E-Commerce · Marketing

Marketing Dollars Translating to Sales Increase in E-Commerce?

Anonymous

May 15th, 2015

I have a potential investor in my e-commerce business asking  "If you were to get x dollars to invest in marketing, what kind of sales increases to you think you can get?" How to answer this question?
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Patrina Mack Experts in global commercialization

May 15th, 2015

Building on what Jim says it's a bottoms up financial analysis that few entrepreneurs attempt to do.   And as he said you probably won't get it right but the exercise is well worth the effort.   I would add that understanding your segments and who you will drive through which channels for your site is critical.   Also, you need to fully understand who your target market is.  For example we did a concept evaluation for a product targeting people who were concerned about skin cancer.   It had less to do with people who have either personally or through family members had a history of skin cancer but more about those who were concerned about protecting their skin in general.   The research provided great indicators of where to find those people in the population despite it being more of a psychographic attribute than a demographic attribute.    The better you understand the shopping and purchase behavior of your market segments the better you'll understand how to market to them.   Conducting some small A/B tests now to understand how online marketing/social media marketing might drive customers to your site would help a lot as well.  

Jim Monroe Founder at OTT Age Industries

May 15th, 2015

Marketing ROI is impossible to prove, though many have tried and a few claim to have succeeded.  But you'll have to come up with an answer anyway - we've all been there!  Have you modeled your customer acquisition plan?  How will you reach potential customers and what will you they need to do to activate?  How will you manage them once they are customers to get them to become repeat customers?  Will your marketing be aimed at acquiring new customers or generating repeat business from existing customers?  The best thing for you to do is to build out a model based on solid assumptions about the size of the market, the cost to acquire a new customer and the value of that customer over time.  Acquisition costs may include market research, advertising, social outreach, promotions and discounts, referral bounties, etc.  Retention costs may include a CRM system, more promotions and discounts, etc.  Once you understand your costs and the value of an acquired customer, you can calculate a return on your marketing spend.  Remember, it's more important to show that you've thought this through and can defend the model that it is to be 100% accurate!

Roman Zrazhevskiy

May 15th, 2015

I would discuss marketing activities you've already tried that were successful, take that ROI and scale it proportionally to the amount of money you're looking for. If you've already experienced traction based on certain activities as opposed to others, you can show an investor that you have a scalable and repeatable business model.

As for new activities, I would look at my competition and see what's working for them. Where are they advertising? Have they scaled any advertising channels or cut down? Where's their traffic coming from? What's the history been like on their AdWords campaigns? Have they cut out certain keywords over time? (you can view this info on SEM Rush)

In general, savvy Investors like marketing that's data driven. The more data you give them to justify your expenditures, the better.

Steve Everhard All Things Startup

May 16th, 2015

I'm going to be the salmon in this thread and say "Hey! That's easy!" It requires a stepwise approach but should give you the components for a great negotiation.

How does the offer compare to what you are spending, directly and indirectly now? Based on what you already know is it enough to move the sales needle meaningfully? Can you restructure or redirect your existing marketing investments so that the investment you're being offered can move the sales needle? If it is you can easily get to a baseline number for an increase in revenue. Linear isn't good so there has be to an accelerator  so that 
 increase in revenue > increase in investment. 
 Now to develop the support for that number...

Looking at your website I would say that you are making the site work hard enough. It is bizarre that your reason for existing is helping support lifestyles but that you make it hard to get help. If I want some advice I have to call you or link out to social media. This is the wrong way around - you need to keep your customers on your website and not direct them away to where they can get distracted. The place you take the order is where you need to solve the problems. Take a look at your visitor stats and look at dwell time, page views etc to get a sense of how people drop out. Think about putting a blog on the site for discussions and customer stories. Most of all keep visitors on the site and guided to a purchase.

You have a broad range of product but no resources on the site to assist visitors in selecting, for instance, a walking cane. Don't make me work hard or I will move on even if you have a unique product. Close the sale quickly and don't invite enquiry phone calls as your visitors first recourse - this will kill you! Put some of that expertise back onto the site and think about user journeys. An example would be that under 'Walking aids" you have a simple choice "Know what I want" and "Need some help", that sort of immediate direction is clearly going to keep folks browsing and closing in on a product.

Do all of this first before increasing marketing spend or a large proportion of your spend will be wasted.

What is possible? Is your business such that you can increase sales from existing clients where you already have a relationship at a low investment, is the potential in your existing pipeline or do you have to plough a whole new field? You don't appear to have a newsletter signup or any process to stay in touch through permissions marketing which means you have no pipeline of existing or potential customers to market to. That might happen at point of sale but I didn't buy anything so I might have missed that.

