How SMBs Can Navigate the Trend of Rising Marketing Costs

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

A study by SimplicityDX calculated that between 2013 and 2022, the average customer acquisition cost (CAC) increased by 222%. We are definitely seeing the effect on SMB ecommerce businesses. It is becoming dearer for them to use internet marketing to acquire latest customers and grow their business.

We surveyed 100 of our merchants to gather insights on the rising costs. It seems that our small- and medium-sized online retailers are indeed feeling the impact and expressing their concerns. Nearly all of merchants have also noticed an increase in costs over the past yr.

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

With 30% of the respondents mentioning that they’ve seen a significant increase, roughly two-thirds of them find achieving their desired ROI on ads more difficult. That is troubling the minds of SMB ecommerce business owners. A noteworthy 88% of merchants surveyed expressed that they’re “somewhat” to “very” concerned in regards to the potential negative impact of the rising cost on their business.

36% of respondents are very concerned in regards to the potential negative impact.

As an SMB ecommerce retailer, it’s completely comprehensible to have concerns. But don’t worry! This text will dive into several big-picture the reason why that is happening and discuss how you may strategize to not only manage the situation but additionally profit from it.

Why Does It Matter?

Firstly, as customers turn into dearer to acquire, it’s possible you’ll must invest a bit more in paid ads to maintain or grow your customer base. Nonetheless, it’s necessary to note that these increasing costs can have a negative impact on your enterprise profitability and money flow needed for future growth.

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

Secondly, the size of your enterprise matters in your ability to handle the situation. Our survey found that merchants imagine that business size negatively affects merchants’ ability to manage the rising costs — which is sensible. You most likely do not have access to mountains of money that may act as a buffer. Making it harder to compete with other or larger corporations that may need big budgets and dedicated marketing departments.

Your customer acquisition costs (CAC) and customer lifetime value (average value from a customer) are key to long-term growth. In principle, you could make sure the acquisition cost doesn’t exceed the customer lifetime value (CLV) to sustain business growth. Or you shall be spending extra money to get latest customers than you’ll make from them.

So staying on top of your customer acquisition and lifetime value metrics is essential. Before we dive into the causes and find out how to combat the rising costs, let’s start by defining the concept.

What Are Customer Acquisition Costs?

Customer acquisition cost (CAC) is the average price spent for a latest customer. It helps you calculate the return on investment of your marketing and sales spend.

CAC is a easy calculation but one to stay on top of as a useful business metric. In comparison with traditional marketing tools, with internet marketing, it is much easier to calculate these costs since there are a lot of tools available to track latest customers.

The Reasons Behind the Rising Marketing Costs Trend

While many cost drivers are beyond your control, it is necessary for you to understand the situation to anticipate and fight against it. Let’s explore two reasons behind the trend.

Evolving Data Privacy Concerns and Laws

You would possibly have heard the news that more advanced privacy-related laws has been introduced in Europe, North America, and other regions. These regulations reflect an increased concern amongst consumers to protect their data.

A recent study conducted by Cyber Security Norton surveyed 10,000 consumers worldwide and discovered that 85% of them need to take additional measures to protect their privacy. And in accordance with YouGov, two-thirds of adults globally find that tech corporations have an excessive amount of control over personal data.

It’s not surprising that latest regulations specializing in protecting individuals’ personal data are increasingly being supported and implemented. Examples of existing privacy regulations are:

• The General Data Protection Regulation (GDPR) in Europe
• The Privacy Act 2020 in Recent Zealand
• Canada’s Personal Information Protection and Electronic Documents Act
• The Swiss Federal Act on Data Protection.

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

• California Consumer Privacy Act
• Colorado Privacy Act
• Connecticut Personal Data Privacy and Online Monitoring Act
• Virginia Consumer Data Protection Act.

That’s not all, more regions want to implement consumer privacy protection laws. In 2023, several US states enacted privacy laws with various effective dates. The US Congress is also proposing a widely supported Federal law at the moment, further showcasing the rise in importance of consumer protection.

The legislative changes and consumer sentiment are connected to the rise of customer acquisition costs. These latest regulations make it harder for corporations to track and consolidate third-party consumer data across platforms — which might then be leveraged for customer segmentation.

We are already seeing big tech corporations moving away from third-party data and toward first-party data. As an illustration, Apple, Google, and Mozilla have already announced that they’re moving away from traditional cookies in their browsers.

And tech corporations are also constructing features across the previously mentioned data privacy concern. For instance, Apple introduced App Tracking Transparency in 2021 for their iOS devices, which supplies consumers an easy choice to opt out of being tracked across different apps.

These regulatory and consumer behavior changes make data collection and promoting segmentation harder. If audience constructing and ads are less effective, customer acquisition costs are increased.

More channels. More costs

Merchants trying to market all over the place must be capable of sustain. An average web user spends at least six hours every day online and goes online for the following reasons:

• 59.3% — Searching for information
• 44.7% — Finding latest ideas or inspiration
• 43.1% — Researching products and brands

Consumers are looking all over the place for latest products and brands — on online marketplaces, social media, Google, and more. In order to use each platform to its full potential, you could have to produce unique content for every one. Success looks different on every platform.

On TikTok, success comes from consistently creating engaging videos which can be authentic and follow the latest trends, while the content may be more static on Instagram. You may also engage your audience through blog writing or by creating specific ads for mobile use cases. You would possibly need a team and a number of content to maintain an lively presence on many channels. Creating content may be time-consuming, inefficient, and costly, subsequently increasing your acquisition cost.

