Episode 29

How to Compete Online with a Small Budget

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About this Episode

Larger companies get most of the press and excitement with their 6 and 7 figure marketing budgets, but the majority of clients we work with are smaller. And smaller companies have to do things a little differently than the big guys. What impact does a small budget have on driving traffic? How should small budget brands compete online?

https://www.logicalposition.com/

TRANSCRIPT:

Jon:
Hey Ryan. So we get companies contacting us all the time, that don't have large, six or seven figure marketing budgets, and many times, those large clients get most of the press and excitement, but the majority of companies that end up investing in marketing are going to be smaller, and smaller companies have to do things a little bit differently. I want to ask you today, what impact does a small budget have on driving traffic and how do those small budget brands compete online? They obviously want to compete, they have to compete in order to grow, and I want to know what's the magic, how do they make that happen? I'm excited to talk to you about this today, and I guess I'll start pretty broad, in e-commerce, is there such a thing as too small of a budget?

Ryan:
Across the board as a broad general rule, no, but if you're really going to do something with your budget, then yes. I mean, you have to have enough budget to start moving things around and collecting data. And I think that initial starting budget, if you're a smaller business, is going to be important to determine how quick you can grow, how aggressive you can be, where are you going to find that opportunity to take the next step in the digital marketing evolution of your business? And I challenged a lot of business owners in this space, as I'm talking to smaller ones all the time. Like for example, yes, you can start with $100 a month budget, it's your money, and you can market it however you want, invest it however you want.
But if you're e-commerce, you're e-commerce so that you can sell everywhere and have your online store open all the time, even when you're sleeping. And so if that's the case, $100 is not going to get you very far in marketing across the internet. And so if you're going to do something that small, you really need to be hyper, hyper, hyper-focused, which does limit your potential and opportunities to find little pockets where you can really dominate or win. And so I would generally say less than $1,000, there may be better places for your money than trying to drive traffic with it online.

Jon:
Interesting. I was going to ask, and maybe you've just answered, but I'd love your take on this too, if I only have $1,000 a month to spend, is it worth doing it or am I just throwing my money away, when we're talking about driving traffic through traditional paid media sense?

Ryan:
That's a difficult one because most business owners that are coming up with this $1,000 and you're smaller, that's a meaningful number to them probably, but they probably don't have the expertise to really make that $1,000 do as much as it can. And so you probably have to bring an expert in, and that costs money as well, because most people in the digital marketing world are not working for free. And so you have to figure in an expert generally, and I'll probably come back to that point, but for most businesses, I would say that you have to look at it through a lens of time and money.

Jon:
Okay.

Ryan:
Anybody can learn how to do digital marketing. You have to be able to study, you have to be able to go in and make some mistakes and learn it, but anybody can figure it out. It's definitely not the most complex thing you could be learning. But if you have more time, then you should be doing some of that work yourself and learning it and getting it to it like, "Can I get some basic things done?" If you have more money, than you need to hire people and your budget should probably be a little bit higher to be able to invest and push traffic.

Jon:
So we should be saying, when we say budget for today's conversation, should I be thinking about it as budget including the expert or budget just in what you would spend to drive traffic in these channels?

Ryan:
I think businesses should be looking at it together, but I think most business owners are thinking about, "Okay, I can spend $1,000 to drive traffic. Let's go put that on Google and make it work." I do believe though, the Googles in particular and I'll focus on Google for right now, but Google in particular has done some pretty cool things helping small e-commerce businesses get going. If you've got a feed and you're on a smaller platform, like if you're on Shopify, it's very, very simple to get up and running on Shopify and get your products going to Google. And then there's what Google is calling smart shopping campaigns that allow a business really to say, "Google, here's how much I'm willing to spend per day, and here's the goal I need to get out of it." It does not take an expert to get that up and running.
And in fact, I tell companies, do not pay an agency to manage smart shopping campaigns because there's nothing to do. It can be a small piece of an overall structure, in fact, we at Logical Position do use smart campaigns in a small piece of a campaign occasionally, but we have to do a lot more work in the reporting and strategy on that type of client, to be able to justify charging management fees on smart campaigns.

Jon:
Okay. That makes sense.

