In the last 7 years, since I started growing my company, specialized in SEO services, I have met over 700 online store owners.
Every time, whether it was a small or large online store, I inevitably came to the question, hold on tight… “How much does an SEO campaign cost?”. There are suppliers in the market that answer this question as follows: “We have the package GOLD, PREMIUM, PLATINIUM, please choose depending on how much money you have in your pocket.”
However, from the first day we started offering this service in the market we have a different approach. An approach by which we individually taught each online store owner to build the budget according to their objectives.
In today’s article I intend to tell you about the methodology behind this approach.
Step 1 – Set a sales target for the following year
Sales can be estimated based on data from previous years – if there is history, based on experience or other data you have access to.
I rarely encountered this ability in the entrepreneurs I interacted with, because many of them had neither historical data to relate to nor access to so many numbers and software tools so that they could make a realistic estimate.
After estimating next year’s sales volume, I do some exercises to understand if the entrepreneur perceives whether it is easy or difficult to get there. After looking at the sales target from several angles together, the entrepreneur will have a clearer perspective on it. If it seems difficult to reach, we reduce it; if, on the other hand, they finds it easy to accomplish, we increase it until he considers it a good target for the next year.
Here are some angles from which to approach the sales target:
Traffic channels
Through which channels do we intend to generate or increase traffic? How much traffic do we need? What will be the conversion rate? At what cost can we increase it? Are there enough search volumes to drive X traffic volume out of SEO?
Unfortunately, when building a strategy, we will have to work with quite a few assumptions that we have to validate in practice.
We assume that a cost per click on Facebook Ads is $ 0.10 and we have a 5,000 Euro budget. We aim to attract 50,000 visits. With a conversion rate of 1%, from this channel we aim to attract 500 orders. The average order is 50 Euro. Basically, we aim to bring sales of 25,000 Euro.
After running a $ 300-500 budget on Facebook, we have real data and we can adjust the plan with that data. If it is above expectations, we can supplement the budget (we take from other weaker channels); if it is below expectations we can move the budget to another channel that has good performance. The strategy is a living organism, and the main objective remains to reach the sales target we have with the resources we have.
Commercial offer (product categories)
What product categories do I rely on and how much do I estimate I sell in each category?
Do I have stock? Do I work with the supplier’s stock? Do I have cashflow to support the stock? How many unique SKUs do I need to cover a category? How much money do I have to lock in stock? Are my suppliers financing me? If so, for how long? What is the stock turnover rate? Which products do not go out of stock in 90 days?
These are just a few questions that help me build my product portfolio.
Diversification of commercial offer
There are situations in which we come to the conclusion that the current commercial offer cannot cover the estimated sales target and new product categories are needed. Based on the data we extract with the help of the software infrastructure we have at my company, we identify those product categories aligned with the brand story or entrepreneurial vision.
Customer recurrence
At the beginning of the road, entrepreneurs are more focused on the number of orders (order centric) and not on the number of customers purchased (customer centric). They analyze traffic and number of orders, but they stop here.
My recommendation to new entrepreneurs is to choose one or more buyer personas and diversify their commercial offer, so that they can sell a second or third time to a customer they buy very expensive from Facebook or Google.
In order to do this you need to make sure you have at least 2 things: a loyalty-focused communication (implementing a personalized newsletter, running remarketing campaigns) and a commercial offer tailored to the ideal customer’s journey.
CONCLUSION:
Suppose we went through these questions and set a sales target of 600,000 Euro for the next year.
Step 2 – Understand the gross added value your online store generates
Many entrepreneurs see commercial margin and commercial addition as synonymous.
Gross value added is given by how much money we have left after we pay for the goods (COGS). An online store can sell several categories of products with different profit margins.
For example, in the case of a store that sells mobile phones, the margin of these products is between 5-15%, but in the category of accessories the margin can reach up to 70-80%. Basically, we are interested in the weighted average sales volume.
For the store we presented in this case study, the weighted average gross sales margin is 22%. That is, of the 600,000 Euro, 468,000 Euro go to the suppliers from where we buy the goods (COGS) and 132,000 Euro support the other expenses (employees, couriers, rents, marketing, programmers, agencies, payment processors, returns, broken products, leasing, interest at banks etc.)
That’s why many experts say that beating prices is a losing long-term strategy and that you need to have fair prices and focus on services. If you lower the prices, you erode the profit margin. By default, the gross added value you generate is small and, practically, the perception of your business will be that you “walk some boxes”, without adding value.
The higher the gross value added, the more you can offer your customers a better service and experience (more attractive packaging, better marketing, faster, more functional site, more competent employees, better support, a product showroom, credibility with bankers to finance growth, etc.).
CONCLUSION:
Target: 600,000 Euro sales
Gross value added: 22% (GVA), ie 132,000 Euro.
Step 3 – How much of the gross value added do I invest in marketing?
This is a dilemma whose solution depends on everyone’s strategy. Some say that if you are at the beginning of the road, you should invest 40% of the GVA; if you are past year 4 or 5, you can invest 20%, but you must have recurring customers, serious organic traffic and brand.
Suppose you are a store at the beginning of the road and your main goal is to acquire traffic and attract new customers.
CONCLUSION:
Target: 600,000 Euro sales
Gross value added (GVA): 132,000 Euro.
We decided to invest 40% of GVA in marketing. This means that we have a 52,800 Euro marketing budget.
Step 4 – How do I divide the marketing budget by channels?
After the first 3 steps we came to the conclusion that we have a marketing budget of 52,800 Euro for next year.
The challenges now are: which providers we work with and how we divide the budget between them.
Basically, there are 2 big media providers: Google and Facebook. From here we can buy and bring traffic to our online store. Much of the budget will go to the two suppliers. At this stage it is necessary to collaborate with an agency that can build a PPC strategy and can effectively invest the budget to the 2 players.
Then, we need an SEO agency to optimize our site (to make recommendations for speeds, structure, content) so as to attract long-term organic traffic.
Also, for some industries, price comparators and affiliate marketing work very well, so you can budget these channels as well.
My recommendation is that in the first year you focus your attention on 3 channels (eg: organic, Google Ads, Facebook Ads), and then, after optimizing them well, you will add 2 more channels (eg: comparators, affiliation) and so on.
Choosing the agencies you work with next year is a very important process. I recommend that you invest enough time in this process, so that you make sure that you have made a good decision, so that you do not have to change the agency in the first year (this only costs money).
CONCLUSION:
Target: 600,000 Euro sales;
Gross value added (GVA): 132,000 Euro;
Marketing budget: 52,800 euros;
SEO budget: 14,200 euros (ie 1200 Euros / month).
Now, because I went through these steps and showed you how to set the sales target of an online store, how to control the gross added value, how to set the marketing budget, respectively how to divide the budgets between agencies, for the next time I proposed let’s go deeper and answer 2 more questions:
What should you expect from the SEO agency following this investment?
What is the action plan and working directions in an SEO campaign?