Setting Your Ecommerce Budget
Part 3 of Setting Your Ecommerce Budget for 2023
This is part of a 5 part series on setting your ecommerce budget for 2023. For an easier to read all-in-one PDF of the entire series, download our Setting Your Ecommerce Budget for 2023 guide.
Every company’s budgeting process is a bit different, but the first step we encourage all ecommerce leaders to complete is to engage with your CFO or whomever is responsible for the budgeting process at your company. Too often there is a chasm between those responsible for a company’s financials and those responsible for ecommerce. Let’s face it - people that find financial reports exciting are rarely the same people that find ecommerce technology and trends exciting!
Spending some time with your CFO to understand what they’re looking for in the budgeting process and ensuring they look at ecommerce not just as a cost center but also as a key source of improvements to your company’s balance sheet can help streamline and smooth out the budget approval process.
We recommend starting your budget based on the benchmark of between 10% and 15% of the projected gross profit for 2023. Where you fall on that range or if you end up wanting to exceed the high end of that range will depend on what sort of investments you’ve made into your ecommerce technology recently. For instance - if you are using a platform that is being sunset like Oracle Commerce, you may want to budget to migrate to a new ecommerce platform in 2023, which will require a greater investment.
Brainstorm the projects required for your ecommerce efforts to be successful in 2023. Think through the status of your ecommerce technology and your customer experience. For instance - if you are an omnichannel retailer, realize that shoppers are now 20% more likely to buy from retailers that offer omnichannel fulfillment - whether that’s you or a competitor. So, if you don’t have a smooth omnichannel customer experience you will want to put that on the list of potential projects for 2023. Monitor your competitors, the evolving expectations of your customers and industry publications that outline ecommerce trends for 2023 and develop a list of projects & initiatives for 2023 to respond to these items.
Don’t just focus on the major new projects, though. Realize that every ecommerce operation has some level of technical debt - technical improvements that has been deprioritized, unresolved bugs and unreliable integrations are all examples of technical debt we have seen. Resolving technical debt is never a fun or exciting item to budget for, but experience shows that the less technical debt you have the lower your total cost of ownership will be - new features become faster and simpler to implement when your technical debt has been resolved. So set aside a small portion of your budget for resolving technical debt. Don’t confuse technical debt with maintenance & updates - all systems require periodic updates, so it’s important to also think through the resources you need to set aside for testing and installing updates in 2023.
Putting all of this together, we typically see ecommerce budgets focusing on four major areas (five if you need to move to a new ecommerce platform):
1. Projects & Initiatives
2. Licensing & Hosting Costs
3. Maintenance & Updates
4. Technical Debt
These four areas are listed from the area that typically receives the most investment (new projects & initiatives) to the area that companies tend to budget the least for (technical debt). Unless you’re replatforming, you probably know what your licensing & hosting costs will be for 2023, so one way to approach your budget is:
1. Start with 15% of projected gross profit as your total budget
2. From your total budget, subtract your licensing & hosting costs. This will give you the amount that’s left for the other three areas.
3. Of this remaining amount, set aside 80% for projects & initiatives, 15% for maintenance & updates and 5% for technical debt.
4. Take a look at these numbers and compare them against your brainstorming of what you would like to accomplish in 2023 to ‘reality check’ this breakdown.
Stay tuned for the next post in this series, Working Through an Example Budget.
