Commerce Tips

Your Marketing Budget is Wrong!

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Your current budget allocation is extremely inefficient, and it’s costing you money!  Before you get offended, let me explain why.

marketing budget acquisition spend

Forrester estimates that the average brand is allocating 80% of its marketing budget to obtaining new customers, and only 20% to keeping them. On the surface this may seem fine because you can argue that you must get customers before you can keep them. Unfortunately that’s not the whole story.

marketing budget budget allocation

Your returning customers account for a whopping 40% of your revenue, but only 8% of a brand’s total customer base. This is a small but mighty segment of your business that is being drastically underfunded.  Imagine what your store would be like if you could increase that repeat customer rate! That would be a drastic increase in potential revenue and overall profitability of your brand.

The question, of course, is how do you do that?

 

Refocusing Your Marketing Budget

Making big changes to your business – especially when money’s involved – can be intimidating..  The good news is that you don’t have to completely eliminate your acquisition efforts.  Quite the contrary, in fact!  

marketing budget balance

The beauty of retention marketing is that it’s all about striking a balance between the two.  This maximizes the likelihood of a customer making a repeat purchase.  Think of it like a marketing tag-team: customers will first be enticed to explore your brand and then convinced to come back.  

However, to find this balance we need to reorient your marketing budget’s focus.  The best way to do that?  “Before” and “After”.  Let’s look at what you’re currently doing and how you can shift your marketing budget.

Before: Excessive Discounting

Everyone likes saving money.  That means that brands who offer products shoppers want at a  lower price are bound to get their attention.  Shoppers are always drawn to words like “discount”, “sale”, and “percent off”, making it a reasonable tactic to consider.  As such, you decided to dedicate a healthy chunk of your marketing budget to throwing sales and letting customers know about them.

marketing budget budgeting bad

There are several problems with this strategy.  For one, it’s not sustainable.  The more sales you throw, the more your customers will be conditioned to expect them.  This conditioning means you’ll be forced to throw more sales more often, which will eat into your margins and affect annual profits.  Additionally, constantly throwing sales will damage your reputation as shoppers begin to wonder why you never charge full price for your products.

After: Discounts as Rewards

As I mentioned earlier, adjusting your marketing spend is all about balance.  It would be unreasonable to ask you to cut sales out of your marketing budget altogether.  It’s not unreasonable to ask you to cut back though.

marketing budget gongshow

Investing in retention tools like a loyalty program will allow you to reap the benefits of offering discounts with more control over how they’re redeemed.  With a loyalty program, customers will be conditioned to make purchases in order to earn a reward.  Transforming discounts into goals instead of promises builds profitable behaviour, so even if all shoppers want is the discount they’ll still end up returning to your store.  

Before: Untargeted Social and Email Marketing

The average person has at least five social media accounts and checks their email at least three times a day.  Mobile devices have dramatically changed how often you can put your brand in people’s hands, and this exciting opportunity prompted you to start email and social campaigns that reach out to customers multiple times a day.

marketing budget social media

Unfortunately, this approach eats up a whole lot of your marketing budget.  Increased competition has jacked up the cost of ads on platforms like Instagram and Facebook, further shrinking your margins.  In an effort to combat this, you increase the number of social messages and emails.  

marketing budget newsletters

However, this constant blasting of information is seen as obnoxious by your customers.  Just look at how many emails I get in my inbox each day!  This volume of emails results in customers feeling the messages aren’t valuable because they don’t target their specific needs.  This results in fewer click-throughs as customers feel over-saturated in a world already dominated by way too many ads.

After: Personalization

How many times have you received a marketing message that you feel doesn’t apply to you?  I get them all the time, and this frustrates me to no end.  Instead of showing me what I want to see these brands are simply sending me what they want me to see, and our interests rarely seem to align.  This continuous cycle often results in me unfollowing social accounts and unsubscribing from mailing lists just so that I won’t be bothered in the future.

marketing budget relationship

These actions can be avoided by putting heavy focus on message personalization.  Although this change doesn’t necessarily affect how much of your marketing budget is dedicated to advertising, the mindset behind it changes.  “Before” assessing your marketing spend, the concern was getting messages in front of customers.  This approach is cold and polarizing, and can often feel forceful and unrelenting.

Investing part of your marketing budget in a loyalty program allows you to begin building a real relationship with your customers with customer segmentation.  Using customer data, you can begin to target specific behaviors with campaigns that acknowledge each customer group’s business and interests accordingly.  

marketing budget amazon email

Amazon is already doing this extremely well.  I received this email from them after looking for a Christmas gift for my friend, and the products they suggested are exactly what I was looking for!  This carefully crafted attention will increase the customer’s desire to buy and make your brand feel more relatable.

marketing budget anothology instagram

The same goes for your social channels.  Instead of sharing only product descriptions and shipping rates, start to incorporate user-generated content and customer experiences into your strategy.  Anthology Candles does this very well by encouraging customers to share photos of their Disney-inspired products around the Resort or in their homes. These additions make your brand more relatable and encourage the development of a brand community everyone wants to be a part of.

Before: Profit-Oriented

The ultimate goal of any business is success, and most of this success is linked to profitability.  This is why so much of your marketing budget is tied up in acquisition.  After all, if you don’t have customers who will you sell to?

marketing budget narrow view

The danger with this mentality is that your view begins to narrow.  While your brand might be aligned with certain social justice or environmental causes, customers aren’t aware of them because all of your messaging is used to promote your products.  Customers begin to associate your brand with the product and ignore the people behind them, dehumanizing your brand until it becomes nothing more than a corporate machine.  

After: Value-Oriented

At every step in the customer journey, your customers should come first.  That means tirelessly working to provide and advertise your brand’s value.  Loyalty programs are an excellent way to do this because customers can easily see the benefit of shopping with your brand over someone else’s.  

marketing budget elf rewards

A healthy mix of transactional and experiential rewards – like these from e.l.f. Cosmetics – creates a shopping experience that sets your brand apart because it positively impacts each customer’s life.

Loyalty isn’t the only answer here, though.  If customers are interested in your products, they’ll also be interested in how to use them or the optimal time to do so.  Developing additional resources like a blog or how-to videos allow you to branch out your marketing reach and make the biggest impact.  As a brand committed to their customer’s health, Bulletproof Coffee offers a whole variety of additional resources to make sure shoppers are equipped to live the best life possible.

marketing budget bulletproof

These types of tools also allow you to become the authority on something and ensure that people will come to you first which. In the long run, this is still aligned with your profit-oriented goals.  Rethinking the ways you achieve your business goals will significantly impact your customers’ desire to shop with you, and it will always be for the better.

 

The Marketing Budget of the Future

At the end of the day, adjusting your marketing budget comes down to improving the customer experience.  When customers are treated to exceptional service, they are more likely to return and share their experience with others.  These referrals bring more customers into your store, and will turn into a higher customer lifetime value and increase purchase frequency.

marketing budget summary

If you don’t know how to start making the marketing spend shift, a loyalty program is an excellent place to begin because each of the elements we discussed can be handled in one retention hub.  Focusing your marketing budget on these areas will help you to better understand the value of your repeat customers and prepare your store for an ultra successful 2017.

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