Defining A Budget
Budgeting is hard, plain and simple. Even when you have number experts on your team, it can be tough to balance all of the needs of each department in your organization. Determining how to divvy up your budget requires a strong pulse on the desires of your business, balanced with the knowledge of what is required to scale. By allocating time and energy toward budgeting, you can create a structure for your business and begin taking steps toward growth.
Budgeting covers all aspects of your business, so defining the categories that impact budget is an important first step. Those categories include:
- Software Maintenance
- Technical Debt
- New Features
- Marketing
- Replatforming
Software Maintenance
Before we begin, let’s agree on one thing: a website is software.
Software is often compared to physical machines like automobiles which require regular maintenance. However, unlike a mechanical gear, code doesn’t wear out, rust when unused, or deteriorate over time. Nevertheless, software systems do change over time, and their “moving parts” can create emergent issues, even when seemingly untouched.
Just because you aren’t making direct changes, doesn’t mean that nothing is changing. Websites are constantly being changed and modified through user interactions which are recorded within the system. From creating an account to placing an order, uploading an image to entering information, it all is logged—even the simple act of viewing a page often leaves a trail of data. Over time, this data consumes more and more resources (e.g. disk space or memory), until resource consumption approaches the maximum limits of the physical machine (i.e. server). This can result in problems such as performance issues, errors, or outages. Additionally, just like automobiles, server hardware is itself a physical machine which is subject to physical degradation over time.
Other limits also exist within software—these limits may be usage-based (e.g. API limits or bandwidth limits) and are typically time-bound (e.g. domain name registration or SSL certification). Usually, these limits are related to software licensing, and should not cause issues if licenses are kept up-to-date and selected to match business needs.
In regard to software, time is synonymous with progress. Because software is constantly being improved upon, standing still equates to falling behind. It’s important to understand that a website is comprised of a variety of different software, both internal (e.g. the operating system, the web server, the programming language, the platform or framework) and external (e.g. API services). Internal software ages as newer versions are released—these new versions include bug fixes, security patches, and improvements that offer increased stability and performance. Similarly, external services may be upgraded (e.g. new API versions) or deprecated. When backwards incompatible “breaking changes” are introduced by an API provider, these services may cease functioning, or require updates to continue working. These external software services are also bound by all of the same limitations listed above and are subject to their own errors and outages which can cause a ripple effect across connected systems.
While incidents caused by these “moving parts” are rare, they do represent examples of issues that could emerge within an otherwise stable system. Unexpected issues will arise and should be considered within your budget. Fortunately, most of these issues are predictable and can be reliably monitored. Dedicating a percentage of your budget to monitoring can put you in a position to prevent small issues escalating into larger ones.
Technical Debt
Business owners loathe “over-engineered” solutions because they are expensive and slow to develop. These comprehensive solutions are scalable and well tested but often go far beyond addressing the immediate business need. As managers receive downward pressure to keep costs low and demonstrate more progress, there is a growing tendency towards narrow solutions that can be built quickly and cheaply but do not scale well. These solutions may work for a small user group within a focused context, but they fail to address larger long-term business problems and a wide audience. This compromise between cost/timeline and quality is referred to as “technical debt”.
Technical debt exists within the philosophy of “make it, then make it better.” New ideas need to be tested quickly and cheaply, so they can be easily changed or thrown away if they do not produce the expected results. There is a necessary expectation that work produced in this fashion will require future iterations to address use cases which were not previously considered. Technical debt may not manifest as visual issues, but it exists nonetheless. Typically, technical debt exists behind-the-scenes at lower levels, in the way code is structured or written. Addressing technical debt will create a system that is easier and less expensive to maintain and scale while increasing performance and reliability.
Allowing technical debt to accumulate will slow development progress and manifest as customer-facing issues. For these reasons, a portion of your budget should be dedicated to resolving technical debt regularly.
New Features
When planning your budget, new features are most likely the first things that come to mind. These features represent the wants of the organization and are expected to drive growth. As such, new features are often associated with a larger expected return on investment and a timeline measured in weeks (possibly months). Thus, you should expect new features to be priced accordingly.
From experience, eCommerce managers struggle to define the specific features which they plan to implement in advance. This can make it difficult to achieve approval for anything beyond a maintenance budget. It’s important to be realistic when planning both timeline and budget for new features, and it can be helpful to involve a partner agency, in a consulting role, to help define a 12-month roadmap for new feature additions. This provides more accurate prices and timelines while lending credibility to the plan of accomplishing specific goals. Budget for planning.
