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Managing Your Marketing Budget Part 2

 by zack on 03 Aug 2013 |
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Welcome back to our post series discussing the best methods to build the perfect marketing budget for your ecommerce business. Last time we talked about calculating ROI and using that to inform your budgetary decisions, as well as a few of the different common areas of marketing budget spending. Today we’ll be talking about a series of different spending scenarios and some of the best practices for addressing common problems. So let’s jump right in with the next order of business.

Where to Spend?

Your needs define your spending. Your needs are measured in metrics, so to discover where you should be spending, you’ll need to spend some time measuring metrics. When you’re first starting out, a lot of this process will be trial and error. In the last post we talked about measuring your ROI and how it’s important to your budget. Today, we’ll be taking this underlying concept and applying it across all of your marketing channels.

First you’ll need to define an initial testing budget for your marketing efforts. Along with your budget, you’ll want to define a time period for your testing phase. Once you’ve set these parameters, you can begin with your tests. This test budget and time period will be unique to your business’ goals and needs, so we’ll be working purely in the hypothetical realm from here on out.

Hypothetical Marketing Budget Scenario

Let’s say you’ve begun a brand new startup online store with a test budget of $2,500 for your first month. You’ve got a lot of content stockpiled from when you were planning this venture, but you’re starting from scratch in just about every other area. If you remember your list from yesterday you’ve got six different major areas to spend your marketing budget.
  • SEO
  • PPC
  • CSE
  • Content
  • Social Media
  • Conversion Optimization

We’re starting your sales funnel from scratch in this example, so you should rank the importance of each item. You’ve got your content handled so that’s on the back burner. The areas with the highest average ROI are conversion optimization and CSE. So naturally, this is where your budgetary concerns begin. 

Everyone’s list will be different according to their priorities but here’s a sample of marketing expenses in order of importance, in this specific scenario:
  1. Conversion optimization
  2. CSE
  3. SEO
  4. PPC
  5. Social Media
  6. Content
You can apply a significant chunk of your budget toward making sure your landing page can convert, as well as trying to cheaply draw traffic toward the landing page. So let’s say 3/5 of your monthly budget is applied to those two areas. You hire a top notch copywriter and graphic artist team to design a stellar landing page, and you make sure that your products are appearing in the results of Google’s shopping application.

You’re getting 500 page hits a day and converting 10% of your visitors, the average value per conversion is 25 dollars. Ain’t life grand?

Total revenue accrued? $1,250.00 a day, and $37,500.00 for the month. Your ROI, if you remember your formula is: [(37,500-2,500)/2,500]*100=1400%

Congratulations you’ve made your money back 14 times over. You go, girl.

This is a great (if not an atypical and unrealistic) result. Because you’re having such awesome results, it’s time to adjust your budget. You can now afford to hire a pricey SEO expert to bring in all that juicy organic search traffic. Simply plug in your new expenses, adjust the calculations to reflect your new investment, and continue to record your results.

Whatever you do, don’t forget to include your time in the calculation. If it takes you 3 hours every day to communicate and work with your SEO expert, multiply your hourly rate by three and add it to the amount that you’re investing. If you haven’t already broken your own salary down into its hourly components, now would be a good time to do so.

This is obviously a grandiose example. These will not be typical results, and the math will not be so easy. There will certainly be more variables, and you’ll have to repeat this experiment over and over again, isolating each variable, and making adjustments based on your results.

Selling things is supposed to be difficult.

Goal Setting and Ratios

Let’s assume your conversion rate isn’t going to be 10%. It’s more likely to be around 3 or 4 percent. So a natural goal for you would be to take that number up a notch. You’ll have to throw more resources, (time/money/effort) into conversion optimization. After another month of testing with a thousand more dollars spent into your conversion optimization budget, you haven’t noticed an increase in the conversions. Back to the drawing board.

Turns out you’re targeting the wrong demographics for your products. Your social media strategy is slipping, and your SEO guy has targeted the wrong keywords on your website. You fire the old SEO guy, and pick up another who was referred to you by a friend. He’s working out fine.

Now you’ve managed to meet that first goal, and you’ve bumped your conversion rate up to 7%.  But you’re not satisfied yet are you? This money is good, but more would certainly be better. You need to increase your reach. Your reach is the number of people that are going to be exposed to your marketing efforts.

An increase in reach should result in an increase in traffic, but it won’t always. You’ll need to continue testing each and every aspect of your sales funnel, and see where you can allocate your budget dollars, (along with all of your other resources,) every time you set a new goal. Ideally, you want a consistent ratio between traffic, conversions, and investment. In other words, for every dollar you spend you’ll want x number of visitors to your site, and x percent of those visitors to be converted to sales.

Ultimately, your goal should be to keep this ratio constant, rather than keep your marketing budget under a certain amount. Marketing is what drives your business and creates conversions, and a marketing budget is the means to that end. So if you are planning to limit your marketing budget, you are also essentially planning to limit your company’s growth. That’s probably not the best idea.

Your marketing budget should always be flexible, and the only reasons you need to limit it, are for testing purposes, or fiscal constraints. Use what you have to as great effect as you can manage, and always be looking for new ways to exploit each dollar. The idea here is to limit the time spent and automate as much of your sales cycle as you can, so that you can enjoy the fruits of your labor, rather than continuously sow the seeds without ever letting the soil sit.

If you’re struggling to keep above the red for years upon years, you either need to leave the business, or completely reassess your approach. And this method of goal setting, testing, and readjusting your marketing budget according to the metric data you collect on specific variables is an excellent method to employ in any major reassessment. That’s all the budget advice we have for now. Keep coming back to the Ashop blog for more expert ecommerce advice. 

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