Ryan:
Small budgets use more automation, I think, is the name of the game. Use things that are set up to make sure you don't just waste a bunch of money, and I think that's where a lot of small businesses, what keeps them from starting often is that fear of, "Oh my gosh, I'm going to go waste money trying to drive traffic because I don't know how to do it right." Doing some research, I think, can help keep that option to a minimum, that is just going to go out there and be a big waste.

Jon:
Let's say a company hasn't driven traffic on Google. How do they decide what that starting budget should be?

Ryan:
This generally comes down to, what's the business doing as a whole? If you're doing $100,000 a month on your website and you haven't been spending money, you probably have a larger amount you could start with then if I'm only doing $1,000 a month in sales. It's a threshold there of starting to look at it, but I generally say, in e-commerce, at least $1,000 to start with on Google. And then start thinking about it through a lens of, "I know I'm not going to be starting out at the gate if I'm doing it myself in a perfect world scenario." So there's going to be some learnings. I look at it through the lens of what's my light money on fire threshold, to let me get things going, and I've done this with new platforms on some of my brands.
Nobody knew what they were doing yet, across the entire platform. Pinterest is being one of them. A couple years ago, it was just wide open. Nobody knew what it was going to do. I think they're getting some more structure in place and it's driving better traffic, but I went onto it saying, "Look, I don't know what it's going to do." My light money threshold at that point was, I think about 2,500 bucks, so I talked to Pinterest like, "Look, we can go a thousand a day for two and a half days if you want, or we can go $100 a day for about a month. I'm okay with either, whichever one you think is going to work better for me." And that was my light money on fire threshold, that I wasn't going to be mad, I was just like, "Yeah, that did suck, but I got some learnings." Pinterest didn't work for us at that point in time on that business, we'll continue to be revisiting it.
But all that to come back around to it can't be a budget that if it doesn't work, it's going to tank your business, because there's a lot of unknowns if you haven't been on Google before, to how is your website going to convert, what traffic is going to work best for you. Because you'll take the same product with the same price for the same search query, going to two different sites and it's going to convert and there's going to be a different return on ad spend. And so with all of that unknown, anybody that tells you they know exactly what you're going to get by putting $1,000 out there, they're lying to you because there's no data to tell you one way or another. There's no way to know.

Jon:
Okay. So don't bet the farm.

Ryan:
Don't bet the farm, but it should probably make you a little uncomfortable.

Jon:
Okay.

Ryan:
When I'm looking at business decisions and I want to grow, and you know me, I tend to be on the aggressive side of things, I want what I'm risking to make me a little uncomfortable. I don't want it to be an easy decision or an easy thing to be like, "Okay." Could I have wasted $100 to test Pinterest? Yeah, but that was not an uncomfortable thing. 2,500 from me was a little bit uncomfortable. Partners and I talked through it and we're like, "Okay, if it returns nothing, that's not going to be great. But again, we're not going to lose the business because of a mistake if it doesn't work." So a little bit of uncomfort, I think, is good.

Jon:
Okay. So then let's say I have a thousand bucks, where do I start, Facebook, Google, something else?

Ryan:
I think generally it's going to come down to those two for most businesses to start off with. I think other platforms generally are younger and they are less proven and therefore generally higher up in the funnel. Like if you're going to jump right on TikTok or Snapchat for marketing and you haven't done Google or Facebook, I think it's going to be difficult to know if that platform is actually working for you, if you haven't gone to more advanced ones yet. And so when I talk to a business owner or a marketing team that's looking at deciding between both of those two to start, the easy way of looking at it as if there is existing market for your product, I generally say go to Google because you're going to capture people towards the bottom of the funnel as they're looking for your product.
If you're creating a brand new category, there's not a lot of people searching for it on Google and so you're going to have to figure out how to create that and find the right audiences on Facebook and convince people to start trying you to build that search volume. So for example, last week I talked to a guy, his company makes edible bubbles and I'm like, "I have never heard of this before.'.

Jon:
Isn't that bubblegum?

Ryan:
Yeah. This is for kids going out and playing and blowing bubbles, he makes edible bubbles. And I had no idea my kids would want that until he sent me some samples and they're actually pretty cool.

Jon:
That's awesome.

Ryan:
But they actually make them for bars. Someday when we get to go back to a bar, they make these bubbles you can blow on top of a drink, and a lot of times they infuse them with smoke for presentations.

Jon:
That's cool. That's a great idea.

