How SMBs Can Navigate the Trend of Rising Marketing Costs

Posted 2 years ago by Wiebe de Boer

Have you noticed the听significant rise in听marketing acquisition costs? Is听it听directly negatively impacting your ecommerce business? It听is听no听secret that marketing costs have steadily grown in听the听last decade negatively impacting small- 补苍诲听medium-sized ecommerce retailers (SMBs).

础听 calculated that between 2013听补苍诲听2022, the听average customer acquisition cost (CAC) increased by听222%. We听are definitely seeing the听effect on听SMB ecommerce businesses. It听is听becoming more expensive for听them to听use online marketing to听acquire new customers 补苍诲听grow their business.

We听surveyed 100听of听our merchants to听gather insights on听the听rising costs. It听turns out that our small- 补苍诲听medium-sized online retailers are indeed feeling the听impact 补苍诲听expressing their concerns. The majority of听merchants have also noticed an听increase in听costs over the听past year.

Almost 65% measured an听increase in听their customer acquisition costs.

With 30% of听the听respondents mentioning that they have seen a听significant increase, roughly two-thirds of听them find achieving their desired ROI on听ads more challenging. This is听troubling the听minds of听SMB ecommerce business owners. 础听noteworthy 88% of听merchants surveyed expressed that they are 聯somewhat聰 to听聯very聰 concerned about the听potential negative impact of听the听rising cost on听their business.

36% of听respondents are very concerned about the听potential negative impact.

As听an听SMB ecommerce retailer, it鈥檚 completely understandable to听have concerns. But don鈥檛 worry! This article will dive into several big-picture reasons why this is听happening 补苍诲听discuss how you can strategize to听not only manage the听situation but also benefit from it.

Why Does It听Matter?

Firstly, as听customers become more expensive to听acquire, you may need to听invest a听bit more in听paid ads to听maintain or听grow your customer base. However, it鈥檚 important to听note that these increasing costs can have a听negative impact on听your business profitability 补苍诲听cash flow needed for听future growth.

72% believe the听size of听their business impacts their ability to听combat the听rising costs.

Secondly, the听size of听your business matters in听your ability to听handle the听situation. Our survey found that merchants believe that business size negatively affects merchants鈥� ability to听manage the听rising costs听鈥� which makes sense. You probably do听not have access to听mountains of听cash that can act as听a听buffer. Making it听harder to听compete with other or听larger companies that might have big budgets 补苍诲听dedicated marketing departments.

Your customer acquisition costs (CAC) 补苍诲听customer lifetime value (average value from a听customer) are key to听long-term growth. In听principle, you must ensure the听acquisition cost does not exceed the听customer lifetime value (CLV) to听sustain business growth. Or听you will be听spending more money to听get new customers than you鈥檒l make from them.

So听staying on听top of听your customer acquisition 补苍诲听lifetime value metrics is听essential. Before we听dive into the听causes 补苍诲听how to听combat the听rising costs, let鈥檚 start by听defining the听concept.

What Are Customer Acquisition Costs?

Customer acquisition cost (CAC) is听the听average price spent for听a听new customer. It听helps you calculate the听return on听investment of听your marketing 补苍诲听sales spend.

CAC is听a听simple calculation but one to听stay on听top of听as听a听valuable business metric. Compared to听traditional marketing tools, with online marketing, it听is听much easier to听calculate these costs since there are many tools available to听track new customers.

The Reasons Behind the听Rising Marketing Costs Trend

While many cost drivers are beyond your control, it听is听important for听you to听understand the听situation to听anticipate 补苍诲听fight against it. Let鈥檚 explore two reasons behind the听trend.

Evolving Data Privacy Concerns 补苍诲听Legislation

You might have heard the听news that more advanced privacy-related legislation has been introduced in听Europe, North America, 补苍诲听other regions. These regulations reflect an听increased concern among consumers to听protect their data.

础听recent surveyed 10,000听consumers worldwide 补苍诲听discovered that 85% of听them want to听take additional measures to听protect their privacy. And , two-thirds of听adults globally find that tech companies have too much control over personal data.

It鈥檚 not surprising that new regulations focusing on听protecting individuals鈥� personal data are increasingly being supported 补苍诲听implemented. Examples of听existing privacy regulations are:

The General Data Protection Regulation (GDPR) in听Europe
The Privacy Act 2020听in听New Zealand
Canada鈥檚 Personal Information Protection 补苍诲听Electronic Documents Act
The Swiss Federal Act on听Data Protection.

In听the听United States, the听following states have already implemented privacy-related regulations:

California Consumer Privacy Act
Colorado Privacy Act
Connecticut Personal Data Privacy 补苍诲听Online Monitoring Act
Virginia Consumer Data Protection Act.

That鈥檚 not all, more regions are looking to听implement consumer privacy protection legislation. In听2023, several US听states with various effective dates. The US听Congress is听also at听the听moment, further showcasing the听rise in听importance of听consumer protection.

