Categories & Margins
The importance of ROI and ROAS
Decide your marketing dollar allocation according to your E-Commerce product catalog!
Acquiring customers for an E-Commerce business through digital marketing is fundamentally different from acquiring a customer for any other digital business. The key to E-Commerce is the direct ROI measure. Your customer’s journey begins with an ad impression served by you, and ends with a purchase. This means that the vital metrics – cost and revenue are important and easy to measure.
For example, OnlineSales.ai provides an intuitive view of your spends across channels and audiences, segregated by impressions, visits, cart sessions and orders fetched. The ROAS is the Revenue returns earned on invested ad spends.
This easy tracking also means that cost allocations should be done with careful planning.
|Factors that influence the cost allocation are:|
|Product Categories at the Most Uber Level|
While going about inspecting each of these factors, your product catalog is the point you should start with. This is the most natural approach since ‘what you sell’ is the primary input required to decide:
How you sell it? These are your Marketing goals
Where you sell it? Preferred Channels
Whom you sell it to? Audience targeting decisions
Think about it this way – if you are selling apparel, jewelry and home decor, each category will guide you to take different marketing decisions. Your apparel maybe trendy fashion aiming at teens, while your jewelry may be more suitable for office-goers.
Since we are talking about cost – think margins
Now that we know that your product catalog is your guiding factor towards marketing strategies, next is the daunting task of actually inspecting your catalog. Your product catalog could have a few hundreds to many million items. Also, your catalog will keep ever changing based on what you produce or procure.
How then do you decide to get an impactful strategy split looking at your catalog?
Let’s systematically address this point now. A knee-jerk reaction is to split the catalog based on categories, and obviously so – since the audience by each category would be different.
But think carefully – just because you have to target teens for apparel and office-goers for jewelry, would you necessarily allocate different costs? If yes, how much? Let us assume that it is easier to reach teens as they are online more often than office-goers. Does that mean you will allocate more budget to apparel? But what about the fact that office-goers are more likely to purchase, since they have disposable incomes?
Consumer behaviour questions are usually subjective. It makes more sense to understand exactly what makes business sense for you. How much of your budget you should allocate to marketing would depend on the margins fetched by the category or the Product SKU. Here’s an example – let’s assume you sell both apparel and accessories. The apparel may fetch you higher margins, and accessories being of lower value fetch you lower margins. You can then clearly know your upper constraint.
Answer the following questions
“What is the maximum amount I am willing to spend to get one order on Apparel?” “What is the maximum amount I am willing to spend to get one order on Accessory?”
If the amounts are different, you clearly have separate business goals for each of the categories. If the amounts are same, the business goal is common, but you may have separate strategies on customer acquisition.
In fact, some specialized e-commerce marketing tools, such as OnlineSales.ai allow you to define goals. The budget and expected returns is a goal. Here’s how these tools have made goal definition a no-brainer.
Hero Products vs Margin products
Huh! We have come quite far in understanding goals by now. Now let’s complicate things a bit.
Assume that you are a bakery owner and your chocolate cakes sell the best, though it brings a low-profit margin. In fact, your caramel cakes make you the most margins.
A single caramel cake sale makes you more profit than selling 4 chocolate cakes.
By applying the logic we have defined so far, we would have separate goals for chocolate and caramel cake and that would be perfect. Since the chocolate cake is a popular product it will fetch more orders and visits than the caramel cake. Therefore, chocolate cake is your hero product, but the caramel cake is where you make real profits – making the caramel cake your margin product.
If you are confused on how to identify the hero products, refer to the SKU scoring reports that platforms like OnlineSales offer. The popular products on these reports are clearly ranked and help you distinguish how much margin you are making on either category of products.
That’s great! But what do I do with these hero products and margin products?
Margin products are popular products, use this to drive maximum visits. E-Commerce marketing platforms like OnlineSales.ai give you a chance to optimize a goal for visits. You will observe that for your hero products, the visits result in conversions since they are the most sought-after products. You may also decide to forego margins on hero products to attract a wider customer base.
|Use hero products to drive visitors.|
|You can forgo the margins to attract new customers to the store.|
|Be bold and experiment new audience segments on hero products.|
In turn, the real benefit comes from upselling the margin product to such customers. You can have a ‘cost per order’ goal for the margin products – which means you restrict the spends per transaction and benefit hugely on the margins.
|Upsell margin products to the customers who enter your store by the hero product goal.|
|Pursue these customers aggressively by remarketing to them on all channels.|
|Identify your Hero and Margin products.|
|Create an impactful strategic split.|
|Allocate budgets with knowledge and caution.|