Marketing is a significant challenge for e-commerce businesses today. And it’s because digital marketing channels like social media, search engine optimisation, and others make it tricky to determine where to allocate marketing budgets.
A marketing budget is one of the most important steps you can take as an e-commerce business owner to achieve your goals. As you know, great marketings make people notice your products and services. It gets them to your website, and they buy your products and become loyal customers.
Despite that, many e-commerce businesses do not create a marketing budget, which is a fatal mistake. They spend money on a whim based on a gut feeling rather than what makes sense. When this happens, the chances of spending more than needed if you had a marketing budget are higher.
So, how do you ensure you don’t make the same mistake? You’d be surprised to learn how simple it is. Here you will learn how to determine a marketing budget that aligns with your business goals by examining the factors that should influence your decision-making process.
Why Should You Have A Marketing Plan Budget?
Why should you have a marketing plan budget? A well-defined marketing plan budget is necessary before starting any business. A budget ensures that each dollar spent optimally contributes towards the success of the e-commerce venture and its returns over the long run.
Having an allocated amount of money for promotional activities will help you to strategically and effectively market your products online. The key to this budget planning process is knowing your needs, desired outcomes, and maximum expenditure preference. You want to identify and prioritise these factors to help you create a marketing budget that fits within your business parameters while still delivering results.
Furthermore, having a sound marketing plan budget can ensure that campaigns are organised while providing adequate resources to generate maximum results.
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How To Plan A Marketing Budget
A marketing budget is an integral part of any digital or e-commerce business. It gives the company a clear view of what needs to be spent to reach its desired goals and objectives.
Deciding how much money should be allocated for marketing activities can be tricky, as many factors influence the right budget size. As an e-commerce marketer, you want to consider market conditions, customer acquisition costs, customer lifetime value, and other variables that could affect the bottom line.
Of course, numbers can be scary, especially if it isn’t your cup of tea. Fortunately, the next part will break down the process for you. Take a look at the six key steps that should help you determine your eCommerce marketing budget:
- Know Your Business Goals
An eCommerce marketing strategy is a must if you wish to succeed in the competitive online world. Setting your sales goals is the first step towards devising a practical plan for marketing your business. It will help dictate how much of your budget should be allocated to the different components of your eCommerce marketing strategy. To do this, you must understand your short- and long-term objectives and how marketing strategies will impact them.Your goals should be realistic and achievable, with a reasonable timeline for completion. Once you have established what you are striving to achieve through your eCommerce marketing efforts, it’ll become easier to determine the best approach to take and the resources needed to reach success.An allocation of 5-12% of the revenue for a marketing budget should suffice. A well-established business that wants to grow incrementally may spend closer to 5%. At the same time, a company just starting may need to pay closer to 12% for aggressive growth. All in all, knowing what you’d like to achieve will help you budget accordingly. While at it, you want to focus on growing sales, earning more subscribers, increasing brand awareness, increasing leads, and more.Ultimately, whether you have a large or small budget, being practical when planning and budgeting can significantly contribute to the overall success of your e-commerce campaign.
- Understand Your Unit Economics
For you to create an adequate eCommerce marketing budget, you are required to have an understanding of the unit economics of your business. Unit economics are the costs of acquiring, serving, and retaining a customer. Without understanding these numbers, creating a realistic marketing budget will be impossible.Knowing these costs will help inform the budget for launching various campaigns, such as email and social media advertising. It’s also important to consider your unit economics when adjusting or refining your budget. If a particular campaign isn’t producing results, then there may be less need for spending on that area.To understand these numbers and how they impact your ability to turn a profit, here’s a breakdown.
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- Average Order Value (AOV)
The most crucial figure in unit economics is the average order value (AOV), or the revenue earned from each purchase.It’s the cornerstone of your eCommerce marketing budget since it can help you accurately plan for costs, such as product inventory and delivery fees. It also lets you understand what kind of return on investment (ROI) to expect from your marketing efforts.Monitoring changes in AOV will give you a great insight into how strategic decisions can affect overall company performance.