I would attack the offer first and start to think how you can de-risk the sale in order to shorten the sales cycle. What is the reason for abandoned visits and what can you do about that? Some marketing research might help here and could be a great investment if you don;t have these answers. How will any new mechanic to the sale affect your margin, especially if you need to wrap in additional services or optional features like no quibble returns. A word of caution here, don't encourage random ordering simply because returning items are easy as any of the online clothing retailers will tell you how painful that is in terms of operations and management of returned items. Try to make the sale as consultative as possible so right choices are made. Add some intelligence to the ordering process so you can confirm that someone really did intend to buy three canes or can the site help choose the right one, etc. Also be careful about short term sales promotion based on price alone as it's tough to go back.

The channel and the message are obviously going to be your largest investment after website changes so defining your typical customer, where they hang out and their purchasing process are all likely to be known to you, so now you have to decide whether awareness of the company and the products are your principle challenge or that you are seen as a risk relative to your competition. Great PR is your friend here, telling your story through interview, editorial, blogs and great secondary pickup rather than press releases. People love to hear how new businesses came to be and how you strive to be different To get people talking about you then you have to engage and begin the discussion, not simply promote features through press releases.

There is a number in here but I suspect you biggest opportunity may be in the way you engage with your markets through your website and doing some very simple things better.

A.J. Lawrence Data focused revenue growth executive from startups to Global1000s

May 15th, 2015

This is always a fun question. It all depends on how you are generating your sales already and how far along you are in scaling those channels. 

If you are early in marketing efforts, the answer gets fuzzy but also more promising, "We are still experimenting with additional channels but we expect to increase our traffic through X, Y and Z, at a consistent conversion rate. Thus we expect to increase sales by $invested in marketing / (cost of customer acquisition per all marketing efforts) * (average order value).

Now that is a way over simplification but with out knowing more.... So, feel free to drop me a line if you would like to walk through this in greater detail.

Good luck!

Mary Camacho Product & Develoment Management | UI/UX

May 15th, 2015

Great Question!

We are pre-revenue and recently launched, and I'm actually answering this exact type of question now as I begin meeting with investors. I go straight to my bottom up proforma for it. Assuming we get our full investment, we expect it to translate to X dollars of revenue.

I spend time describing our assumptions, what it will take to test all of our paid digital strategies and why there is such an expected curve on the performance of marketing investment dollars. My deck already includes our key metrics, so I go back to that and dig in a little deeper.

If you haven't already analyzed what the investment can do for your bottom line - then how would you know how much money you need to raise?

David Friedman Co-founder and Managing Director, C-Level Partners | Interim Executive | Investor | Board Member

May 15th, 2015

As others have said, the question is very difficult to answer.  First of all, "if you spend X on marketing..."   Marketing is not one activity.  Surely if you can say all my marketing dollars are spend on SEO or PPC then there is a direct correlation to sales. 

I would then take a look at the history of what you have achieved in your prior campaigns and then you might be able to get a range of expected returns.  Second, I would look at the competition.  There might be useful information that shows the marketing expenditures vs the total sales if you can find companies in the same category.  For example, if I were developing a new E-commerce shoe business, maybe I can look at Zappos' statistics or Amazon's statistics.   You might have to do some digging but it might be worthwhile.  However, even in these cases, you will get the AVERAGE return on marketing and not the INCREMENTAL return on a campaign.  So it will depend on what you are trying to achieve.

You can potentially look at other benchmarking or statistical studies conducted by companies such as Forrester or Gartner or an independent research house.  They can provide statistics like % effectiveness of a direct mail or SEO or PPC campaign.  But of course you have to take it with a grain of salt as the offer, the timing and the product/service will have an impact on return.

You might be able to do a small test in geography or for part of your product line.   These small tests which are relatively inexpensive and can be done quickly e.g. over two weeks, might be able to offer insight into the return on marketing investment (ROMI).

And the final issue relates to the concept of "marketing."  What activities are including in the marketing program?  Is it a single marketing program or campaign e.g. SEO or PPC, or is it an integrated campaign whereby you combine PR, webinars, direct mail, SEO and PPC? Therefore the first question I would have to ask relates to what is the marketing campaign?  The more integrative, probably there is a bigger return. 

As an angel investor, it is always great to have perfect knowledge and answers to questions such as if I give you $X how much will I earn.  Unfortunately, we know it doesn't work like that.  I do believe you should be able to show the investor what worked in the past in your company, what has worked on AVERAGE in other competitive companies, and set up a marketing plan that shows you understand HOW TO MARKET and make course corrections along the way.

I will leave you with this one quote from Jimmy Dean:    I can't change the direction of the wind, but I can adjust my sails to always reach my destination. 

Good luck

David Friedman

 

Anonymous

May 19th, 2015

Wow! Thanks for the great insights to all who responded. Thanks so much

Mihir Shah President at Dishoom Foods, Inc.

May 15th, 2015

That is very difficult to predict but to get a ball park number you can take the $ amount of what your current spending on marketing (SEO, advertising, PR etc.) and what your sales are and then take the X dollar amount to predict the increase. Stay Spicy, Mihir Shah Dishoom Foods, Inc. (the makers of Cobra Corn) P: 312-965-6050 F: 312-488-4090 Facebook Cobra Corn Fan Page Follow Cobra Corn on Twitter