What Can You Do to Protect Your Profit Margins?

There may be no one-size-fits-all solution to manage rising marketing costs. Depending on your enterprise type, size, and industry, the effectiveness of each measure changes. But before we dive into three focus areas, allow us to explore some general advice for cost management.

Metrics Are Key!

Staying on top of your metrics and numbers is a must. It offers you an idea of your rising costs and if your countertactics are proving to be successful. So ensure that you could have access to reliable data and check it consistently.

Don’t Immediately Increase Your Prices

Increasing your prices to cover your costs is likely to be the obvious thing to do, nevertheless it shouldn’t be the first tactic you are trying. Raises in pricing have a direct negative impact on your competitiveness and conversion rates.
Price increases are definitely an option, but let’s explore other methods to combat rising costs without sacrificing affordability and competitiveness.

Retention Is Key!

When costs rise, a great method to protect your margins is to prioritize retention. Specializing in customer retention and loyalty will reward you in the long run. Increasing the customer lifetime value of your customers also gives you more leeway for the future.

The goal is to keep your customer LTV higher than your CAC. Greater than half of the merchants we surveyed mentioned they were prone to invest more in customer retention on account of the rising costs.

Improve the Customer Experience

Customer experiences are a big driver for customer retention.

86% of consumers leave a brand after 2-3 bad experiences. — Emplifi.

Emplifi found that buyers expect an answer to their inquiry inside an hour. Of course, that is not at all times possible, but adding a live chat to your website means that you can respond faster.

Retention Through Personalization

Consumers are getting more suspicious of how corporations use their data. Also they are expecting more and more personalization.

These are contradictory trends since, without collecting data, it is hard to deliver personalization. Nonetheless, there may be a path forward for SMB online retailers. In response to a research conducted by Gartner, certain kinds of data collecting are acceptable to customers.

When offering personalization, you must at all times keep in mind that not every bit of data needs to be used for targeting. Luckily, there are many kinds of data that buyers find acceptable.

With Ecwid by Lightspeed, it is super easy to offer a level of personalization without overextending yourself. Location, basic demos, and purchase history information can easily be leveraged to promote your brand and construct a more personal experience.

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

Brand Is More Vital Than Ever on Social Media

The benefits of having a strong brand are well-known. Through internal research, we’ve discovered that companies who prioritize their brand as a key value driver are inclined to experience higher success in attracting customers through internet marketing. This correlation alone doesn’t tell the complete story, nevertheless it shows the significance of recognizing that your brand is essential to your success.

Constructing a brand helps you get recognized and grow your audience and social media presence. On social media, your brand and content are what people connect with. It is greater than just the products in your store. They need to connect with businesses who they’ll relate to, and whose content is useful to them. Social media is where a lot of people at the moment are finding brands and products. Looking for products and brands on social media is almost gaining popularity than Google, especially amongst younger generations.

So keep this in mind — if your core audience is a younger crowd then you must definitely start incorporating TikTok into your marketing.

The rise of social commerce and selling goes beyond just browsing for products and brands. It is actually where a number of products and services are sold. And the biggest opportunity for your enterprise is on TikTok.

Sharing Easy, Authentic Content and Stories on Social Media

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

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

TikTok is an excellent platform that encourages authentic and relatable content that takes minimal tools or knowledge. In comparison with Instagram, TikTok focuses less on having perfectly curated content. As a beginner or non-marketing savvy business owner, the platform might align higher along with your skill set. Authenticity and consistent posting will enable you construct that powerful connection along with your consumers and find loyal customers. Hey, it might even make you go viral!

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

The right way to Use TikTok to Drive Interest for Your Business
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Artificial Intelligence Is Your Friend

The CAC calculation can consist of all of your marketing and sales costs, including expenses for content creation. Hiring an external agency or dedicated marketing staff is likely to be unobtainable for your enterprise.

An increasing variety of artificial intelligence tools, akin to ChatGPT and Copy.ai, can enable you create pretty effective marketing assets. With AI writing tools, you may effortlessly create:

• Commercial copy
• Drafts for blogs
• Product titles and descriptions
• Social ad designs

By leveraging these AI tools, you not only save useful time but additionally effortlessly create great content. These tools also can help make sure that you could have the right ads tailored for each platform, allowing you to maximize your reach and minimize missed opportunities.

You’ll be able to construct a large content library with specific ads that work best for each marketing channel. And better of all, these tools are generally free or a fraction of the cost of hiring an agency. Try the Ecwid App Marketplace for great AI tools to supercharge your marketing.

Top AI-Based Tools to Streamline Business Processes
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Wrap Up

Though the cost of customer acquisition for merchants continues to rise and shows no sign of stopping, there are many ways to stop this trend. Specializing in what works for your enterprise is necessary, as there may be no one-size-fits-all solution.

Consider shifting your attention to focus more on customer retention, hyperlocal strategy, and delivering great brand and customer experiences. By doing so, you’ll be capable of higher manage your costs and increase your customer lifetime value. These wins across the board are what Ecwid by Lightspeed goals to enable you achieve.

We are dedicated to bringing our SMB ecommerce merchants the tools they should run and grow their business. We need to be your ecommerce partner, empowering you to grow without breaking the bank.

If you’re desirous to learn more in regards to the various ways Ecwid by Lightspeed may also help your enterprise cut costs, reach out to us!