the US Small Business Association, they recommend traditional B2C businesses should spend 7-8% of revenue on marketing. However, we see that ecommerce companies spend an average of 18% of their revenue on marketing. That said, in some industries, spending up to 30% to acquire customers is not uncommon.
Deloitte’s 2020 CMO Survey reported that product-focused B2C companies spend 15.9% of their revenue on marketing. Hubspot also has a short blog post that collates a range of data on marketing spend as a percentage of revenue.
These figures give a wide range (7 to 30%) that probably isn’t very helpful. So if you’re confused, don’t stress! Plus, if you’re just starting out, you might have little idea how much you’ll turnover in the first year, meaning it’s tricky to budget marketing spend.
I’d recommend starting at 15% (the mid-way point of our range) as at least it gives you a figure to work with. For example, if you plan to turn over $100,000 in year 1, you can spend up to $15,000 on marketing.
Determining The Size Of Your Ecommerce Marketing Budget
You might be relieved with the 15% figure and consider the job done! But not so fast! While it’s helpful to have a clean-cut number, it doesn’t cover your margins, industry, or even your business strategy.
There are hundreds of marketing tactics you could try, and all have a cost, even if it’s just your time. And some will be more effective than others. So it comes back to strategy and your goals.
What are your goals?
Your goals determine everything. And if you don’t have any, you’ll be wandering around in the darkness. Take time to define your overall goals. It could be something as simple as a turnover of $100,000 or earning enough to pay yourself $25,000 while only working 4 hours per working day.
Why strategy matters
Business strategy is the overarching plan. It states the game you want to play and how you intend to win.
You can’t win at every game you could play, so you need to pick your lane carefully and focus on executing the tactical plan informed by your strategy.
Margin control
The quickest way to end up closing your doors for good is to spend a ton of cash on marketing without understanding your margins. It’s an easy mistake to make.
What I mean by margin control is understanding your figures. These include what you pay for product, your markup, costs, and an estimate what profit you’d like to make.
A quick example. If you buy an apple for $1 and sell it for $3, the difference of $2 has to cover your marketing spend, operational costs, salaries, and leave you with a profit, however small!
In this example, you can’t spend the $2 on marketing alone and you have to remember you have transactional fee whether your using Shopify to handle payments, or Stripe or PayPal with WooCommerce or Magento store.
Understanding your Customer Acquisition Cost is important for your business’s survival. You’ll need to test a few different marketing tactics to calculate this figure. But once you have a number, you can use it in your marketing plan to make better predictions.
You can work backward if you have an idea of the retail price, cost price, and profit you’d like to make, as all the figure costs need to be factored into this calculation.
Tactical plan
Another common mistake I see when working with clients is going all in on a particular marketing tactic. Your competitor might invest heavily into TikTok, and so you follow suit. The results are poor yet you keep throwing money at it.
If you’re just starting out, it’s worth testing a range of tactics with a tiny budget. With this research, you’ll have a much clearer idea of where to spend money to reach your ideal customer. You can then invest in channels and tactics that work and help you reach your goals.
How much cash you have!
Your biggest constraint is how much cash you have or get your hands on. If you only have $100 in your bank, that’s your marketing budget! With such a tiny amount, you’ll have to be super creative.
However, if you can lay your hands on a couple of grand, you can experiment more and test different marketing tactics.
How Should I Allocate My Digital Marketing Budget?
Regardless of how large or small, your marketing budget is, it’s worth focusing on several tactics at once and leaving yourself some cash to experiment with.
You don’t want to throw all of your eggs in one basket. Nor do you want to purely exist online, so you’ll want to allocate some of the budget to offline tactics, such as print ads, traditional PR, and TV or radio.
The marketing tactics you use will depend on your industry and the resources you have within your business.
As an ecommerce brand, you could spend 50% of your marketing budget on PPC and SEO, with that amount split equally between the two.
With the remaining 50%, you could use 10% of your budget on email marketing, 20% on social media, 10% for offline marketing, and set aside the final 10% for experimentation.
Let’s say you aim to turnover $100,000 in year 1. You give yourself $20,000 to spend on marketing. Using our rough figures above, you’d spend $5,000 on SEO, $5,000 on PPC, $1,000 on emails, $3,000 on social, $1,000 for offline, and the remaining $1,000 on testing new tactics.
You may even want to spend some money on updating your branding.
Where to Start Spending Your Digital Marketing Budget
We’ve talked big picture so far. But remember most ecommerce marketing budgets should last 12 months. So you need to divide any figure by 12 to calculate the figure you have to spend each month.
From there, you need to decide how you’ll define success for that tactic, what and when you’ll measure it, and how you’ll spend that money. This should be your Key Performance Indicator (KPI).
With SEO, for example, your KPI could be ranking in the top 3 positions for 50% of your keywords. You might measure this KPI weekly. The budget will be spent on creating content and building links to encourage pages to rank higher.
Of course, this is a brief overview of answers to our three questions, but you get the idea. By defining what success looks like, you can make a better decision on where to allocate your ecommerce marketing budget as you can collect data that supports your conclusion.
Your Digital Marketing Budget Is Ever Changing
You might find that you spend more of your marketing budget in the winter as that’s when your target customer buys, or you need to adjust your budget as your competition tweaks their tactical plan.
However, any changes you make should still enable you to be profitable. You should know your margins and operate within them. Otherwise, you’ll run out of cash and need to close your ecommerce store.
Much like your marketing plan, you should analyze your budget each month and adapt it accordingly. Don’t be afraid to try new tactics for a set period and then cut them if they aren’t profitable.
The worst thing you can do is create an ecommerce marketing budget and review it 12 months down the road. Instead, use it weekly and allow it to evolve as you gather data, insights, and research.
While there’s no simple way to answer how much should your ecommerce marketing budget be? You should now have a better way to determine what to spend, when to measure, and how to improve your budgeting skills as your business grows and develops.
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