In today’s increasingly complex digital landscape, ecommerce brands are constantly seeking new avenues for growth. A popular strategy for many is to diversify both their ad spend and sales channels. While this approach can unlock new opportunities, it also introduces inefficiencies that can hinder growth. In this white paper, we will explore why scaling efficiently is critical for long-term success and how over-diversification in both sales channels and ad spend can sometimes do more harm than good.

Channel Diversification: Striking a Balance Between Amazon and Your .com Store

Many brands are choosing to expand their presence across multiple platforms such as Amazon, online retailers, and wholesale in an effort to capture demand from a broader range of customers. However, one challenge that often arises from this diversification is the tendency to silo each channel managing them independently in terms of profit and loss (P&L) and media spend.

Siloing and Its Impact on Efficiency

For instance, many brands fail to allocate Meta ad spend towards driving sales on Amazon, even though both channels target the same audience. This raises a critical question: Is the incremental lift worth it?

As Amazon sales increase, brands often experience a corresponding decline in their .com sales, as customers prefer the convenience and speed of purchasing from Amazon. This creates a trade-off where the growth on Amazon could cannibalise .com revenue. It’s essential to assess whether the additional sales gained from Amazon justify the potential losses on your own website.

Measuring Incremental Lift

When diversifying into new distribution channels, brands need to account for how these changes affect their total revenue realisation. Many fail to measure the incremental lift that paid media brings to each channel, making it difficult to determine whether the overall impact of diversification is positive or negative.

Actionable Solution:

  • Evaluate Channel Impact: Analyse the incremental lift across all platforms, measuring the effect that ad spend has on both your .com store and Amazon performance. Ensure that you’re balancing ad spend effectively between channels to avoid cannibalising sales.

Diversification of Ad Spend: Is It Really Helping Your Bottom Line?

Another common approach is to diversify ad spend across multiple platforms. While this may sound appealing, shifting budget away from high-impact channels like Meta and Google to lower-impact platforms such as TikTok, Snapchat, or TV often results in reduced efficiency.

“Now we’re bigger, we feel like we should be spending in more places.” – This is a huge misconception. Being bigger doesn’t mean you need to diversify channel spend – Its vital to remember what got you to this stage in the first place. Focus on the basic channels. We have many clients spending north of £1m a year on only meta alone, you do not need to diversify channel spend to grow.

The Efficiency Trade-Off

Consider this scenario:

  • In 2023, a brand allocates 80% of its budget to Meta and 20% to Google, both of which deliver high returns on investment (ROI).
  • In 2024, the brand diversifies its spend by moving 30% of the budget into TikTok, Snapchat, and TV.

This shift frequently leads to less effective results because brands are moving budget away from their most efficient channels and into platforms that are harder to measure or provide lower returns. While diversification can open up new growth opportunities and help increase volume, it often comes at the expense of efficiency.

Platforms like TikTok or Snapchat often receive smaller portions of ad spend for a reason they tend to generate lower ROI than more established channels like Meta and Google. Brands that over-diversify their ad spend often find that their media strategy becomes unnecessarily complex, while yielding lower returns.

The measurement issue with additional marketing
channels

Every single channel has a different recommended attribution window:

Meta: 7 day click, 1 day view
Google: Unsure?
TikTok: 7 day click
Pinterest: 28 day view
Snapchat: 28 day view

What does this mean? You could be pumping budgets up based on in channel metrics, when really all of your marketing spend is being measured differently.

Actionable Solution:

  • Focus on High-Impact Channels: Prioritise ad spend on platforms that deliver measurable, high returns. Test smaller portions of your budget on new channels, but ensure that the majority of your ad spend goes towards platforms that drive results.
  • Data-Driven Decisions: Use data to assess the performance of each platform and allocate spend accordingly. Resist the temptation to diversify purely for the sake of variety; instead, focus on driving the best possible ROI.
  • Always having north star metrics we measure come rain or shine: Contribution margin, net profit, blended ROAS, NCPA. Whatever the north star measurement is for your business, live and die by this and come back to it as the primary decision maker when asking yourself ‘is this new channel efficient?’ “How did moving 15% of our media spend affect our blended ROAS?”

Do you have the correct content production systems for different channels?

Building a creative production system for Meta is a huge challenge, and only a small % of the industry has this right. To then underestimate the importance of doing this for new channels, is a mistake. Each channel requires a different kind of content to see success because consumers don’t go to each marketing channel to see the same content. Tiktok content and IG content is polar opposite to one another, as is FB content, as well as snapchat. So before you branch out into channel diversification, are you in a position to produce the right amount of appropriate content to see success?

Rising CPMs and Managing Meta Costs

As Cost per Thousand Impressions (CPM) on platforms like Meta continues to rise, brands are faced with the challenge of scaling efficiently while maintaining profitability. Without cost controls, increasing ad spend in the face of rising CPMs can quickly lead to inefficiency and wasted resources.

Making Incremental Spend More Efficient

There are several strategies that brands can employ to scale efficiently on Meta while keeping costs under control:

1. Set Cost Controls: Establish strict cost controls aligned with your key performance metrics. By setting bid caps and CPA targets, you can ensure that your ad spend remains efficient as you scale.

2. Gradual Budget Increases: Rather than dramatically increasing your ad spend, make incremental adjustments only when your campaigns meet or exceed your target performance metrics. This helps ensure that your growth is sustainable.

3. Continuous Creative Testing: To avoid ad fatigue and keep your audience engaged, regularly test new creatives. By introducing fresh ads into your campaigns, you’ll increase the chances of finding new winning combinations that drive better results.

4. Relentless Testing: Increase the number of variables in your creative testing process. Brands like Loop have more than 5,000 live ads in their Meta account to ensure consistent results and maintain a competitive edge.

5. Creative Production System: Develop a scalable system for rapidly producing and testing new creatives. This allows you to continuously iterate and improve results over time, while keeping your campaigns fresh and engaging.

6. Having what we call a ‘scaling margin’ – Only scaling when your campaigns are ABOVE your desired target, taking into consideration the fact that a slight dip is inevitable when scaling. IE, blended ROAS needs to be at a 2.7, don’t scale ad spend at a 2.7, scale it at a 3x or above allowing for a small margin for efficiency to dip slightly, but keep us in the green.

Actionable Solution:

  • Structured Creative Testing: Implement a robust creative testing framework that allows you to frequently rotate new ad formats and messages. This will help combat rising CPMs by ensuring that your ads remain efficient and cost-effective.
  • Testing creatives using cost controls – Creative testing is the biggest cost centre for most ecom brands using Meta ads, if we test using cost control campaigns and trust in Metas machine algorithm to only spend on winners, we still find winners, but spend isn’t forced on losers which removes wasted spend = Improves efficiency.

Conclusion: Focus on Efficiency Before Diversifying

While diversification offers growth opportunities, it’s important to prioritise efficiency before spreading your resources too thin. Expanding into new sales channels or allocating budget across multiple ad platforms can seem like a smart strategy, but without careful planning, it often leads to inefficiencies that reduce overall effectiveness.

By maintaining a focus on your core, high-performing channels and only diversifying when you fully understand the potential impact, you can achieve sustainable growth without sacrificing profitability. Remember, efficiency should always be your primary goal, with diversification playing a secondary role in supporting your long-term growth strategy.

If you’re looking to refine your ad strategy or improve the efficiency of your incremental spend, our team is here to help. We specialise in helping ecommerce brands scale efficiently without compromising their bottom line. Get in touch today to learn more.