With the shift towards digital marketing, many companies are increasing their budgets for digital channels, including social media and online advertising, to better engage with modern consumers and measure the impact more directly. The approach helps businesses optimize their marketing spend to achieve better returns on investment.
Online marketing is an essential part of getting customers in ecommerce. With an effective marketing campaign, your efforts will drive leads straight to your website, which can help to increase sales for your store.
Compared to TV advertising and other types of offsite marketing, digital marketing can be more direct and effective. As a first step in preparing your online marketing campaign, however, you need to establish a realistic budget.
How much do ecommerce brands spend on marketing?
Depending on your company's unique needs, you can launch an ecommerce marketing strategy for less than $1,000. In some cases, you may be able to get started with an investment of around $100 or less, especially if you’re willing to rely on free resources to get your business online.
For instance, if you decide to focus on all of your marketing efforts on SEO and organic social media content, you won’t have to invest any money. However, note that using these channels will take time, as you’ll need to write articles, generate product pages, create social media content, and develop your brand’s authority.
When creating your marketing strategy, it's therefore important to consider your time along with your financial resources.
Ecommerce brands typically allocate a decent portion of their revenue towards marketing, which varies by niche and company size. On average, companies have been found to spend about 9.1% of their revenue on marketing, with this figure remaining relatively consistent over the last few years, according to Vital Design.
Omnia Retail notes that data from the US Small Business Association suggests that B2C companies, including ecommerce brands, are advised to allocate 7-8% of their revenue towards marketing. Nevertheless, other studies suggest that the average marketing expenditure for ecommerce companies is higher, typically ranging from 15-20% of their revenue.
Typical expenses: How do you budget for an ecommerce business?
Your allocation of marketing funds will also depend on where you can realistically and effectively reach your target audience. For example, some market segments are more likely to use Facebook, and others will use Instagram more heavily.
Analyzing what your competitors are doing can provide excellent insights as you begin developing your marketing strategy and determining the costs required for your store.
According to Smart Insights, the eMarketing Sherpa eCommerce Benchmark Study found that ecommerce businesses spend between 10 and 24% of their marketing budgets on search engine optimization (SEO) campaigns. Companies involved in web commerce also spend 29 to 57% on paid search marketing and 39 to 81% on a combination of pay-per-click and SEO strategies.
Given the extreme variations in these figures, you can see that you’ll need to analyze your results to optimize your own online marketing campaigns. Here are some of the more common avenues for ecommerce marketing to help increase sales.
Google Ads
Google is clearly the most popular search engine, so the opportunities that it creates you to reach your target audience are profound. Your customers will often use Google to search for products like yours.
Running advertisements on Google can help you to get in front of those individuals when they’re actively looking for the items that you sell online. The three primary types of ads on Google are search, Shopping, and display.
Through SEO and other organic efforts, you could work your website up to a top spot in search engine rankings. However, until you get to that point, paid search ads may be an essential part of your digital marketing campaign.
Search ads put your website at the top of the search results so that your business is one of the first that your target audience will see. A top placement can directly lead to more clicks and more sales, so this could be a very cost-effective ecommerce advertising strategy.
Google Shopping ads show a thumbnail, a short product description, the ecommerce store’s name, and a few other tidbits of information. These are placed at the top of a search results page, even above the text-only ads, but they can also be found on the Shopping tab and on Google partner sites.
For many ecommerce stores, available funds should be allocated to Google pay-per-click advertisements first. This would be followed by Shopping ads and then display ads. However, you can analyze the results of small campaigns to determine what is the most cost-effective strategy for your business.
Facebook Ads
If your target customers use Facebook regularly, running ads on Facebook should be considered as you develop a marketing campaign and budget. Facebook offers several types of ads for you to choose from. These include dynamic product ads, remarketing ads, and others.
One of the many great things about advertising on Facebook is the ability to refine the scope of your efforts while also controlling your budget.
In fact, when you set up your ads, you can say how much money you want to spend per ad per day or for the total campaign. You also can set parameters so that your ad is only displayed for your store’s target audience.
Instagram Ads
Instagram is an image-based social media platform, so it’s well-suited for marketing your ecommerce products with high-quality photo content. If you determine that your target customers use Instagram regularly, you can use both paid ads and influencer marketing on this platform.
