Promotional Spends

Promotional spends are typically high in an online start up as we need to spend considerably building a brand. We however need to understand its viability matrix. Currently, we track various promotional spends and their impact for future spends. There is no clear trend emerging with ideal benchmarks.

What is the industry benchmark? What should be the revenue generated for every rupee spent towards marketing? In case of online store, the benefits of marketing are accrued over a period as you get access to the customer details once he is registered and therefore making your future spends lower to access him. Mapping this benefit to a specific number is quite complex. Typical start ups have misjudged the benefits and have gone burst spending too much in acquiring their customer base.

I come across various stores that have spend considerable building their brand and customer base. But we need to understand the ROI made by these stores. Is it justified? They can sustain in a boom scenario where an investor risk appetite is higher. In the long-run, will it survive?

Few years ago, an online store from the group of a large indian retailer spent considerably building a brand. Easy access to PE funds made it possible for them to spend a bomb on technology and marketing. I always believed their business plan and was of the opinion that they would make the difference to the ecommerce market similar to the one made by Reliance in the business of telecom. Their ROI would have definitely been lower because their spend would considerable higher changing the dynamics of the industry and driving new customers online. As we stand today, things have not changed dramatically in the industry. A bust period inbetween made them go slow and they had to indulge in reducing cost considerably. The focus shifted from generating revenue to reducing cost. The money spent towards building the brand did not yield much results and sales have fallen by 80%. This brings us back to the basics. Wht should be the ideal expectation from your marketing budger and how this should be benchmarked.