What is a variable cost?

A variable cost is an expense that fluctuates with your marketing initiatives. Unlike fixed costs, such as salaries that remain consistent regardless of marketing efforts, variable costs increase or decrease as you ramp up or scale down your initiatives. 

Understanding these costs and learning how to control them is key to optimizing your marketing budget and driving better ROI.

How to control your variable marketing costs

Here are some strategies to help you control and maintain variable marketing costs.

1. Identify your main variable marketing costs

Here are a few questions you can ask yourself to determine if a particular marketing cost is variable:

  • Would the cost still be there if I stopped a particular marketing initiative or product or brand promotion?
  • Does the cost exist only when marketing initiatives are active?

The most common variable marketing costs are related to:

  • Email marketing: The more people you target through email marketing, the higher the cost.
  • SMS marketing: Costs increase with the size of your SMS list and the number of messages sent, as charges are typically based on a per-message rate and carrier fees.
  • Pay-per-click advertising: If you get more clicks on your ads, your variable costs will rise, because you pay each time someone clicks on your ad.
  • Social media marketing: Relying heavily on paid social media ads and sponsored content will enhance your variable costs.
  • Affiliate marketing: Reputable affiliate marketers who deliver results have higher commissions, directly increasing your variable costs.

When you identify your most and least expensive variable marketing costs and cross-reference them against what’s driving the most revenue, you minimize unnecessary spending and maximize your ROI.

2. Analyze the cost per acquisition across marketing channels

Cost per acquisition (CPA) measures the total cost of acquiring a new customer through a specific marketing channel. Analyzing your CPA across channels helps you identify the most effective ones and allocate your budget accordingly. This process involves:

  • Calculating CPA: Divide the total cost of a marketing channel by the number of new customers acquired through that channel.
  • Prioritizing channels: Focus resources on channels with lower CPA—these indicate higher ROI.

Once you’ve calculated and analyzed the CPA for each marketing channel, make it one of your key performance indicators. This will help you monitor and adjust your marketing variable costs accordingly.

3. Optimize marketing channel spending

Use these 3 methods to optimize your spending across all your marketing channels:

  1. Carefully plan your budget: Besides directing more money toward best-performing marketing channels, consider your yearly plan. The holiday season, for example, will yield more variable costs as you’ll invest more in marketing across channels, so you should prepare for this in advance.
  2. Segment your audience: Create audience segments by grouping people with similar characteristics for targeted messaging and serving ads to your customers and those likely to become customers. Use a quality marketing automation platform to set up automated flows triggered by customer behavior or lack thereof to enhance ROI and conversions without lifting a finger.
  3. Run A/B tests: Deploy two versions of your marketing assets to a small audience and use software that automatically sends the most effective version to the rest of your subscribers.

4. Use a marketing automation platform

The right marketing automation platform can help you scale your marketing activities. With a platform like Klaviyo, you’ll:

  • Spend less on paid ads and focus more on owned lists to promote products and generate sales.
  • Increase repeat purchases and customer lifetime value through post-purchase flows, personalized product recommendations, and reward programs.
  • Personalize and automate messaging based on real-time customer behaviors to enhance conversions, set marketing on autopilot, and eliminate the need to reach out to people at scale through paid ads.

With its audience segmentation options and flows, Klaviyo is a valuable platform for everyone who wants to reduce variable costs and boost efficiency. It helps you segment your audience based on shopping behavior, demographics, or predictive analytics and set up automated flows to deliver relevant experiences at the perfect time.

Ready to start maximizing the results of your marketing efforts while minimizing the costs? Sign up for Klaviyo today.

Additional resources