Ryan:
So really cool stuff, but there's not a target market yet that they know to search for that. So I, before last week, never would have even considered searching for the term edible bubble or edible bubble for a drink or bar drink presentation bubbles, that's just not even there. And so for that type of business, you've got to go on Facebook, you've got to target bartenders, you've got to target moms with kids, with the kid bubble one. And there's some really cool targeting on Facebook, and if you've got a good visual and some good offers, I think Facebook can work really well. For other businesses, Facebook generally will hit top of funnel like that, and so the return, again, generalizations, is going to be a little bit lower than if you had run some bottom funnel, Google stuff to figure out where people are searching for your product and what are your advantages and all of that.

Jon:
So we're talking the difference between perhaps intent versus awareness?

Ryan:
Yes. Like if there's already people searching with intent for your products or services, I would go capture them first. It's going to be a little more expensive per click, possibly, there's generally going to be more competition, but it's an existing demand that you're tapping into. You've just got to figure out how you're going to compete there. If you're creating a brand new product that nobody's ever searched before, you probably can't even spend your money on Google on search terms, you're going to be on broad match keywords on Google wasting money.

Jon:
Right. No, that definitely makes sense, then

Announcer:
You're listening to Drive and Convert, the podcast focused on e-commerce growth. Your hosts are Jon MacDonald, founder of The Good, a conversion rate optimization agency that works with e-commerce brands to help convert more of their visitors into buyers. Ryan Garrow, of Logical Position, the digital marketing agency offering pay-per-click management, search engine optimization and website design services, to brands of all sizes. If you find this podcast helpful, please help us out by leaving a review on Apple podcasts and sharing it with a friend or colleague. Thank you.

Jon:
What other things tactics do the smaller budgets need to be aware of? What else would you consider?

Ryan:
Some of the tactics I talked about when looking at smaller budgets on advertising and driving traffic, don't even have to do with the tactics to drive the traffic. A lot of small businesses, even over the last year with COVID and a lot of brick and mortar moving into online, a lot of them haven't thought about what is my advantage online? If you are selling the exact same product at the exact same price, and you have no discernible advantage over a competitor, what are you doing? Try to figure out, before you go spend money, why somebody is going to buy from you. And you can't really tell me that your advantage online is going to be because you have really smart salespeople inside, or you have a lot of knowledge in your industry, because that's not going to come across in Google shopping. Nobody cares how much you know, they don't know how much people know when they're just going to a website and transacting.
And so you've got to figure out what that advantage looks like first. Why should somebody buy from you versus a competitor, if they've never met either one of you and all they're doing is seeing your website because the internet is the great equalizer and small companies can't compete with big companies, if they're better at certain things. Better at converting, if all of your competitors are stuck on really ancient Yahoo stores that are 20 years old, and you're going to come in there with a Shopify or a big commerce site, that's really easy to convert on. That can be a significant advantage, even if everything else is the same.

Jon:
It's funny, you say that, a friend and I were just talking about that and we were laughing, saying a great business model would be to just go to find a index of all the remaining Yahoo stores making over a million dollars a year and just replicate that on a better platform, with better usability and you would print money.

Ryan:
Why are we doing a podcast? Let's go get a list and start making business. But it's true. I think we still have 50 clients on Yahoo and some of them are, I think, are on the RTML, that really old coding platform, that if you're not 50, you've never even heard of that. And I only heard about it because we have clients on it.

Jon:
Yeah. Look, I mean, I think a lot of these stores take the approach of, if it's not broke, don't fix it. And they're still printing money, so why change it? I think they're going to ride that till the end. So somebody will come along and end them by doing something better, but you got to find it first. Talking about that is one of the things that the platform could be, one thing that these smaller companies are doing wrong. But thinking about smaller budgets, if they're sending traffic to their site, what do most of these smaller budgets do wrong? What mistakes are they making with their small budgets?

