Astronomical Advertising Costs 2020

The Year of Super High Advertising Costs

2020 has been quite the year.

For businesses that import from China the chaos started around the end of January 2020 and it has yet to end.

As if the disruption in procurement channels wasn't enough, we also saw what can only be described as an astronomical increase in advertising costs across the major online channels Google, Facebook, Instagram, and Amazon. Whether the increase was caused by the pandemic, by increased competition or a combination of the two we don't know, and it probably doesn't matter. What matters is that the cost increase has created extra challenges for businesses of all sizes this year.

We have seen a very dramatic decrease in conversion rates for PPC campaigns. You may be one of the many businesses that threw themselves into spending more on ads in a bid to maintain slugging revenues during the pandemic, only to realize a few months later that even though you reached the revenue goals, the exercise left your business in the red and you should have been crying after every sale.

You are not alone. Now the question is how do you help your business survive when there is chaos and the cost of advertising is so high? We share a few ideas you can consider for 2021.

1. Create a Detailed Cost Calculator

The first step to solving any problem is identifying that the problem exists. It is very very easy to see revenues rising and completely miss the fact that a business is actually losing money, so it is key to create this kind of calculator that lists each and every expense associated with your selling and spits out the profit you are actually getting on each sale. Things this calculator should include are product costs, packaging costs, shipping costs, chargebacks, item not received claims, any warehouse rents, defective product claims, taxes, returns, and advertising costs. This should be a simple excel sheet that gives you a clear view of how much profit (or loss) you are making on each item on average for a particular week or month. This document is perhaps the single most important document to look at on a daily basis.

2. Don't rely on ads to drive your business.

Ads can be a great way to drive quick sales, but the success may not be the same on each channel and over time every profitable channel will become unprofitable, as more competitors start to use it. If you used Google ads 10 years ago and compare the profits then and now, likely you will see how every year you end-up paying more and more for each customer, to the point where it has become common for businesses to not make a profit on the first sale and gamble with customers coming back, which may or may not happen.

If you have discovered an advertising channel that is cheap and profitable, our best advice is to spend as much as you can and don't tell anyone about it...

For the other channels, change your strategy, use them, but don't rely one them, and make sure you collect the data that they give you. Google lets you view your advertising data forever, but other ad platforms, specifically Amazon, do not. So if you want to run a comparison between this year and last year and have not downloaded your reports... tough luck. Collect your data and use it.

Instead of relying on ads, create a solid marketing schedule and stick to it. Keep track of what results certain moves give you and do more of what works.

3. Add Independent Reporting to Your Website

This one works only for companies who run their own websites, which really we think everyone should be doing. Whether you are using Google, Amazon, Facebook or Instagram, it is very difficult to determine what exactly works and what doesn't, especially when you are doing many things at once. Often the reports don't match exactly what you are seeing in the sales department, which makes it difficult to determine whether you should keep investing your money somewhere or not. This of course makes sense, as the advertising channels want to keep making money off you, so your wasted ad budget means very welcome revenue.

There are a few independent plug-ins that you can install on your website and get real-time data on who is visiting your website and where they are coming from. You can compare it with Google Analytics to see if you discover any new and useful data. We like Matomo analytics is pretty good and straightforward and your can install it on your server.

We don't expect advertising costs to ever go down, only for new channels to emerge. Learn and adapt.

As always. Good luck.