Report debunks ROAS obsession in e-commerce
If you're obsessing about return on ad spend in your e-commerce business, you're doing it wrong, according to a new report.
Marketers have enjoyed a boom economy for the better part of a decade. But with 86% of CEOs expecting a recession to hit in the next year, it’s highly likely they will soon face unfamiliar pressure to limit or significantly reduce their marketing budget.
While many eternal optimists say they’ll boost investments in 2023, the cold, hard fact is marketing budgets get slashed first in economic downturns because marketing and advertising are often considered to be soft or non-essential costs by organizations.
If you're obsessing about return on ad spend in your e-commerce business, you're doing it wrong, according to a new report.
“Fortune favors the brave,” he says. “Whilst those around contract their marketing spend, and as a result shrink their market visibility, others can prosper from the vacuum this creates.”
For example, media outlets are sometimes more open to reducing their advertising rates, Tredinnick notes. Aggressive marketers can take advantage of this to step up their visibility while their competitors go dark.
Of course, those holding the purse strings in organizations could still object to the idea of spending anything at all on ads when revenues are dwindling. But Tredinnick says marketers can overcome such objections by showing that ads build for the future.
“Securing budget during a downturn really comes down to one thing: showing an ROI,” he says.
“If the team can show a direct and compelling ratio of marketing spend to revenue – like every dollar spent results in a ten-dollar return – then a finance department would be hard pressed to not approve that expenditure.”
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Sometimes the best way to protect a marketing budget is to show business leaders the risk with certain cuts.
Amy Barzdukas, CMO of WiTricity, a wireless charging company, says savvy marketers build strategic programs that enable business and drive sales. If they’ve done their jobs correctly, the financial success of their companies are directly tied to their good work over the years. As such, CMOs should be able to show how diverting budget from such vital work could hurt corporate prosperity.
“You need to be seen as a driver of revenue, not a cost sink,” she says. “If you’re seen as the team that does events and makes things pretty, financial retrenchment will be hard on you.”
Even with the best image inside of companies, though, Barzdukas acknowledges marketers could still face cuts – just like every other department. If that occurs, she cautions against “whining” and advises teams to do their part to trim spending where possible.
“Every budget, though we hate to admit it, has some discretionary spending that you can live without, at least in the short term,” Barzdukas says.
“Offer cuts where they make sense and be sure to have some data behind it to justify those recommendations.”
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They also reason that if a company decides to trim budgets by a certain percentage, then they won’t take as severe a hit in the end. These “use it or lose it” games do work, which is why they’re fairly common in many organizations. But Pete Hayes, CMO and principal of Chief Outsiders, strongly recommends against such practices.
“The CMO needs to lobby for the right things for the business,” he says. “They need to partner with the CFO and not play politics around the budget process.”
Hayes goes even further to say CMOs should embrace budget cuts where they make sense, but at the same time, redirect and even boost spending on programs that enable new market opportunities. His company typically increases spending in downturns.
“We also adjust pricing, make promotional offers, and increase the distribution of helpful information we provide in our markets,” Hayes says. “This enables a faster ramp up when the business becomes more comfortable with investing in growth again.”