Marketing
eCommerce growth is rarely achieved through the addition of technical features alone. Today’s customers have an abundance of choice, and merchants need to identify creative ways to stand out. If merchants aren’t willing to compete on price, then they must differentiate themselves through their branding, marketing, and storytelling.
There are many different levers to pull when discussing marketing: email marketing, content marketing, SEO campaigns, pay-per-click, social marketing, affiliate marketing… all of these elements are important. Only through devising and executing different strategies, then adjusting as needed, can your brand find the marketing tactics which work best with your audience. Expect some trial and error.
While there is no substitute for having a great product that offers value to the consumer, marketing is the best tool to evangelize your brand and products, and stay top-of-mind for consumers. As the industry has evolved, customer experience has become a major player in brand loyalty and the brands that focus on that experience see better results.
Advanced planning is essential for establishing a marketing budget. By setting aside a large portion of your budget and partnering with an agency as a consultant, your team can begin to solidify your marketing strategy. Keep in mind that some marketing initiatives may require changes to your website. If you haven’t already accounted for this elsewhere, be sure to reserve a portion of your marketing budget for development tasks that will support marketing initiatives.
Replatforming
In an ideal world, replatforming would never be required. In reality, due to the inherent complexity of underlying systems and the rate at which technology is advancing, sometimes more significant changes are required to stay relevant. Whenever possible, avoid making large sweeping changes which are inherently risky. Instead, prefer incremental changes which are less risky because they carry a lower cost, shorter timeline, and are easier to revert when compared to replacing an entire system. This process of continuous improvement can extend the lifespan of a platform while stimulating growth.
Joel Spolsky, CEO and co-founder of Stack Overflow, writes “the single worst strategic mistake that any software company can make [is deciding] to rewrite code from scratch” because “when you throw away code and start from scratch, you are throwing away knowledge. … Years of programming work. … when you start from scratch there is absolutely no reason to believe that you are going to do a better job than you did the first time.” While it’s natural and important to refactor and make improvements, “throwing away the whole program is a dangerous folly.” It’s much safer to make continuous improvements, evolving the design and functionality incrementally, rather than letting updates languish and then investing in a massive overhaul.
However, there will be times when a business outgrows its underlying technology. If a platform is hindering future growth through technical limitations, or if the technology is deprecated and will no longer receive updates, it may make sense to replatform. Few eCommerce companies have the technical resources or desire to maintain an eCommerce platform, which is why they choose, and pay for platform solutions developed and maintained by third-parties. When a platform no longer satisfies a business’s needs, a replatform is generally a less expensive and less risky alternative to independently developing and maintaining a highly-customized version of the existing platform.
Be aware that the decision to replatform usually represents a large investment and a lengthy timeline. From experience, business owners underestimate the amount of time required to identify the best agency partner and platform for their business. Delays during this part of the process can almost always be attributed to uncertainty, hence, the best way to make progress and reinforce decision making is with more information. This starts with hiring a consultant to draft requirements, functional specifications, and recommend specific solutions.
Because replatforming projects occur infrequently, they may not appear in every annual budget. However, you should begin planning and budgeting for a replatforming project well in advance, so that when it is time, there are adequate resources reserved for the project.
If you’re interested in learning more about replatforming, see our Replatforming Guide.
Calculating your Budget
When calculating your budget, the best place to start is your annual online revenue (or gross merchandise volume). It is also helpful to know your average margin on products sold.
Assuming a $10M GMV and a 40% profit margin, your budget might resemble the following:
| Category | % after margin | Total $10M GMV | Total $5M GMV |
| Licensing Costs | 2.5% | $100,000 | $100,000 |
| Software Maintenance | 2% | $80,000 | $40,000 |
| Technical Debt | 2% | $80,000 | $40,000 |
| New Features | 6% | $240,000 | $120,000 |
| Marketing | 25% | $1,000,000 | $500,000 |
| Replatforming | 2.5% | $100,000 | $50,000 |
| Total | 40% | $10,000,000 | $5,000,000 |
Taking the time to establish a balanced and accurate budget gives your team a solid understanding of the direction in which you are moving, and also allows for each department to execute on their initiatives with the proper funding. All of this puts your team in the position to focus on serving your clients and providing them with the best experience possible.
If your team hasn’t taken the steps toward establishing a budget I encourage you to do so. If you don’t know where to start, we have experienced professionals who can help you and your team to identify your goals and implement a budget plan that puts you on the path to success. Reach out to us, we are ready to help you on your eCommerce journey!
