Mastering Marketing Spend: A Financial Perspective
Oct 26, 2023
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Discover the importance of vigilant monitoring and precision in measurement for enduring success. Uncover the aftermath of overlooking optimization and its impact on revenue. Unwrap the mystery of target contribution margins and communication with marketing agencies. Learn how to harness 'imperfect' data to discern the pulse of your business. Navigate the lesser-known pathways of business metrics and adjust your business sails monthly for the fast lane.
Understanding contribution margin and blended return on ad spend (ROAS) is crucial for efficient marketing budget allocation and decision-making.
Clear communication and monitoring of key metrics like blended ROAS and average click-through rates can help optimize marketing campaigns and achieve profitability.
Deep dives
Understanding the Importance of Contribution Margin and Blended ROAS
For e-commerce businesses, it is crucial to understand the concept of contribution margin and blended return on ad spend (ROAS). Contribution margin refers to the amount of revenue retained after deducting variable costs like cost of goods sold, shipping, and payment processing. This helps determine the amount left for marketing spend. Blended ROAS is calculated by dividing net revenue by total ad spend and provides insights into the overall profitability of marketing efforts. Setting a target contribution margin and blended ROAS helps guide decision-making and maximize profitability. Monitoring these metrics on a monthly basis is recommended for accurate performance evaluation and decision-making.
Implementing Clear Guidelines for Marketing Agencies
To ensure efficient marketing spend, it is important to communicate clear guidelines to marketing agencies. This includes setting target ROAS levels and implementing a red, yellow, green light system based on performance. Agencies should be aware of the target ROAS and adjust their strategies accordingly. Monitoring the blended ROAS and providing regular updates can help address any performance issues and make necessary adjustments. For businesses working with multiple marketing agencies, coordinating their efforts may require additional internal support. Verifying key metrics like average click-through rates, conversion rates, and add-to-cart rates can help identify areas for improvement and optimize marketing campaigns.
Applying Financial Metrics to Early-Stage Businesses
Early-stage e-commerce businesses should focus on understanding contribution margin, target ROAS, and their relationship to fixed costs. Determining the contribution margin allows entrepreneurs to grasp the profitability of their business and set realistic marketing budgets. Monitoring revenue, expenses, and the achievement of monthly targets is crucial. Maintaining accurate bookkeeping records is highly recommended to ensure financial data aligns with performance metrics. Additionally, employing tools and spreadsheets available through resources like the e-commerce cohort can help early-stage businesses track and analyze their financial health.
Addressing Attribution Challenges and Other Metrics
Attribution can be a complex aspect of e-commerce marketing, but it is essential to make educated guesses and adapt accordingly. While perfect attribution may not be feasible, monitoring metrics such as average click-through rates, conversion rates, and add-to-cart rates can provide a clearer understanding of advertising effectiveness. Evaluating these verifiable metrics alongside blended ROAS and contribution margin ensures a comprehensive overview of marketing performance. Although November may bring increased sales due to seasonal factors, it is important to maintain consistent monitoring and adhere to target metrics to maximize profitability.
Are you struggling to allocate your marketing budget effectively? Wondering how to maximise your return on investment? Join us on the "Mastering Marketing Spend: A Financial Perspective" episode of the eCommerce Podcast, where we dive deep into the world of ad budgets and uncover insights with Matt Putra to help you make informed decisions.
Here’s a summary of the great stuff that we cover in this show:
Matt Putra zeroes in on why vigilant monitoring and precision in measurement can make or break a business. Think you're on top of your financial data? Discover why it's non-negotiable for enduring success.
A Cautionary Tale of acompany's misadventure. They had the budget, but did they have the strategy? Discover the aftermath of overlooked optimisation and its impact on revenue.
Ever thought about the art of communicating with marketing agencies? We unwrap the mystery of target contribution margins and introduce you to a vibrant colour-coded system. Green, yellow, or red - where does your agency stand?
See the world of data through the lense of an e-commerce maestro! Perfection might be a myth, but is there beauty in imperfection? Learn how to harness 'imperfect' data to your advantage and discern the pulse of your business.
From the importance of blended wires to the magic of target contribution margins, we navigate the lesser-known pathways of business metrics. Plus, get a fresh perspective on why adjusting your business sails monthly could be your ticket to the fast lane.
There's e-commerce, and then there's experiencing e-commerce. Matt Putra spills the beans on why having a seasoned e-commerce guide is like striking gold in the digital marketplace.
ABOUT MATT:
Matt Putra, the CFO wizard behind scaling eCommerce brands from the UK to Canada and beyond! Whether it's boosting cash flow or cutting stress, he's your go-to. Plus, as a savvy eCommerce investor, he's got the magic touch to juggle risks and ramp up growth.