Ecommerce Website…How much Should I Spend?
A loaded question with a variable answer: it depends.
We receive many calls and emails from owners of businesses large and small asking: “How much should I invest in my ecommerce website?” Our usual answer to this question is with another question: “That depends, what is your budget?”
Sometimes the non-tech savvy buyer thinks our sales engineer is just trying to get a number they can work over the customer for, that is not the case at all. It really does depend on many variables. Our team is here to help your business.
For the most part, we look at your solution in terms ROI (Return on Investment) by meeting business goals instead of price. Of course one of those business goals is usually to make money. Many businesses have other measurable business goals as well, such as increased market share, improved brand recognition, lowered expenses, etc. In order for our team to determine what will give you the best ROI, they need to know what your investment level is. Let’s work through two examples to illustrate this:
Example 1: Bob’s Start Up
Bob gives us a call and lets us know that he has just opened a small store in a medium density commercial area with limited traffic. Rent is cheap and it’s a great place to start for him. He wants an ecommerce website but doesn’t know where to start.
Bob answers our budget question with the usual, I don’t know…you tell me what it should be. So we answer with our usual question, what are your business goals. Bob again says, I don’t know, you tell me, what is everyone else doing?
This tells us right away, that Bob needs a lot of help. That’s OK, that is what we are here for. We have some great, entry level, ecommerce packages that we can slide Bob right into and get him up and running quickly. With any luck he will be happily selling on into the future, and that does happen.
But what Bob should really do right now is also invest in a little bit of business consulting and allow us to work with him to develop a marketing plan and projections based on his business goals. Spending a few hundred to a few thousand up front can save a business tens of thousands in the long run. We keep it simple for Bob, we touch on a few advanced metrics, but focus on initially steering his new business in the right direction without over complicating things. Knowledge and training going in can help a business owner avoid costly pitfalls.
Now that Bob has a marketing plan and business objectives, can we tell Bob what his budget for his website, online marketing should be, and what ecommerce website solution he needs to get the best ROI for his business. Based on his projections we determine a good goal is to supplement his limited in-store inventory with a larger selection online, drive store traffic, increase special orders, and add 50,000 per year in store sales. Initially we would tell Bob that his budget needs to be about 10% of his goal as a starting point, or 5,000 dollars per year for his e-commerce platform; to save money he can do his marketing himself by hands on SEO, event marketing, word of mouth, and setting up a computer on his sales counter for customers to browse in-store.
- Goal 1: Increase online and in-store sales by $50,000 per year
- Goal 2: Supplement limited brick and mortar inventory with special order availability
A two year Gold Level XLECommerce ecommerce package is a great fit for Bob’s business, along with a little extra consulting, marketing help, and one on one training time.
- Total Investment: $9,276
- Initial Return: $100,000
- Long Term Return: $150,000
- Brand Reach: 300,000 people
- Total ROI: 250,000 Dollars
- Total Marketing Spend per Dollar: 4 cents
Example 2: Linda’s Two Location Medium Box Brick and Mortar
Linda requests a meeting in our office and flies in to visit us. She has been in business for quite some time, and ready to take the business from a profitable medium size two location box store and spread its wings online with a national reach. She is still a “small business” though, we are not talking multi million dollar budgets with the likes of top big box players.
She has been down this road before and has prepared an RFP (Request for Proposal) according to the following business goals:
- Goal 1: Initial first year sales goal of 500,000 based on a variable of 5% of current in store sales
- Goal 2: Increase online sales by 20% year over year for the next 5 years.
Based on that we recommend she budgeted $50,000 per year for her ecommerce website and professional services. Driving the sales growth will require a $50,000 per year digital advertising budget, spread across SEO, Social Media, Paid (PPC/PPM), and Email Newsletters. She will support this with POS marketing in store and current event marketing that is already in place.
Her 500,000 dollar investment in ecommerce and marketing over the next five years is roughly 13% of her projected sales and will yield her over 3.7 Million in revenue.
At an average sale of 150 dollars, this means that she has attracted close to 30,000 additional customers during that time period whom she can re-market to. If each of those customers has a CLV (Customer Lifetime Value) of $450 (on average she can get each customer to come back three times) that is an additional 13 Million in future revenue for the lifetime of her business. Further, the platform and marketing she has put her brand in front of 15 Million people over that time.
So by following the RFP budget based on solid projections we have the following proposal for Linda:
- Total Investment: $500,000
- Initial Return: $3,700,000
- Long Term Return: $13,000,000
- Brand Reach: 15,000,000 people
- Total ROI: 16.7 Million Dollars
- Total Marketing Spend per Dollar: 3 cents
Based on this information we would suggest using our XLECommerce Enterprise Level ecommerce website package as a starting point and invest in additional integrations and customization to automate processes and meet business goals. We would also suggest heavy investment in content development and optimization, merchandising, and A/B testing. To back all of this up, our engineers would put together additional dedicated servers with a CDN (Content Delivery Network).
You can see that having a strong plan and a larger budget can lower your marketing spend per dollar and increase your ROI.
Bob, as a startup guy, does pretty well. His spend per dollar for e-commerce sales is less than than the costs of selling on eBay or Amazon. Even if he makes some newbie mistakes and misses his goals by 50% he is still OK and in a safe zone of return. His investment in consulting has paid off by going into his new business with a tactical plan of attack. His choice of a managed package has freed his time to focus on meeting new customers.
Linda has knocked it out of the park and now has a solid foundation in ecommerce on which to build on. If she keeps up her hard work and continues to invest in the future, her long term results will be exponential.
Of course, both of these are just hypothetical examples. Your investment in your ecommerce website is truly what you make of it. Your mileage per dollar will vary. We consistently see that those that spend the time working with our team the most in training, merchandising, SEO, and content development do better than those that sit back and expect their new plant to grow without watering it. There are no big secrets, building a new business or expanding your existing business takes hard work. We are here to work alongside you to meet your goals!
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