The High Cost of Digital Advertising and its Impact on Ecommerce Brands

– DTC ecommerce companies spend more on advertising than the cost of goods being sold, relying on a markup to make up for the difference.
– Consumers are essentially paying for companies to advertise, making products more expensive.
– The high costs of digital advertising are preventing growth for many small brands and causing cashflow crunches.Find alternative strategies to digital advertising and explore ways to reduce advertising costs in order to support the growth and sustainability of ecommerce businesses.The average DTC e-commerce company spends more on advertising than the cost of the goods being sold. The markup of between 4-10x is what they rely on to make up for the difference. As a consumer, you’re actually paying for them to advertise. We’re all collectively paying Facebook and Google for product discovery, which in turn makes everything more expensive. How warped is that? Adding to the irony, most brands would be thrilled with 2.5-3x if they could sell in bulk, which is what they would get from a wholesale account. So if you can come up with a way to move volume, brands would love you. The costs associated with digital advertising are so high these days that it prevents growth for a lot of brands. For small brands, this is causing cash flow crunches that shouldn’t be there. This is especially true in CPG where a 12 pack of carbonated flavored water has to sell for $48. This isn’t sustainable. We have an unhealthy obsession with digital advertising. While everyone is focusing on attribution and being told that email is the answer for retention, everyone is largely ignoring the shift continuing to take place in digital advertising and the increases in the costs associated. Email addresses aren’t free and few even track the email signup to conversion rate. Even well-optimized ads often have CACs that are higher than the first order AOV product costs. The fact that a CAC to LTV payback period exists is all you need to know about how inefficiently things are set up. You’re betting that enough people return in order to cover the initial amount of money that you spent to get someone to shop the first time. Madness. I’m just looking at the numbers. The math just doesn’t check out anymore for a lot of brands. Our addiction to digital media has allowed for monopolies to dictate prices, profit billions a week, and essentially forces people into taking outside investment. Maybe you’ll go viral? Our current systems highlight a trend that doesn’t benefit the little guy in most situations and, in fact, has been systematically set up to prevent people from growing. There are 7,000 apps on the Shopify app store and less than 200 shops on Shopify (188 according to builtwith) that are making more than $1 million in revenue a year. Even if that number was 5x, we’d still have a problem. I’m not saying there’s a bubble for e-commerce, I

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