Ryan:
I think a lot of them, if they do have some advantages and they do have a reason to market, a lot of them make the mistake of not being aggressive enough. I think I've mentioned this probably multiple times, but a lot of small business owners really watch their P and L and all line items going in and out of the business, which is good. But when they come to Google ads, it can quickly become a very large line item and they want to focus on, hey, I need to increase profits, so we need to start cutting this budget and controlling Google, because if I control something in the middle of my P and L, the bottom gets bigger. And unfortunately, something like a Google ads or Facebook ad, is generally driving top line number that does translate into bottom line number, but if you eliminate what's driving that top line, it can really have an opposite effect of what you're intending.
And so it's really a paradigm shift. If you're looking at your budget like a line item, you start looking at it as you're investing in getting new customers and then what are you going to do with it? Don't see Google ads or Facebook ads as a cost necessarily, unless you're purposely losing money and you have to control that piece, but that's a whole different story and most small businesses are not doing that, so I won't dive into that necessarily now. But then trying to figure out, okay, once you've got a customer, what are you going to do with them? Because Google and Facebook, they're a marketing channel and you're going to have to give some or all of that initial order margin to the platform to get the customer. And that allows you to compete and capture more market share, but if that margin is going to the platform, it's not going to you, the business owner or marketing teams future budgets. So you've got to do lifetime value, figure out what you're going to be doing to bring them back.
So many times small businesses are thinking about, I've got to get customers, I've got to get customers, so I've got a market. Okay, good, you do have to do that, but you can't keep trying to do that without focusing on the customers you do have. What happened to the customers from last month, what are you doing with them? If you're not emailing them, if you don't have a loyalty program, you're essentially wasting all of this effort that you're doing to successfully bring new customers into the brand. And so that's where I see most struggles, because then they'll just be like, "Oh, Google was terrible. It took all my profit and then I had nothing."

Jon:
Well, we've talked about this several times on the show, of understanding that it's okay on that first sale to break even, and your customer acquisition costs might be high on that first sale, but you have to have a longer term game plan in place. Is it a subscription type product that you're going to use, if you have a consumable, is it something where you're able to continue to market to them afterwards, but you're doing it in a way that is going to continue to drive down the customer acquisition, but up the lifetime value over time? That definitely makes a lot of sense. So, okay, we've heard a lot of disadvantages to being small here today, but there's still a fact that most brands are going to be in that small budget. What are the advantages, what's the positive side, the glass half full here, what's the advantages to being smaller advertisers?

Ryan:
Yep. There's no secret that having more money can have more advantages in advertising, I mean, that's just basic marketing 101. But what I've seen through a lot of small businesses and having my own that compete against much larger brands, is you inherently have more flexibility. In fact, we were just laughing before we got on and started recording, about politics in larger companies, having all these things that you have to wade through to get things approved, or to do things, where you can't move quickly into new markets, because there's all these layers of approval. Small businesses, hopefully don't have that problem. And it's like, if you see an opportunity, you can just go do it and there's not a lot of people that have to sign off on. It's like, no, I'm going to go capitalize on that change in the market or that area that hasn't been attacked by larger brands.
And so that can be a huge advantage, but I still think a lot of small businesses don't think of it that way and look at it, hey, I can afford to make mistakes and learn from them very, very quickly and pivot and adjust. And I can test new products on my site, I can test things on my site as a small business that I don't have to go to a web dev team. I can make quick little changes on my Shopify site to say, "Hey, let's see if this works or not. Let's run it for a week and if it doesn't work, flip it back." So much opportunity to test and so few small businesses actually taking advantage of that. I mean, I can't say the number of times that we've tested small things, even on Joyful Dirt, as we're moving very quickly and say, "Hey, let's test this or test this." That many of them work. I mean, we've got a really smart team that can come up with really cool ideas to test.
For example, this month we did a black history month label, so we just, "Hey, let's just do a small run of a few hundred labels and see what happens." And larger brands can't in mid January, decide to do a label run for a specific event and try to get it to work. We're like, "Yeah, let's just see if it works. And so based on the success, we're going to do this multiple times throughout the year for different events and just have custom labels.

Jon:
That's a great idea.

Ryan:
Because we can.

Jon:
I believe this is called the innovator's dilemma. So when you're at a large corporation, you as an individual can come to the table and say, "I want to do custom labels for this month, starting in two weeks." But you have so much red tape to get through that you can actually affect the change that you want to affect. So that's a definite competitive advantage for a small brand, I can completely understand how that would work in their advantage. So that's great. Is there any other advantages that we should be thinking about?