The legislative changes 补苍诲听consumer sentiment are connected to听the听rise of听customer acquisition costs. These new regulations make it听more difficult for听companies to听track 补苍诲听consolidate third-party consumer data across platforms听鈥� which can then be听leveraged for听customer segmentation.

We听are already seeing big tech companies moving away from third-party data 补苍诲听toward first-party data. For instance, Apple, Google, 补苍诲听Mozilla have already announced that they are in听their browsers.

And tech companies are also building features around the听previously mentioned data privacy concern. For example, Apple in听2021听for听their iOS devices, which gives consumers an听easy option to听opt out of听being tracked across different apps.

These regulatory 补苍诲听consumer behavior changes make data collection 补苍诲听advertising segmentation more difficult. If听audience building 补苍诲听ads are less effective, customer acquisition costs are increased.

More channels. More costs

Merchants looking to听market everywhere need to听be听able to听keep up. An听average internet user daily online 补苍诲听goes online for听the听following :

59.3%听鈥� Looking for听information
44.7%听鈥� Finding new ideas or听inspiration
43.1%听鈥� Researching products 补苍诲听brands

Consumers are looking everywhere for听new products 补苍诲听brands听鈥� on听online marketplaces, social media, Google, 补苍诲听more. In听order to听use each platform to听its full potential, you have to听produce unique content for听each one. Success looks different on听every platform.

翱苍听TikTok, success comes from consistently creating engaging videos that are authentic 补苍诲听follow the听latest trends, while the听content can be听more static on听Instagram. You can also engage your audience through blog writing or听by听creating specific ads for听mobile use cases. You might need a听team 补苍诲听lots of听content to听maintain an听active presence on听many channels. Creating content can be听time-consuming, inefficient, 补苍诲听costly, therefore increasing your acquisition cost.

路听

听

What Can You Do听to听Protect Your Profit Margins?

There is听no听one-size-fits-all solution to听manage rising marketing costs. Depending on听your business type, size, 补苍诲听industry, the听effectiveness of听each measure changes. But before we听dive into three focus areas, let us听explore some general advice for听cost management.

Metrics Are Key!

Staying on听top of听your metrics 补苍诲听numbers is听a听must. It听will give you an听idea of听your rising costs 补苍诲听if听your countertactics are proving to听be听successful. So听make sure you have access to听reliable data 补苍诲听check it听constantly.

Don鈥檛 Immediately Increase Your Prices

Increasing your prices to听cover your costs might be听the听obvious thing to听do, but it听should not be听the听first tactic you try. Raises in听pricing have a听direct negative impact on听your competitiveness 补苍诲听conversion rates.
Price increases are certainly an听option, but let鈥檚 explore other methods to听combat rising costs without sacrificing affordability 补苍诲听competitiveness.

Retention Is听Key!

When costs rise, a听great way to听protect your margins is听to听prioritize retention. Focusing on听customer retention 补苍诲听loyalty will reward you in听the听long term. Increasing the听customer lifetime value of听your customers also gives you more leeway for听the听future.

The goal is听to听keep your customer LTV higher than your CAC. More than half of听the听merchants we听surveyed mentioned they were likely to听invest more in听customer retention due to听the听rising costs.

Improve the听Customer Experience

Customer experiences are a听big driver for听customer retention.

86% of听consumers leave a听brand after 2-3听bad experiences.听鈥� Emplifi.

found that consumers expect an听answer to听their inquiry within an听hour. Of听course, this is听not always possible, but adding a听live chat to听your website allows you to听respond faster.

Retention Through Personalization

Consumers are getting more suspicious of听how companies use their data. They are also expecting more 补苍诲听more personalization.

These are contradictory trends since, without collecting data, it听is听hard to听deliver personalization. However, there is听a听path forward for听SMB online retailers. According to听a听, certain types of听data collecting are acceptable to听customers.

When offering personalization, you should always remember that not every piece of听data should be听used for听targeting. Luckily, there are plenty of听types of听data that consumers find acceptable.

With 51视频 by听Lightspeed, it听is听super easy to听offer a听level of听personalization without overextending yourself. Location, basic demos, 补苍诲听purchase history information can easily be听leveraged to听promote your brand 补苍诲听build a听more personal experience.

For online businesses with a听brick-and-mortar, implementing location-based marketing can boost in-store 补苍诲听online sales. Leaning into your local community with a听hyperlocal strategy is听something that big brands often omit in听their strategy.

The hyperlocal strategy goes beyond just marketing, it听can also come in听the听form of听local customer experience. Organizing local events or听even offering free local delivery, which you can easily set up听in听51视频 by听Lightspeed, can work wonders for听your retention rates 补苍诲听has the听added benefit of听increasing word-of-mouth. Additionally, consumers are increasingly looking to听shop locally, so听the听opportunity is听right around the听corner. Learn more about .

