Mike Bryzek, co-founder and chief technology officer, left, and Rob Keve, co-founder and CEO, Flow
Crafting the right budget for an ecommerce business requires planning and thoughtful consideration of all the channels needed to drive desired traffic, improve conversion, and increase sales. These channels include advertising, marketing campaigns, software subscriptions and resources (people and infrastructure).
Strong budget planning is critical for executing a successful global strategy, and there are several important factors to consider to achieve the right results when growing a cross-border business.
A good starting point is to create a separate budget for global endeavors. Building out a discrete budget for international markets helps brands manage individual marketing campaigns and channels effectively, enable better customer targeting and increase visibility and operational efficiencies.
It’s also important to remember that while an ecommerce business might find opportunities in new markets, it may also discover new costs that could impact their bottom line.
Cost Considerations
One of the first factors to consider when crafting a budget for cross-border selling is the customer acquisition cost in the markets you are planning to enter. Some markets will have lower costs for acquiring new customers than others as well as different channels prevalent in that market. Businesses will need to factor these different relative costs into the budgeting exercise at the outset to establish how much they plan to spend in each locale to attract, convert and retain shoppers on their sites.
As a second step, it’s important to examine the landed cost of the merchandise sold to shoppers in each market. Remember that the landed cost is the total price of a product after it has been delivered to the customer and includes all customs, duties and taxes, packaging, insurance, currency conversion, transportation, crating, handling in addition to the original price of the product.
The main components contributing to the product price paid by the cross-border consumer (shipping, taxes and duties) are important to understand. For example, if a brand wants to recreate the experience that it has in its home market by offering customers free shipping, then this will need to be planned for in the budget.
Most if not all of the components that contribute to the landed cost will vary by market and could substantially differ in one locale compared to another. As a market-entry tactic, brands and cross-border businesses could create a promotion whereby duties are subsidized, but this requires budget planning. Factoring together the landed cost and customer acquisition costs for each market can create a foundation for determining a budget that will lead to revenue growth and profitability.
Impact of creating a local experience
A viable budget will need to reflect increases in sales in different countries based on projected improvements in KPI’s that result from localization efforts. One example is ensuring that pricing is optimized to display in a manner that matches local customer expectations. This includes showing prices in local currencies as well as rounding the prices in a way that is familiar to shoppers in that market.
Targeting the catalog and merchandising the site to meet the expectations of a local audience is another way to encourage customers to purchase from a cross-border business. There are numerous other factors to consider that can improve the customer experience and boost conversion and sales, like offering local payment methods, fast and cost-effective shipping options and easy returns. Each of these drivers have revenue and costs associated that require inclusion in a budget.
Businesses should test to optimize the international configurations. For instance, experimenting with the display of different payment methods to customers can lead to increased sales. Data from each market can validate questions and decisions such as which payment method to offer consumers.
Also, alternate payment methods, such as mobile wallets seen in China or open invoices as seen in Germany, ensure that new consumers are able and willing to purchase. Previously, these customers wouldn’t have been able to transact, and their shopping experience would have resulted in cart abandonment.
Offering shipping options that can maximize speed and minimize cost and that streamline the end-to-end shipping process (including returns) is also essential to boosting conversion. As the customer experience improves on the site, shopping cart abandonment and bounce rates will decrease. This improvement in site performance will translate into sales growth, which will inform many of these decisions for your budget.
Shipping Costs As A Lever To Savings
While shipping is a cost, it does provide ecommerce retailers with opportunity. Partnering with the right cross-border ecommerce software provider and solution can present critical cost-saving benefits. The right cross-border solution will offer logistics services to multiple businesses, allowing the vendor to negotiate better rates with carriers that lead to lower costs for brands. By passing along these savings, a service like Flow Commerce empowers businesses to lower their overall shipping costs and optimize profits.
The improved shipping rates could be used to subsidize free shipping, which may not have been possible if the business were negotiating directly with logistics services and carriers. Savings from improved shipping rates can also be used to partially subsidize flat-rate shipping offered to shoppers.
Testing can also be done around what the opportunity cost of different shipping strategies. If a business decides not to offer free shipping, the impact on conversion and ultimately revenue can be measured. Alternatively, if a business provides and cover the cost of free shipping, then the potential increase in sales can be analyzed. Working with a robust cross-border solution can help businesses to test out both scenarios to plan for future budgeting exercises.
The Quest for Repeat Purchases
Attracting new customers in different global markets is critical, but it is just as important to think about the customer lifecycle and how that can lead to repeat purchases. Thinking about lifetime value (LTV) of your international customer and how to increase it is important for budgeting, and improving each stage of the customer lifecycle is at the heart of increased LTV.
There are a few additional aspects to consider. Projecting LTV in different markets helps businesses to understand what they can afford to spend on customer acquisition in each market. Brands and businesses can increase their customers’ LTV by creating an excellent customer experience that will lead to repeat purchases and in turn, will lead to a higher return on your budgeted spend.
Remaining focused on general conversion, especially when reaching new customers in international markets, is essential, but paying close attention to the end-to-end customer experience creates loyal customers. Budgeting for international markets must always take returning customers and LTV into account.
Balance
Giving consideration to all the cost factors involved in cross-border ecommerce and evaluating main countries as separate line-items will produce a comprehensive international budget. Each country has different associated costs in terms of logistics and customer acquisition that will produce different business cases. For example, calculating the impact that offering duties and taxes fully paid will have in terms of costs is important. With the right technology solution, a merchant can see duties and tax costs up front, and either choose to bill the customer at checkout, include it in the item price, or have them pay it later.
In some cases, merchants may consider absorbing the cost into their margins to keep prices competitive for their customers. Making these business decisions upfront will decrease friction down the road and help to create a realistic budget for new markets.
Complexity becomes a factor when budgeting for all the variables involved in cross-border ecommerce. Choosing the right software solution can help centralize all the aspects involved into one system. By leveraging next-generation tools like Flow Commerce, businesses can better control all the costs associated with international selling, making it a profitable effort.
Flow is a global cross border ecommerce platform that serves brands and retailers.