Generating leads for your eCommerce site is imperative to the day to sales of the organisation. However as most business owners may know not having good control over the selling costs could lead to an ineffective marketing spend. In this article we take a look at selling costs, what they are and some tools to manage them.
What Are Selling Costs?
Every business has an incoming and outgoing stream of capital. Comparing the incoming and outgoing capital is how a business determines its profitability and success. The outgoing money, also known as business expenses, can be divided into three groups: Administration expenses, general expenses, and sales expenses. For now, it’s the sales expenses that we want to focus on.
In a general sense, sales expenses include any costs that are related to the marketing, advertising, selling, or distribution of your product. This includes, but is not limited to:
- Capital invested in advertising, social media, and website maintenance
- Costs associated with sales promotion like discounting
- Wages and commissions that stem from the sale of a product or service
- Expenses associated with generating or converting leads
Every business is going to have selling costs. But not every business owner is going to take the time to track and monitor these costs very closely. Don’t make the mistake of being one of those business owners who does not properly monitor these expenses. There are several reasons why monitoring these costs is so important. Here are four of those reasons.
1. Understanding The Relationship Between Advertising Costs And Lead Generation
A company needs to generate leads if they want to continue growing in the future. The best way to generate leads is by investing in an advertising budget. But simply paying for advertising alone isn’t enough to guarantee success. Some advertising campaigns work really well and others simply fall flat in front of the audience. How do you know whether the advertisements you’ve invested in are pulling their weight?
The only way to really gauge the success of an advertising campaign is to monitor the selling expenses associated with the campaign. You then build a relationship between those numbers and metrics from your ad campaign. An expensive ad campaign should come with a high click-through rate and conversion rate. Otherwise, you’re simply wasting money when you could be earning it.
2. Investing In A Cost-Effective Conversion Process
Once again, the importance of monitor selling costs boils down to tracking the success of your investments. Not only in the process of generating leads but also converting those leads to paying customers. Remember, the web pages and sales funnels that you pay for are considered part of your selling expenses. If your ads are generating leads but your pages are not converting at the same rate, then you know where your money could be better spent.
3. Increasing The Value Of Your Distribution Network
After we break away from the screens and advertisements, our selling expenses tend to involve physical products or actual services. The majority of these expenses are spread across the distribution network. How much are you paying for product storage? What about the shipment? At what points do fees grow to high and where could you “trim fat” to decrease expenses?
These are all important questions and they can only be answered if you take the time to carefully monitor your selling costs. A detailed report can help you identify any problem areas in the distribution network. You can fix those problems in a few short weeks and wait to see how the balance of incoming and outgoing capital shifts.
4. Ensuring That The Business Has A Positive Return
At the end of the day, every business wants to see a positive return. A company can sell a great product and have lots of customers, yet still have a very low return at the end of the year. What exactly causes this? Chances are, it’s a variety of extra fees and wasted money associated with selling costs. These minor fees might go unnoticed by themselves, but with careful monitoring, you can identify these expenses and make changes to compensate for them.
5. Calculate your Break Even Return On Ad Spend (BROAS)
The Break Even Return on Ad Spend (BROAS) is a great formula for businesses to calculate what sort of return on investment an advertisement requires for gross profit less selling costs to be zero.
The calculation is as follows:
Break-even ROAS = 1 / Average Profit Margin %
For example if your average profit margin is 50% than you would have a BROAS of 2 or that for every dollar spent on selling costs like advertising you need to sell $2 to make a profit.
Every business deserves a shot at being successful. However, you can’t hope to achieve success if you don’t carefully monitor your progress along the way. Your selling costs should be recorded, reported, and monitored from day one. If not by your own staff, then by a professional accounting firm with the necessary experience.
Here at Infinity22 we help eCommerce businesses analyse their selling costs so that they are effective, have visibility and ultimately have a Return on Investment.