- Average Order Value (AOV)
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- Average Quantity
Average quantity, or avg. QTY metric measures the average number of items consumers order per purchase. It can often be developed based on months and sometimes weeks of data.Monitoring avg. QTY can provide insight into the demand and purchasing behaviours of customers plus the revenue per purchase you’re making from each item in an order. This knowledge can help you adjust your marketing budget accordingly and promote products performing well while phasing out those not.
- Average Quantity
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- Cost Of Goods Sold (COGS)
At this point, you have an idea of how your customers spend and buy on average. But how much does it cost you to manufacture and deliver your product? That’s where the cost of goods sold comes in.COGS is the operating cost of producing goods, such as raw materials, manufacturing labour, and product packaging. Calculating COGS helps determine the gross margin of a product and will allow you to predict profitability and make pricing decisions.To calculate COGS, simply subtract ending inventory from the total cost of goods still available for sale, then add additional inventory charges such as transportation, shipping fees, or duties.
- Cost Of Goods Sold (COGS)
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- Gross Profit
In the context of unit economics, the Gross Profit plays a crucial role in determining the success of your ecommerce marketing endeavours. The gross profit is the financial gain you make after subtracting the Cost of Goods Sold (COGS) from the revenue generated through sales (AOV).Understanding the AOV, average quantity, COGS, and gross profit can provide a more accurate insight into the viability of your ecommerce marketing plan.
- Gross Profit
- Determine Your Target Margin
Now you have your unit of economics, the next thing on the list is the target margin. The target margin is calculated by subtracting the cost of goods sold (COGS) and other expenses (such as marketing, shipping, and overhead) from the selling price, and then dividing the result by the selling price. This figure is then multiplied by 100 to obtain the target margin percentage.To determine an eCommerce marketing budget, businesses should first understand their target margin. This will enable them to allocate resources effectively and ensure that marketing spend is in line with overall business objectives. A higher target margin may require a larger marketing budget, while a lower target margin may necessitate more cost-effective marketing strategies.Overall, a well-planned budget should accommodate spending on costs associated with SEO and paid to advertise while also including time and resources for other tasks such as creating content, tracking analytics, and engaging in social media campaigns.
- Know Your CPA And ROAS
When planning your eCommerce marketing budget, understanding the costs associated with each action and how it affects your return on investment (ROI) isn’t just necessary—it’s essential.Calculating your cost per acquisition (CPA) will give you an initial idea of your eCommerce marketing strategy. CPA is the total cost to acquire a customer from start to finish.Calculating your return on ad spend (ROAS), or the revenue generated from a specific sales channel compared with its cost, will provide further insight into whether or not certain initiatives within that campaign are effective. And if it’s worth investing more money in for continued success.Generally speaking, if these costs are too high, sustaining your business will be more challenging. That said, you may have to make some changes. The best place to start is looking at your unit of economics. See if you can change shipping costs and other fees to decrease the numbers.
- Understand The Sales Cycle
With a thorough understanding of the entire sales process, you can evaluate each marketing strategy accordingly and ensure that any money invested in marketing goes towards the right initiatives.Consider analytical data from previous campaigns and analyse market research too. It’ll give you valuable insights and help you determine what should be part of an effective eCommerce marketing strategy within your budget.Knowing what to tackle first and accurately forecasting labour costs, advertising fees, technology investments, and other expected eCommerce marketing costs will enable you to maintain control of your budget throughout the entire process.
- Know What Tactics You Want To Use
Strategy precedes numbers in this instance. Being aware of the techniques that will be used to connect with your target audience will ensure that you are spending money on tactics that will produce a positive return on your investment.This could include utilising content marketing activities, such as writing blog posts, creating video content, or outsourcing developing tasks, such as photography and graphic design work.Researching specific e-commerce tactics, such as SEO and online ads, should also be considered when determining costs associated with your eCommerce marketing strategy.
Conclusion
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