Ryan:
I think being smaller also forces you to pay attention to details, that larger brands don't have to. We have a lot of large clients that focus on such macro level numbers, 35,000 foot layer of saying, "Hey, what's our data? How much should we spend? What is this?" And there's not the deep dive on, "Okay, how can I squeeze this little bit more out of this product?" It exists on a few large brands, but generally it doesn't matter to them on the small little minutia. And I think smaller brands, really have an opportunity because there is less data to sift through, they can quickly see where markets may be changing or evolving, that larger brands aren't going to catch till later.
So you have to be willing to be aggressive and move quick when you see them, but you might see, even on Amazon, this is a massive thing with one of our clients where there's a couple really big players in vital wheat gluten, for example, on Amazon and the volume of sales on baking products on Amazon, is astronomical, I had zero clue until we started working with this company.

Jon:
Yeah, would not have suggested or thought that.

Ryan:
No, I'm like, "Vital wheat gluten," that's a very specific product for a very specific niche of people.

Jon:
Baking in general on Amazon, you would think there's no way.

Ryan:
It blew me away. But because the volume is so high, everybody selling FBA can only send in, because vital wheat gluten comes in, it's heavy and it comes in five pound bags or two pound bags, so it takes up enough shelf volume that you can't get 50,000 units in there at a time. And because you're usually co-packing, you're getting pallets delivered, and once it's down, you can't all of a sudden like, I'm just going to send 10 units today to take care of the sales. It's massive in and out of stocks all over the place. And so smaller advertisers could leverage that by saying, "All right, if I have my own fulfillment house, I can always keep a seller central product in stock on Amazon. Even if my FBA stock goes out," and you can play a lot of games and figure out what part of the country is or is not working.
But that type of flexibility as a small brand, can pay huge dividends just by being aware of some of the struggles of your larger competitors. If your larger competitor has a disgusting amount of aging inventory, they've got problems probably floating the next purchase. Whereas you may not have that problem as a small advertiser, and you can even use drop shipping through one of the partners that could help you. So I think small companies have some significant advantages and I enjoy that part because it is more exciting to grow a smaller brand to take on a larger one. I do it myself, I add to this one.

Jon:
You'd love to take down the big guy.

Ryan:
IT do.

Jon:
Who doesn't? I mean, if you're in business, you're a competitor, just the way it is.

Ryan:
Oh yeah. And I love competing. And so it's fun as smaller business, but it does take a mentality that you are going to scrap and do everything you can to make it work. And when you come in with that mentality, I think it's very difficult to fail on Google ads or Facebook ads, because you're not accepting that it's not going to work. You see the data, you know people are spending money in your industry and they may not all be making money, but there's consistent effort there. And you just have to get to the point where you can wade through it and make it work because it will.

Jon:
Well on that note, any parting thoughts on this? I feel like I'm sufficiently equipped if I were a small brand advertising. You're giving me some renewed hope, that's for sure, that my $1,000 per day or per month, excuse me, would actually go someplace.

Ryan:
Yeah. The only thing I will say is that I do believe quality help will go a long way. You can be a small advertiser as a business owner and spend $1,000 if you learn and you're quick enough at adjusting and pivoting and looking at data, you're going to learn how to do it, but it might take you six, seven, eight months to get the point where you could have started at that point with an expert. And so it's at least worth interviewing a couple of agencies to see what it is they could do to help you if you bring experts on to manage that $1,000 spend. Yes, you're going to have to pay an agency extra cost, but can they get you moving towards your target at a quicker rate? I think often they can, but even if you're going to do it yourself, at least talk to somebody else that really knows what they're doing to see what the advantages could be.

Jon:
Well, and it could be huge too, if you get a higher return on that ad spend, that margin difference, they pay for themselves. It's like working with a great CPA, they're going to get you a bigger refund than if you did it yourself. So that covers their fees and hopefully more.

Ryan:
For sure.

Jon:
All right Ryan, well, thank you for your expertise on this. I know you guys work with thousands. Every time I talk to you, it's another thousand. So I'll just say thousands and thousands of clients at Logical Position, and a lot of those are smaller ones and you guys have learned a lot from that. So thank you for sharing all of the expertise you've learned.

Ryan:
Oh yeah. Thank you, Jon. I appreciate the time.

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Thanks for listening to Drive and Convert, with Jon McDonald and Ryan Garrow. To keep up to date with new episodes, you can subscribe at driveandconvert.com.