Business

How to Calculate The Marketing Budget For Your Retail Store

How to calculate your marketing budget
Salena Knight
Written by Salena Knight

Have you run advertising campaigns in the past, only to feel like you didn’t get enough sales, Facebook likes, or new customers into your store?

Overall, is your view that advertising isn’t worth the money?

Reviewing a retailer’s marketing campaign recently, they were lamenting they only got a handful of sales over their campaign. A sign that the campaign was a complete flop, right?

Well, the answer is maybe. You need a little bit more information to work out whether a marketing campaign is successful and part of that is knowing how much you need to spend in order to hit your sales targets.

So, let’s dissect the advertising process and work out how much you need to spend in order to smash your sales goals, and feel like your money was well spent.

The Formula For A Successful Retail Marketing Campaign

First of all, you have to have a goal – something most rookie (and many seasoned) marketers overlook. Instead of starting with the end and working back towards the budget, they start with the budget and hope they get sales.

Sound familiar?

The truth is, if you start with a budget, you need to have a formula to work out what a successful campaign is going to look like. What you’re hoping to achieve, and what you’re wanting to spend, may be unattainable.

So how do you work out what your marketing budget should be?

You’ll need to know a few numbers to do so:

Your Desired Sales Target – how much you want to make from the campaign

Your Average Order Value (AOV) – the average amount that a person spends with you each time they buy

You can get your AOV from the back end of your website. If you’re calculating instore sales, your AOV can be extracted from your point of sale system.

Once you have these numbers, you’ll be able to work out have many sales you need, in order to hit your sales target.

For example, say you want to have sales of $1000. Your average order value is $50. Therefore, you’ll need 20 sales @ $50 to hit your sales target …

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Now that’s just part one.

Next you can use these numbers to work out what your marketing budget should be.

For this part, you’ll need to know

Your Average Conversion Rate – the percentage of people that actually purchase from you

Your Conversion Cost – what it costs to get a customer “in the door”, i.e. to click through from an ad to your website, or to come into your store.

Now this number can vary significantly, depending on the type of campaign you’re going to run. For ease of this example, let’s say you’re using Facebook ads, and you know from experience, that it costs you 20 cents per click and your average website conversion rate is 2%.

Remember, we need 20 sales to hit the target. With a conversion rate of 2%, that means you’ll need 2000 people to click through to your website.

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At a cost of $0.20 per click, you’ll need to spend $200 to reach your sales target.

And this is where a lot of people come ‘unstuck’. The idea of sinking hundreds of dollars into something as ‘intangible’ as advertising scares them. So instead, they spend $20 boosting posts, or $50 on an ad, only to get a handful of sales.

But the numbers don’t lie. In this example, if you only spent $50 for this same campaign, you could only expect 250 website visits. And with a 2% conversion rate, you’d expect 5 sales totalling $250.

Still a successful campaign. In fact, it is equally successful, but many retailers don’t actually take the time to run the numbers. Instead, they get forlorn at a “measly $250 in sales”.

*note instore conversion rates tend to be much higher, so you’ll need less people through the door in order to hit your sales targets.

Tracking your numbers is a must when it comes to working out how much you should spend on advertising and marketing for your retail business. By getting clear on your desired goal and using real numbers (not just dream figures), you’ll more clearly be able to work out how much you need to spend, in order to meet your sales targets. Working backwards from your sales goals to calculate your marketing budget, is the most important step to increasing your overall sales and profits.

Salena Knight will be speaking on the topic of The Business of Christmas as part of The Retail Quarter Sydney’s Retail Therapy education series. Join her session (for only $30!) on Sunday 24 September from 12:30pm-2:00pm at the ICC Sydney Exhibition Centre. Book your place here.

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About the author
Salena Knight
Salena Knight