Paid ads are set up directly through Instagram in the same way that you would set up an ad on Facebook. In fact, because these social media platforms are affiliated, you can schedule your Instagram ad to run when you set up your Facebook ad.
Influencer marketing, on the other hand, requires you to identify key influencers that may be relevant to your brand and to discuss promotions with them. An ecommerce business will often send the influencer free promotional items as part of the arrangement.
The influencer then endorses the product, generally through a social media post or blog content. When followers see the product’s benefits touted, they may decide to rush to your website to purchase the item, leading to an increase in sales.
Email marketing
Costs for an email marketing campaign will vary considerably based on several factors, but you can generally expect the return on investment to be extraordinary.
This is because you can customize email marketing campaigns by segmenting your distribution list and creating tailored email content. In addition, email marketing is direct, and results can easily be monitored and measured.
Email marketing begins with the development of an opt-in campaign, such as when you collect email addresses during the checkout process or via popup ads on your website. Note that buying email addresses is associated with spam behavior and may reflect poorly on your ecommerce store.
Each campaign will need a professional email prepared. This may involve an investment in copywriting and design. Additional costs are associated with your email platform and email management apps.
Keep in mind that when you create your online store with WiziShop, you’ll enjoy access to many different tools designed to optimize your website, including Auto-Mail Booster.
This complete emailing tool makes email marketing a breeze. It lets you customize email content, send newsletters highlighting upcoming product sales, program automatic follow-up emails, and much more!
Organic marketing
Paid marketing strategies using social media platforms, Google, and email deliver prompt results, but those results may be short-lived. This means that you must regularly pour money into these avenues to continue generating leads and enjoying their other benefits. Organic marketing is free, and it should be a part of any store’s ecommerce marketing checklist.
Organic marketing covers SEO, blog posts, free posts on your social media platforms, and other types of content that your business did not directly pay for. The cumulative effects of these various organic marketing strategies can be profound, but it will take time to see the results.
Consider, for example, that it may take many months to see movement in your website’s placement on search engine results pages through a targeted SEO campaign.
If you desire immediate results for your business, paying for advertising could seem like the best path. However, organic marketing has a synergistic effect.
More than that, results from SEO and organic ecommerce content marketing can reinforce or even surpass the results from paid marketing efforts. Because of this, paid and organic marketing both have a place in an ecommerce business’s marketing plan.
How should you calculate your marketing budget?
As you can see, there are all kinds of paths you can take when it comes to how to plan your marketing spending. Though there's no one-size-fits-all solution that works for all brands' budgets, here are a few tips to follow to help you start off on the right track.
Determine your ecommerce goals
There isn’t a predetermined amount for how much money you should spend on ecommerce digital marketing services. Your optimized allocation of funds will instead be unique to your business model and to your target audience.
You’ll ideally strike a healthy balance between cost and return. However, how you measure the return will depend on what your ecommerce goals are.
Are you trying to establish or maintain customer loyalty, or do you want to develop your brand image? Social media marketing is often used to effectively achieve these goals.
Do you want to drive leads to your website to generate immediate sales? Email marketing and pay-per-click campaigns are often focused on producing these results.
As a general rule of thumb, your ecommerce marketing budget is likely going to range between 7 and 12% of your company’s revenue. Nevertheless, some ecommerce businesses spend more than 20% of their revenue on marketing.
If your brand is new or is struggling to operate in the black, your marketing budget may fall below 7% of your revenue.
However, you understandably don’t want to overspend in areas that are underperforming or that aren’t actively meeting your goals. With this in mind, it’s important that you first define what your goals are.
You’ll need to analyze the amount of money available in your operating budget before putting a specific amount toward this line item. As your marketing efforts produce results, you may have room to expand your marketing budget.
Figure out your other expenses
Calculating other expenses in your ecommerce business is crucial when deciding on a marketing budget because it ensures financial sustainability and strategic resource allocation.
Understanding total operational costs helps in determining how much can be feasibly spent on marketing without jeopardizing other critical business operations. Possible expenses to factor in can include, for example, inventory costs, shipping and fulfillment, technology expenses, rent and utilities, and employee salaries.
By considering these costs, you can allocate a marketing budget that supports growth while maintaining operational efficiency and profitability.
