Creating & Setting Budgets For eCommerce

If you have responsibility for e-commerce, it’s highly likely that sooner or later you will be asked to submit and justify a budget. E-commerce budgets are a little less straightforward than, say, performance marketing - not everything will pay back in-year, it’s likely there will be some site upkeep work that needs doing and other projects may create value simply by creating new trading capabilities, such as A/B testing or personalisation. In the pieces on making an e-commerce roadmap and Benchmarking we have already had a look at two of the important components - when you do submit a budget, you should be prepared to justify the projects you are proposing and to explain how they fit into the overall context of website trading. One tactical point - it will bring you no benefits to try to squeeze your budget unnecessarily at this point. It’s likely that the CMO / CFO will reduce it some anyway, and even if not, you’ll still be able to come in under budget (don’t wildly inflate your numbers, though - this can only backfire!).

When should I make an e-commerce budget?

As mentioned above, your budget will probably take longer to explain than other channels. Additionally, you will align with your development resources about what they can commit to achieving. If your budget includes costs for these resources, this puts you in a more flexible situation. Because of this, it’s key that you are well prepared in advance of when your budget proposal actually needs to be delivered. If you are using in house resources, it’s likely that these development teams will also be balancing other projects for operations, technology maintenance or data analytics, for example. While this process of prioritisation likely happens outside of annual budget creation, it’s important that you submit something that’s reasonable from this perspective too. You will also need time to do some research into project and tool costs, which can involve getting quotations from outside resources and / or speaking to internal stakeholders. If you have a roadmap, this is a pretty good start. As you complete projects, you can add projects in from the pipeline, so you always have at least a year’s work set out in front of you. It’s also worth reviewing this every three months to reflect changing priorities, and new opportunities. If you are following this process, then in the quarterly review before your annual budget is due, you need to begin nailing down your priorities and costs for the next year. It’s highly likely that other channel owners will be looking to you for guidance on what to expect in terms of improvements to conversion rate and average order value, so the more tightly you can integrate your numbers into the overall projections, the more likely you are to get sign off for what you need.

How do I make an e-commerce budget?

We’ve already discussed some of the basics above. There are three key parts that go into your budget - when you are going to do something, how it will pay back, and how much it will cost. The when we’ve covered above and in previous posts. It’s important to retain a degree of flexibility in this and always have second and third options for projects if your first choice isn’t practical at a given time. In terms of how projects pay back, in your pipeline it’s likely you have an approximate monetary number against each project which corresponds to value over a year. This is important for your prioritisation, but when feeding into an annual budget, it’s vital that you understand and communicate the length of time it can take for the value to come through. This could happen quickly (e.g. fixing issues with the checkout) or something that takes time (e.g. personalisation on suggested product modules). The third part is how much each project is going to cost. Here are some things you need to consider:

Which department pays for development costs?

This varies from business to business. If you have responsibility for finding and directing external development resources, it’s much more likely that this cost will come from your budget than from an IT one. If your company has an internal development resource, then they will have their own budget. However, some companies will run internal markets so their services will be available almost like an internal agency and you will need to include this cross-billing as part of your proposed spend.

What training will be needed to activate new technology?

If you are adding new capability to your website, it’s likely that you’ll be using a new tool or changing existing business processes. Sometimes this can make things simpler for all concerned and sometimes it will require people, in your team or others, to do things that they may not have done before. If you want to deliver a budget that gets cross-functional support, it’s imperative not to forget the human aspect of what you are doing. More generally, your projects will not succeed if you do not properly support the people who have to use them. Therefore make sure to build in to your budget the cost of any training that will be required.

What tools do you need / are you already using?

It’s not usual for big ticket items like e-commerce website platforms or PIM tools to be included with the e-commerce budget. However, optional tools such as those for search optimisation, personalisation or A/B testing should be. Make sure that you remember to include those you are currently using if there’s an ongoing subscription cost. At the same time, if you are paying to use a tool, be sure that it is actually creating incremental value that would be lost if you turned it off.

How much do you need to spend on research?

Again, this depends to an extent on how much you are able to do internally. Some large organisations have testing rooms set up to conduct customer research, but most of us will need to outsource this. Understanding how and why customers interact with your website is absolutely critical to your success and so you should budget for it accordingly. As it is also your (and your team’s) responsibility to be up to date with modern eCommerce technology, set aside some budget for personal training, conferences and so forth.

What happens if your budget is less than you need?

You don’t always get everything you want. Business spending decisions - especially in marketing - are subject to all sorts of outside forces and trading conditions, which may reduce or reshape the budget in a way that reduces the resources you have at your disposal. So what do you do next?

Can any projects be broken up into smaller blocks?

If you can deliver large projects in smaller blocks, then you may still be able to get done much of what you want to achieve. It’s not ideal - what’s left over may well be of lower value and get pushed to the back of the queue, and because you potentially have to run two projects on the same part of the site, it means that it will ultimately cost more and have lower ROI. Still - it’s better to get something done than nothing at all, so if you can reduce scope without fatally compromising the outcomes, it’s a route that you should pursue.

Can you reduce the number of projects and deliver more slowly?

Rather than reducing the scope of individual projects, you have the option of doing less by dropping one or more projects and delivering the rest more slowly, spreading the cost out more throughout the year. If you go down this route, it’s important to bring everyone else along with you, as anything depending on the delivery of these projects will be affected (for example, developing advanced merchandising tools like bundling or subscriptions).

Can you use less expensive tools?

You may be able to lower costs by using tools with reduced functionality or by restricting the number of users / instances that you are paying for. Obviously, this means that you will have less at your disposal, so it’s worth weighing this up as a trade off with everything else that you plan to deliver. In some instances, you may have the skills within your team to build free alternatives (for example an A/B testing tool using Google Tag Manager functionality).

Potential line items for eCommerce budgets

• Research (agency and subjects)

• Platform costs (including licensing and upgrades)

• Platform extensions & third parties (PIM tool, personalisation, search, etc.)

• Website development costs (OPEX and CAPEX)

• A/B testing tools (website and media tests)

• Media costs

• Agency costs (media management, SEO, website development, performance analysis)

• CRM platform

• Any paid media tools (display platform, feed management, bid management software, etc.)

• Reporting software

• Market analysis and price comparison software

• Training costs