How much should a Canadian retailer spend on digital?
The honest answer is that there is no number. There is a method. Anyone quoting you a percentage before asking about your margin is selling the percentage, not the plan. The method fits on one page, and it starts at the bottom of your income statement rather than the top of anyone's rate card.
Start from margin. Digital advertising is bought with gross margin dollars, so the first three numbers that matter are yours, not the market's. They are what a sale contributes after cost of goods, how often a customer returns, and what that customer is worth over a year.
Then set the ceiling. If you know what a new customer contributes, you know the most you can afford to pay to acquire one and still like the arithmetic. That ceiling is the wall the whole plan is built against, and it comes from your ledger, not from a benchmark or a competitor rumour.
The three envelopes
A defensible budget splits into three envelopes. The floor is presence you always hold, the searches you must own and the feed and profile that must stay live. The build follows the retail calendar, rising into the weeks your buyers actually shop. The press is reserved for the handful of weeks that decide the year, when being timid is the expensive choice.
An illustration, with hypothetical round numbers rather than benchmarks. A store doing $2 million at a 50-point gross margin generates a million margin dollars a year. If a new customer contributes $300 in their first year, then paying up to $100 to acquire one leaves the arithmetic comfortable. Multiply that allowance by the number of new customers the season needs and you have an envelope. Your numbers will produce a different one. That is the point.
Respect the minimums. Every channel has a spend level below which it cannot learn or matter, and a budget spread too thin buys nothing everywhere. It is better to own two channels properly than to rent six badly. A plan should say which two, and why.
So run the method on your own numbers, or bring them to a strategy call and we will run it together, in writing. Either way you leave with an envelope you can defend to a partner, a banker or yourself in February.
What percentage of my revenue should I spend on advertising?
Anyone quoting a percentage before asking about your margin is selling the percentage. A defensible retail ad budget starts from your gross margin dollars and what a new customer contributes in a year. Those set the most you can afford to pay for one. Multiply that ceiling by the new customers a season needs and you have your envelope.
How much can I afford to pay to get a new customer?
Start with your own ledger, not a benchmark. Take what a new customer contributes after cost of goods in their first year. Then decide what share of that you can hand over and still like the arithmetic. That figure is your acquisition ceiling. Chris Gardner, DMC puts that arithmetic in writing with Canadian retailers.
How should I spread my ad budget across the year?
Split a retail advertising budget into three envelopes. The floor is presence you hold all year, the searches you must own and the profile that stays live. The build rises with the retail calendar into the weeks your buyers actually shop. The press is reserved for the few weeks that decide the year.
Should I advertise on every channel or pick a few?
Focus. Every advertising channel has a spend level below which it can't learn or matter. A budget spread too thin buys nothing everywhere. Owning two channels properly beats renting six badly. A retail media plan should name which two get the money, and say why.
Also in the queue.
Run the method on your numbers.
Thirty minutes puts the arithmetic in writing and leaves you with an envelope you can defend.