In a time where people are shopping online more than ever, the D2C (Direct to Consumer) business model offers a perfect opportunity to open the door for potential consumers to showcase your products and convert them into lifelong customers.
Unfortunately, you can easily miss the golden opportunity if you stick only to the traditional marketing paradigm. Performance marketing comes as an ideal solution to promote your products wherever your targeted customers are on the internet.
Performance marketing is a prime choice of many D2C brands. However, it is not a suitable strategy for a D2C brand in its initial stages. Let’s learn what performance marketing is, and as a D2C business, when is the right time to turn to this strategy.
What is Performance Marketing?
Performance marketing is an umbrella term that has multiple definitions. In simple words, you can describe it as all the online marketing activities where advertisers pay selected marketing platforms every time a specific and measurable action is performed.
Drawbacks of going directly to Performance Marketing
When a pre-existing brand adopts a D2C business model and enters the market with a different name, a high probability is that the customers will not recognize and purchase from the brand.
Investing in performance marketing will lead to an increased CAC (Customer Acquisition Cost). CAC includes every marketing cost involved in acquiring a customer. It will directly influence the ROAS (Return on Ad Spend) and decrease it. However, it is considering COGS, we recommend the ROAS need to be 5x or 7x to make profit.
Let’s understand it better using an example. Assume that a D2C business has the following metrics,
- Selling Price – Rs. 300
- Revenue (including COGS and Shipping Cost of Rs. 200) – Rs. 350
- ROAS (Return on Ad Spend) – 1.5x
Here, the ROAS could be normal. But, the Return of Investment (ROI) will be negative for the brand when the COGS is considered, which indicates that the sales are not profitable but a loss for the brand.
If you are about to start your initial D2C market days, you might encounter performance marketers claiming widely they give 2x ROAS. But, in reality, is it a preferable rate? Of course not! The higher the ROAS rate, the more the profit the brand gets. But, there is a catch.
Although there may be raise in ROAS, since the COGS are high, you will not be making any profit on the whole. COGS is the indirect expense you incur other than manufacturing, like delivery charges, promotion costs, return costs, etc.
For example, Facebook requires time or volume of traffic to learn your niche’s behavior. You can get results in 6-7 months by investing a heavy budget in the algorithm. This is about one of the platforms where your customers are. If your customers are on more then one platform, the required budget will be more.
An ideal strategy for D2C brands
By 2023, there would be an estimated rise to $44.7 billion in D2C sales. D2C is a promising opportunity, but it is critical to enter once you have laid down a deeply analyzed plan to ensure your brand’s success. Going in to it without thorough market research can adversely affect your budget.
If you can be generous with budget, you can invest both in performance marketing and brand awareness from the start. It will take a short time, a minimum of 3 months, to occupy a market share. Although the CAC will be unreasonably high, it will eventually decrease at a point in time. However, you would need to prepare a considerable budget until then.
You can deliberate over the second proposal if you wish for sustainable brand growth. To get the ball rolling, you can begin from a marketplace and then seek assistance from an in-house brand strategist.
Option 1
For instance, you can invest 20% of your marketing budget in performance marketing and a small percentage for building your brand.
Option 2
You will use 80% on brand building and pour the rest into marketplace promotion.
You might observe traction in your business in the next 6-months if you utilize adequate marketing efforts. However, it is preferable to partake in multiple marketplaces. However there will be no sales data for the sales happen in the market places or through physical store placments– a downside for your newly set-up D2C.
You can resolve this issue by creating your online store and meticulously maintaining data per your suitability, and then you’ll get your customers data to improve shopping experience.
Since you have established your brand sustainably and created notable brand awareness with marketplace promotions, the loss will be significantly lesser and the CAC will be minimal. However, all this would require at least a year of time and effort.
If you’re unsure about how to choose your first or even next product, read it here to have a firm understanding over it.
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This post first appeared on How We Achieved 66x ROAS For A New Zealand Based Ecommerce – Onecheq, please read the originial post: here
