Sometimes it pays to restate the obvious, so here we go: Q4 is the biggest time of the year for almost every type of e-commerce brand. And 2016 proved this fact. Sales for e-commerce brands during the 2016 holiday season were up almost 20% year over year.
Narrowing our attention in on just November and December, holiday retail sales beat the National Retail Federation’s prediction of almost $656 billion in sales by an additional $3 billion. Even better news for your bottom line, that total amount also includes the nearly $123 billion in online sales, which rose 12.6% from 2015.
If those numbers didn’t get you pumped to start planning your Q4 and holiday spend, then maybe this will: consumers say they are buying items as early as October.
And if you’re not already planning for those customers, your competition sure is.
We surveyed a range of e-commerce companies last year and over half of the companies surveyed start holiday planning by the end of August.
The bigger the company, the earlier they plan. You don’t want to get left behind while they are prepped and ready for the onslaught, do you?
SANTA GOT RUN OVER BY THE DATA
The best way for you to prepare is to assess exactly what went down last year and make sure you understand the way the costs are guaranteed to increase during this busy time.
Analyzing the data from almost $20 million in e-commerce Q4 spending, this is what we saw:
CPMs on average jumped up 45% in both November and December compared to the rest of the year. We also saw that CPCs increased by 12% during Q4.
While those numbers may sound terrifying, let’s unpack the rest of the data to see why it’s not.
CTRs came in at 33% higher, with conversion rates leaping up a whopping 52% – all of which combined to decrease CPAs by nearly 30%.
What does all this mean? Glad you asked.
It means that while yes, placements do become much more costly during Q4, it’s important to look down the funnel and see that users are clicking through in such large numbers that CPCs don’t make that same cost leap.
Not only that, but conversion rates tend to go up because there’s a special kind of convergence that happens: consumers are in the shopping mindset with the holidays, companies like yours are usually offering deals on products and gifts, plus Facebook’s algorithm is showing your ads to people more likely to convert.
With all of these factors coming into play, our clients’ CPAs decreased as a result last year.
The best part – while ad spend in November and December can total almost 3x as much as the average for the rest of the year, it actually becomes more profitable for you to reach more people.
Because click through rates are up, you’ll likely experience an increase in volume as your CTRs improve because Facebook is more likely to scale your ads. You’ll pay more to advertise, but will get far more scale.
Additionally, higher conversion rates mean that audiences who might not have been the best target of your money earlier in the year, are now perfect sources for new customer acquisition.
HOW TO DECK YOUR HALLS FOR 2017’S Q4
What can you learn from all of this?
(1) Be prepared
If you haven’t already, start planning how you will allocate your ad spend. Many companies have already started planning and you want to make sure you stay at the front of the pack.
Just as we’ve done with the 2016 data above, leverage your old data to build a plan. Identify which cuts of the business you saw taking off, which promotions or offers worked, and which landing pages, audiences, and creative were the right combinations to trigger more sales.
At the same time, now is when you need to figure out the new elements that you’ve added into your strategy since last year that you don’t have a lot of data on.
Start now – test all of these new variables and retest things you need more data on to get a good baseline. That way, when you are seeing conversion rates and CTRs improve in November/December, you can hammer them harder while people are actively shopping.
(Will take this time to plug our Ultimate Guide to Scaling Your Ecommerce Facebook Advertising.)
(2) Expect costs to increase
Q4 is competitive, with increased numbers of advertisers going after the same audiences of shoppers.
With CPMs jumping almost 50% during this time, you have to factor that into your budget so you can ensure you spend efficiently. But remember, just because costs increase, that doesn’t necessarily correlate to a CPA increase.
As the 2016 data showed, CTRs and conversion rates do increase during this time. And while it’s partly because of a higher volume of people who are shopping online, it doesn’t mean that you can sit back and relax. You also need to be prepared with your ads, offers, and audience targeting so you can make sure that those CTRs and Conversion Rates stay high.
(3) Go outside your bubble
If you generally rely on Lookalike audiences during the year, Q4 is actually a great time to stretch those Lookalikes (LALs) and your overall audience targeting a bit.
A quick refresher – during most of the calendar year lookalikes (usually using only the 1%) usually have higher CTRs and conversion rates because they’re likely most similar to your seed audience (typically your high LTV customers or recent purchasers, for example).
Interest-based, broader lookalike targeting, and keyword targeting all have lower CPMs as well as lower CTRs and conversion rates (since they are often less similar to your seed audience compared to your 1% LALs).
But when Q4 rolls around, and specifically in November and December, conversion rates increase across the board, both for lookalike audiences and for broader LALs, and keyword targeted audiences.
Not only that, but the overall volume of your audiences increases as well.
With the combination of increased conversion rates and an increase in volume, it actually becomes cost-effective to expand your audience targeting to larger LALs (2 and 3%) as well as to use the interest based and keyword targeting as well.
We’ve already seen success in utilizing a combination of keyword audiences with LALs (for example with M. Gemi); with the increased conversion and volume in Q4, expanding your audience targeting could lead to even greater wins.
While we break down actual methods on how exactly to plan and scale your Q4 ad spend in tomorrow’s podcast, we also know that historical data is required to build that plan.
Understanding exactly why and how to be prepared for the holiday season costs and spending and how best to reach more customers will ensure you are ready to face 2017’s busiest ecommerce season.