Ecom marketing costs are under pressure – how will you resource for maximum ROI?
Why agency strategy and costs are in debate
The macros are resurfacing the old agency vs in-house debate.
Over the past couple of years, it felt like from where I am sat (as the owner of an ecommerce agency) that the pendulum has been swinging toward agency with the main reasons being:
1) Performance is harder these days because of the data loss from consumer privacy issues
2) Performance is harder because of high media costs
3) Creative has become the key lever for performance, and it’s tough to execute
However, the negative macros naturally put all costs into consideration – and that moves the spotlight onto agency strategy and costs.
Cost-cutting pressure often comes from the dove from above. Marketing teams are asked to cut budgets and costs whilst still being asked to hit the same growth targets.
When cuts are being made, marketers need to be ready to fight their corner on where they see the value.
What’s at stake
Before evaluating the options, let’s review what is at stake here.
I will illustrate this with an example. Let’s say an ecom business has an annual performance marketing budget of £3M. In 2022 they drove £12M in revenue attributed to performance marketing. So, they received four times the ROI.
£12M is a lot of money and is the number that needs to be at the centre of how you resource the investment of £3M to get there.
If the ROI slips 5% that costs this brand £600k in revenue.
Whatever your approach to marketing resources, you should consider this equation as this team is revenue-critical. Getting the team right has a huge upside, but getting it wrong has a huge downside.
What are your options and how do they stack up?
Broadly speaking, you can choose between an in-house team, a generalist agency or a specialist agency.
It’s worth noting that the suitability and pros and cons for each option will vastly differ per business size and stage, so for argument’s sake, let’s assume I am using the ad spend example above of £3M annually to illustrate this.
It’s also important to note that, of course, there are good, bad and excellent versions of each option and that you can mix in-house with an agency.
The argument for an in-house team
The obvious advantage of in-house is cost. You can hire a person – sometimes several – for the same as the agency fee. You could be using the cash you have invested in the agency to buy more customers.
There are also advantages to how nimble an in-house team can be with other stakeholders and product development in your business. That said, this is somewhat diminished by working from home culture. Most of the time, people are apart, whether internally or externally, these days.
Another key advantage is that it gives brands a chance to grow skills and, arguably, IP themselves which could be of value to an acquirer.
However, you are also more exposed. If someone is sick or resigns at an agency, there is an immediate backup.
The primary disadvantage of in-house is that your team are in a silo. They only have one advertiser to learn from (yourself), and they only have a handful of colleagues to learn from. Their ecosystem of input is much smaller than at a generalist or specialist agency. This gives a narrower, less data-enhanced view of the world, which may make it harder to solve problems, divine strategy and drive performance.
An in-house team won’t have the support of dedicated teams such as strategy, analytics and creative, which means they are less well-resourced in total and will find it harder to get things done.
The argument for a generalist agency
So, of course, you can hire in-house for a similar cost as the agency fee. But this isn’t really what you are paying for. You’re paying for multiple roles and levels of seniority, you’re paying for backup teams that sit behind your campaign teams across strategy, analytics and creative. You can’t replicate this in an internal team with one or two members.
You are investing in knowing your campaigns will run fine when your employees are on vacation or sick. You’re paying for systems, processes, constant education and constant growth. You’re paying for masses of experience.
You have access to knowledge, data and experience that the agency builds over time by working with lots of different types of clients and budget sizes.
The argument for a specialist ecom agency
Firstly, all of what applies to a generalist agency applies here but with the following additional benefits.
Their services are designed and optimised specifically for ecommerce which drives the best-in-market results for ecommerce brands.
An ecommerce specialist agency can learn fast and cross-pollinate success or failure. If your agency has multiple other brands that look a bit like your brand, you are leveraging a network effect of information and data.
An ecommerce agency has a unique view of the world. They speak to only ecommerce businesses all day long which provides them with the experience to be able to consult their clients more adeptly and in a broader context than just marketing.
Any ecommerce marketing agency worth it’s salt will provide you with benchmarking data so that you can see how you stack up against the market. This is invaluable for internally presenting data and cannot be replicated if you run in-house or use a generalist agency.
An ecom specialist agency will have built additional specialist creative services as they recognise their importance to performance for ecommerce brands.
Given the amount of revenue at stake, it’s important to choose the option that ensures it best.