Marketing is at the heart of every successful eCommerce brand, serving as the bridge between products and customers. But one question that is consistant among emerging and established brands alike is: how much should be spent on marketing?
To answer this, understanding industry benchmarks and strategies for calculating an effective budget can empower your business to allocate resources in a smart way and achieve sustained growth. This post will cover average marketing spending, strategic budgeting methods, and essential ways to track your budget.
How Much Do eCommerce Brands Spend on Marketing?
So, how much do eCommerce brands really spend? On average, eCommerce businesses spend 7-12% of their total revenue on marketing. This percentage can vary depending on a brand’s age, industry, and growth goals. According to a 2023 report by Gartner, high-growth companies often allocate 10-15% of their revenue to marketing to stay competitive. For startups and newer businesses looking to gain traction, spending can push beyond 15% of revenue during early phases to build brand recognition and customer acquisition.
Example Industry Averages:
- Fashion and Apparel: Brands typically spend about 12% of revenue on marketing, reflecting the competitive nature of the space.
- Tech and Electronics: Spending can range from 8-10%, as these products often have higher margins and rely on a combination of marketing and product features for growth.
- Health and Beauty: This industry often invests 10-15% of revenue to capture and maintain consumer interest due to its fast-paced trends and consumer-driven nature.
How Do You Budget for an eCommerce Business?
Budgeting for an eCommerce business requires a comprehensive look at both revenue projections and marketing objectives. Here’s how to start:
- Understand Your Customer Acquisition Cost (CAC): This is the average amount you need to spend to acquire a customer. Industries that are highly competitive may have higher CACs, necessitating a larger budget.
- Analyze Historical Data (If Applicable): Use your past financials to determine patterns in revenue and marketing. For new businesses, industry benchmarks and case studies can serve as really good guides.
- Set Clear Marketing Objectives: Define if the goal is brand awareness, customer acquisition, or retention, as each requires different types of campaigns and budget allocations.
Budgeting Tip: If your brand is heavily dependent on digital channels such as paid ads, you should consider allocating more of your budget towards these methods to stay competitive.
How Should You Calculate Your Marketing Budget?
Calculating a marketing budget involves assessing your business’s specific goals, growth stage, and competitive landscape. Here’s a breakdown of a basic method for calculating an eCommerce marketing budget:
- Revenue-Based Method:
- Take your projected annual revenue and allocate 7-12% for marketing.
- For example, if your projected revenue is $500,000, your marketing budget should be between $35,000 and $60,000.
- Goal-Oriented Approach:
- Set specific growth goals such as a target for customer acquisition, and estimate the marketing spend needed to achieve that growth.
- Use tools like Google Ads, Meta advertising platforms, or influencer collaborations to estimate campaign costs.
- Benchmark Comparison:
- Research what similar-sized competitors or market leaders are spending. This helps ensure that your budget is competitive within your niche.
What Is a Reasonable Marketing Budget for Your eCommerce Startup Business?
For eCommerce startups, a reasonable marketing budget is typically 15-20% of projected revenue, with the goal of gaining brand traction and acquiring customers. Startups often face higher CAC and limited brand awareness. So, this increased investment is important to breaking into the market. For example, if a startup projects $200,000 in revenue for its first year, a marketing budget of $30,000 to $40,000 is advisable.
Key Areas of Investment for Startups:
- Paid Ads: Google and social media platforms often command a significant portion of startup budgets.
- Content Creation: Videos, blogs, and other engaging content formats can establish brand credibility.
- Influencer Partnerships: Collaborations can help reach new audiences quickly.
Strategies to Develop an eCommerce Marketing Budget
So, how can you develop an effective eCommerce marketing budget? Here are a few strategies you can try.
- Evaluate Key Channels:
- Prioritize channels that have historically yielded the best return on investment (ROI). For startups, testing multiple channels can help determine the most effective platforms.
- Flexibility and Contingency:
- Make sure that your budget is flexible enough to adapt to changing conditions and allocate 5-10% for unforeseen opportunities or challenges.
- Focus on Customer Lifetime Value (CLTV):
- When calculating budgets, consider how much revenue a customer can generate over their lifetime, not just their first purchase. This approach can help justify higher CACs in the short term if the long-term returns are promising.
- Invest in Retention:
- Budgeting for retention strategies like email marketing or loyalty programs is essential. Retained customers can cost up to 5x less to market to than new ones and often spend more over time.
Ways of Tracking Your Marketing Budget
Once your budget is set, tracking it efficiently ensures you stay on course and adjust as needed. Here are ways to effectively monitor your marketing budget:
- Use Dedicated Software:
- Platforms like HubSpot, Marketo, or Google Analytics provide data that helps track spending and assess performance.
- Monitor ROI and Key Metrics:
- Keep an eye on metrics such as return on ad spend (ROAS), CAC, and CLTV to ensure that marketing efforts are financially sustainable.
- Regular Budget Reviews:
- Schedule monthly or quarterly reviews to review and reassess your spending and adjust based on performance.
- Budget Allocation Tools:
- Use budget allocation tools like Allocadia or even spreadsheet templates to track expenses by channel, campaign, or objective.
- Set Automated Alerts:
- Many platforms allow you to set alerts when spending reaches certain thresholds, helping avoid budget overruns.
Determining an eCommerce marketing budget requires a delicate balance of data analysis, strategic planning, and adaptability. While the industry average falls around 7-12% of revenue, startups may need to invest upwards of 15-20% to gain a competitive edge. Implementing a sound budgeting plan and tracking its effectiveness will ensure that your marketing spend aligns with your growth objectives, paving the way for sustainable success.
Greg is the founder and CEO of Stryde and a seasoned digital marketer who has worked with thousands of businesses, large and small, to generate more revenue via online marketing strategy and execution. Greg has written hundreds of blog posts as well as spoken at many events about online marketing strategy. You can follow Greg on Twitter and connect with him on LinkedIn.
