01 Jun Is Branding Worth The Investment? Valuing Branding Mathematically
If you are building an online or eCommerce business, your brand is important because it influences your conversion rates. When it comes to marketing spend, eCommerce sites with low conversion rates are exponentially more expensive to run than sites with high conversion rates. The following simple example explains why.
Let’s say we have two brands…
Bland brand and Nice brand. Both sell £500 handbags.
Bland Brand has a site-wide conversion rate of 2.5%.
Let’s say the average cost per click for “designer handbags” is £7.
Their conversion rate means they will need 40 clicks @ £7 to make a sale.
Therefore in this channel – Bland Brand must spend £280 to sell one handbag.
Nice Brand have invested in their branding and they have a site-wide conversion rate of 5%.
They bid on the same keywords, with the same cost per click of £7 but due to their conversion rate they only need 20 clicks to make a sale @£7 per click.
Therefore in this channel – Nice Brand must only spend £140 to sell one handbag.
Knock On Effects
The knock-on effect of the brand does not stop there. Because this means Nice Brand can now afford to outbid Bland Brand. Even if they pay £8 per click, they would still have a cost per sale of £160. A higher bid means they now get more traffic and more sales. Because they have a healthy profit margin, they could also afford to lower the cost of the bag or offer free shipping which would increase the conversion rate even further.
With a £1M marketing spend, Bland Brand would sell 3571 handbags. Nice Brand however would sell 7142 bags. Double the volume means they can also benefit from economies of scale in manufacturing and also in shipping, lowering costs further and increasing their profit margins. This again means they can afford to outbid Bland Brand in other channels, growing sales further and putting increased pressure on them.
This example illustrates why any business who makes a significant investment in marketing must invest in branding.
Even if you are not investing in pay per click ads, your brand will influence your bottom line because you will still be generating clicks through your organic Google ranking. A higher conversion rate through better branding means you will sell more products/get more leads with the same amount of traffic.
It may not always be so easy to calculate it mathematically and this is a simplified example, but it does help to quantify why large organisations pay branding firms well for their services because branding can contribute to the success or failure of a business.
The value of branding is sometimes hard to quantify or explain, but smaller organisations too should think carefully about their branding. Depending on your industry and the size of your business the impact your brand identity has on your bottom line will vary, and we understand it sometimes might seem difficult to justify paying for a tailor-made branding service. But this example shows it might be time to adjust your viewpoint. Branding is an investment that will contribute to the future growth of your business and continue to pay dividends for years to come.