We interact with tons of eCommerce businesses to help them with their journey. 8 out of 10 times, brands that struggle to keep their budget in check have made one (or more) of the three mistakes that we’re going to discuss in this article. You will also learn how to avoid these mistakes. We've also included a highly effective approach for your business as a bonus! Ready? Let’s get into it.

The Disconnect

This is where brands have a disconnect between their revenue goals and cost budget (P&L), and in a lot of cases, their revenue goals aren’t tied with their traffic budget. As a growing eCommerce business, you must be aware of how much traffic do you need to be able to reach your revenue goals continuously. So make sure that your revenue goals are neatly stitched with your costs budget (P&L) and traffic budget; without any disconnect. And best to carefully monitor the progress.

Misunderstand Distribution

Distribution is seen to be a common culprit for brands to get their budget wrong. Awareness plays a major role in getting this one right. If you don’t fully understand the distribution, chances are that you won’t make the most out of it. Spend some time understanding the basics. Answer a few basic questions like, “How volatile are metrics like CPC and conversion rate throughout the year?” or “What causes these fluctuations in the metrics?”

Metrics like cost-per-click (CPC) and conversion rates fluctuate throughout the year. For example, CPC is a metric that varies a lot, depending upon the seasonality. When a lot of brands run online ads during November, the CPC naturally spikes. Similarly, conversion rate also varies with season, depending on how you sell your product.

That’s why, if you’re aiming for something that’s within the conversion range, think again. You should be aiming to be outside the distribution. Understanding distribution through the lens of these factors will have a significant impact on your cost of sale and the ad spend required to reach your target.

Attribution

More often than not, we cross our paths with eCommerce businesses that are torn between two or three marketing channels, wondering which would be the ideal one in terms of ROI, Facebook Ads or TikTok Ads. The new iOS update only makes it trickier. The key here is to stay in control over your cost of sale and revenue. If you find yourself opening Facebook Ads or TikTok Business Manager to check your Return On Ad Spend (ROAS), you’re looking in the wrong place.

The right approach for attribution is to recognize the kind of attribution that suits your brand and funnel. Don’t be afraid to experiment here, that’s the only way you can really know what works and what doesn’t.

Tip:

When you plan your budget, a good start would be to get your hands on a weekly or monthly breakdown of the year from your measurement setups like Google Analytics or Funnel. Export it to a spreadsheet and calculate the standard deviation and average for the conversion rate. The cost of sale is directly impacted depending on the conversion rate and average order value, so make sure that you execute the above calculation to be at a solid starting point.

The “Guidance” Approach [Bonus]

Since you read this all the way through, it means you really want to learn and for that, here’s a bonus approach that can be an eye-opener for many of you. Instead of setting rigid targets, pick a range to target. This is a subtle shift in approach as compared to setting a rigid target yet it’s very beneficial. This guidance approach is most efficiently incorporated by Spotify’s Daniel Ek.

For example, instead of setting a target of 403 million monthly active users in Q2 for 2022, Spotify gives guidance by setting a range for their target. Even if Spotify is aiming for somewhere in the middle of the range, this approach allows it to have distribution in a lot of the parameters. This also doesn’t call for a meeting when they’re hitting a bit under or over the target because they would still be within the range.

This is good practice to learn and incorporate into your eCommerce business. Wondering how? Here’s a brief explanation - start with the average order value, look at the conversion rate, and see how that affects your cost of sale. You can easily set it up in the Funnel dashboard by putting Sales + P&L + Traffic in one view.

Conclusion

Managing your marketing budget could feel like a daunting task, especially at a time when marketing cost is on the rise. But you can gain control over your marketing budget if you steer clear of the 3 mistakes we discussed today.

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It's common for eCommerce businesses to find it difficult to manage their marketing budget or feel stuck in their journey. If you're in a similar place, schedule a FREE meeting with our eCommerce expert and get actionable tips tailored for your niche.