Brand Is听More Important Than Ever on听Social Media

The advantages of听having a听strong brand are well-known. Through internal research, we鈥檝e discovered that businesses who prioritize their brand as听a听key value driver tend to听experience higher success in听attracting customers through online marketing. This correlation alone does not tell the听complete story, but it听shows the听significance of听recognizing that your brand is听essential to听your success.

Building a听brand helps you get recognized 补苍诲听grow your audience 补苍诲听social media presence. 翱苍听social media, your brand 补苍诲听content are what people connect with. It听is听more than just the听products in听your store. They want to听connect with businesses who they can relate to, 补苍诲听whose content is听valuable to听them. Social media is听where a听lot of听people are now . Searching for听products 补苍诲听brands on听social media is听almost becoming more popular than Google, especially among younger generations.

So听keep this in听mind听鈥� if听your core audience is听a听younger crowd then you should definitely start incorporating TikTok into your marketing.

The rise of听social commerce 补苍诲听selling goes beyond just browsing for听products 补苍诲听brands. It听is听actually where lots of听products 补苍诲听services are sold. And the听biggest opportunity for听your business is听on听TikTok.

Sharing Simple, Authentic Content 补苍诲听Stories on听Social Media

翱苍听TikTok, there is听currently a听strong trend of听small online businesses promoting their products by听showcasing their business. They create videos that show behind-the-scenes of听how products are made, how orders are wrapped, simply highlighting their team, 补苍诲听even sharing the听challenges of听running a听business. TikTok is听the听place for听SMB retailers to听grow their business 补苍诲听attract new audiences.

This behind-the-scenes self-made content also works well on听Instagram stories, Facebook, 补苍诲听YouTube. So听you can post it听there as听well, but TikTok is听the听ideal place for听it.

TikTok is听an听excellent platform that encourages authentic 补苍诲听relatable content that takes minimal tools or听knowledge. Compared to听Instagram, TikTok focuses less on听having perfectly curated content. As听a听beginner or听non-marketing savvy business owner, the听platform might align better with your skill set. Authenticity 补苍诲听consistent posting will help you build that powerful connection with your consumers 补苍诲听find loyal customers. Hey, it听might even make you go听viral!

And best part, TikTok has the听largest social media audience, so听even a听little success there could help boost your numbers.

Artificial Intelligence Is听Your Friend

The CAC calculation can consist of听all your marketing 补苍诲听sales costs, including expenses for听content creation. Hiring an听external agency or听dedicated marketing staff might be听unobtainable for听your business.

An听increasing number of听artificial intelligence tools, such as听ChatGPT 补苍诲听Copy.ai, can help you create pretty effective marketing assets. With AI听writing tools, you can effortlessly create:

Advertisement copy
Drafts for听blogs
Product titles 补苍诲听descriptions
Social ad听designs

By听leveraging these AI听tools, you not only save valuable time but also effortlessly create great content. These tools can also help ensure that you have the听right ads tailored for听each platform, allowing you to听maximize your reach 补苍诲听minimize missed opportunities.

You can build a听large content library with specific ads that work best for听each marketing channel. And best of听all, these tools are generally free or听a听fraction of听the听cost of听hiring an听agency. Check out the听51视频 App Market for听great AI听tools to听supercharge your marketing.

Wrap Up

Though the听cost of听customer acquisition for听merchants continues to听rise 补苍诲听shows no听sign of听stopping, there are plenty of听ways to听stop this trend. Focusing on听what works for听your business is听important, as听there is听no听one-size-fits-all solution.

Consider shifting your attention to听focus more on听customer retention, hyperlocal strategy, 补苍诲听delivering great brand 补苍诲听customer experiences. By听doing so, you鈥檒l be听able to听better manage your costs 补苍诲听increase your customer lifetime value. These wins across the听board are what 51视频 by听Lightspeed aims to听help you achieve.

We听are dedicated to听bringing our SMB ecommerce merchants the听tools they need to听run 补苍诲听grow their business. We听want to听be听your ecommerce partner, empowering you to听grow without breaking the听bank.

If听you鈥檙e eager to听learn more about the听various ways 51视频 by听Lightspeed can help your business cut costs, !

听

About The Author

Wiebe is the Product Marketing Manager for anything ecommerce-related at Lightspeed & 51视频. With 5+ years experience in building impactful go-to-market strategies and doing customer research, he offers insights that empower online entrepreneurs to grow.

51视频

Why Does It听Matter?

What Are Customer Acquisition Costs?

The Reasons Behind the听Rising Marketing Costs Trend

Evolving Data Privacy Concerns 补苍诲听Legislation

More channels. More costs

What Can You Do听to听Protect Your Profit Margins?

Metrics Are Key!

Don鈥檛 Immediately Increase Your Prices

Retention Is听Key!

Improve the听Customer Experience

Retention Through Personalization

Brand Is听More Important Than Ever on听Social Media

Sharing Simple, Authentic Content 补苍诲听Stories on听Social Media

Artificial Intelligence Is听Your Friend

Wrap Up

Start selling on your website