Understand your customers and your market
Do you have a specific marketing channel in mind you can't wait to start using to promote your brand and connect with consumers? That's great! Enthusiasm is always beneficial when it comes to marketing efforts. But wait—before you go about spending all your time and money on said channel, it's crucial to verify if it aligns with your potential revenue opportunities and customer needs.
Having extensive market data in your back pocket enables you to target your advertising more effectively, tailor your messaging, and choose the right channels to reach your audience, maximizing the impact of each dollar spent!
To gain this understanding, conduct market research to identify demographic details, buying habits, preferences, and pain points of your target audience. Be sure to also analyze competing brands to understand market positioning and pricing strategies.
In addition, consider utilizing surveys, focus groups, and data analytics to gather insights directly from consumers. Engaging with social media and reviewing customer feedback can also provide real-time insights into changing trends and preferences.
Track important metrics
To ensure that your marketing budget is allocated efficiently and effectively for your digital commerce venture, keeping an eye on key performance indicators (KPIs) is essential. Here are five important metrics to monitor:
- Return on investment (ROI)
This is the most crucial metric for assessing the effectiveness of your marketing budget. ROI measures the return generated from your marketing spend relative to its cost. It helps you understand which strategies are profitable and which aren't. Calculate it by first subtracting the cost of your marketing efforts from the total revenue you earn from your marketing efforts. Then, divide this amount by the cost.
- Cost per acquisition (CPA)
This metric calculates the cost incurred to acquire a new customer. It's critical for evaluating the efficiency of your marketing campaigns. CPA is determined by dividing the total marketing costs by the number of new customers acquired through these marketing efforts.
- Customer lifetime value (CLV)
CLV estimates the total revenue a business can expect from a single customer account throughout their relationship with the company. Knowing the CLV helps in understanding how much to invest in acquiring new customers and retaining existing ones. A healthy marketing budget aims to maximize CLV while keeping acquisition costs reasonable.
- Conversion rate
This measures the percentage of visitors to your website or campaign landing pages who complete a desired action, such as making a purchase or signing up for a newsletter. High conversion rates often indicate effective targeting and engaging content, while low conversion rates might suggest that your spending is not translating into results.
- Marketing originated customer percentage
This metric looks at what percentage of your new business is generated directly by marketing efforts. It highlights the impact of your marketing team by showing the proportion of customer acquisitions that began as leads generated by marketing campaigns.
Together, these metrics provide a comprehensive view of your marketing budget's performance and effectiveness, guiding you in making informed decisions on where to allocate resources for maximum impact.
Test your marketing channels and actions regularly
When it comes to internet commerce, things are always changing! What works really well one day may not be so effective months or even weeks later. This is going to be no less true for your marketing strategy.
Regular testing of your marketing channels and actions can help you identify the most effective strategies for reaching and converting your audience. Continuous testing allows you to optimize your spend by allocating more resources to high-performing channels and scaling back or modifying underperforming ones.
To effectively test your marketing channels, employ A/B testing where you compare two versions of a campaign to see which performs better. Use analytics tools to track engagement, conversion rates, and ROI for different channels and campaigns. Furthermore, experimenting with different content forms, advertising messages, and targeting strategies can reveal insights into customer preferences and behavior.
Revise the allocation of your budget if needed
As you learn which marketing strategies and channels are bringing your online commerce venture growth and which ones are halting its progress, don't be afraid to adapt your spending accordingly!
Although it can be beneficial to take a closer look at certain marketing tactics you've employed to see if you can improve upon a specific strategy and achieve better results later on down the road, there's no need to waste your resources if you know it's just not working for you.
With ever-evolving digital marketing trends, it's not surprising that most businesses are going to find that their original strategies don't go exactly as they plan them to. All the more reason to keep an eye on your performance with helpful analytics! With this data in hand, you'll be better equipped to change up your spending strategy to best suit your current needs and make the most of your resources.
What is a reasonable marketing budget for your ecommerce startup business?
How can you integrate all of this information into the creation of your marketing budget? Above all other factors, your budget must be affordable for your business. Your allocation of resources, however, will directly impact your total return on investment.
First, determine how much you can afford to spend on marketing costs. Then, analyze your target audience to decide which social media platforms would be most effective for reaching them.
Allocate a portion of your budget for Google and email marketing, and remember to focus on organic marketing as well. Plan to analyze your return on investment for all paid marketing methods and to make adjustments as needed to progressively optimize results going forward!
