SUMMARY
Meesho pipped Flipkart to the first spot in ad spend, while Mamaearth emerged a distant third
WOW Skin Science was the biggest ad spender among soonicorns, followed by Pepperfry and boAt
Compared with revenue from operations, the likes of Spinny, Purplle and Meesho were at the top
Advertising costs are typically listed under ‘other expenses’ in financial statements, but big spenders often feel a sense of pride when it comes to promotional expenses. However, this is a routine business procedure, and companies have to spend money to grab eyeballs and grow their business.
Take, for instance, how much has been spent by India’s leading ecommerce startups in this regard.
According to Inc42 data, the top 19 ecommerce startups – 10 unicorns and nine soonicorns – picked for this analysis spent INR 7,215.83 Cr (around $875.6 Mn) on advertising, promotions and other marketing activities in FY2021-22. On average, each spent INR 379.78 Cr for marketing in FY22.
Although there are 24 ecommerce unicorns in India and 15 soonicorns, we have selected only 19 for a number of reasons. To begin with, quite a few startups, including the likes of Nykaa, OfBusiness and CarTrade, do not report marketing expenses.
Also, B2B ecommerce startups mostly allocate a small portion of their revenue towards marketing spend, which fails to indicate the macro outlook. For instance, Udaan’s marketing expenditure stood at INR 68.4 Cr in FY22 against its revenue of INR 9,943.8 Cr from operations, accounting for a minuscule 0.68%.
Moreover, only 18 unicorns and 12 soonicorns have reported their FY22 numbers. So, we had to exclude six or seven major ecommerce players from this analysis.
Check Financial Health Of Top Indian StartupsHow Ecommerce Unicorns Managed Marketing Spend In FY22
Meesho was the top spender on advertising in FY22 with INR 2,579.30 Cr, followed by Flipkart (INR 1,945.90 Cr) and Mamaearth (INR 390.6 Cr).
Snapdeal, Lenskart, Cars24 and Spinny also recorded advertising promotional expenses of more than INR 200 Cr in that financial year. Among the 10 unicorns, Dealshare was the only company with an advertising budget of less than INR 100 Cr.
When we looked at advertising expenses as a percentage of revenue from operations, things became interesting. The ad spend-to-revenue ratio indicates how much a startup has stretched itself to increase its revenue.
Going by this, Meesho posted a surprisingly high ad spend-to-revenue ratio of nearly 80%, even as Flipkart, a company with a comparable ad spend, remained at 18.57%. However, there was a staggering revenue difference. In FY22, Flipkart’s revenue from operations stood at INR 10,476.7 Cr, 224% more than Meesho’s earnings of INR 3,232.3 Cr from operations.
In other words, Meesho used a far higher portion of its future revenue (since marketing spending now will give returns in the future) for marketing spend, or its marketing strategy did not match up with Flipkart. It could also be interpreted as a difference in scale between the two platforms.
Again, Snapdeal’s like-for-like numbers revealed an intriguing narrative. Of course, it brought in only a fraction of the revenue earned by Meesho and Flipkart. But it spent INR 0.6 on marketing and promotions to earn INR 1 in revenue from its operations compared to Meesho’s INR 0.8 and Flipkart’s INR 0.19.
As for other ecommerce unicorns, all D2C startups had a high ad spend-to-revenue ratio, with Mamaearth hovering around 42%, Licious at 25% and Purplle at 80%. However, this was not true for Lenskart at 15.61%.
There can be another interesting comparison between Cars24 and Spinny, both operating in a similar space. While Cars24 posted an ad spend-to-revenue ratio of 4.41%, Spinny reported the same ratio at 201.1% in FY22.
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How The Soonicorns Fared
Among the ecommerce soonicorns, D2C skincare brand WOW Skin Science was the biggest ad spender in FY22, with marketing expenses worth INR 188.76 Cr. It was followed by the D2C furniture brand Pepperfry (INR 129.9 Cr) and boAt (INR 99 Cr).
D2C consumer electronics brand boAt stopped short of a podium finish, with its marketing expenditure hitting INR 99 Cr in FY22. Nevertheless, it was significantly higher than its FY21 allocation when it spent just shy of INR 48 Cr.
More importantly, no other ecommerce soonicorn managed to generate more than 22% of its revenue from operations in FY22 like boAt did.
Check Financial Health Of Top Indian StartupsBut the narrative changed drastically when we considered the ad spend-to-revenue ratio. WOW Skin Science, mCaffeine and Pepperfry went neck and neck, with a difference of less than 3% in marketing spend. All three D2C brands posted an ad spend-to-revenue ratio of more than 50% in FY22.
Interestingly, even among D2C unicorns, ad spending remained high compared to their revenue from operations. For instance, in Mamaearth’s case, ad spending was equal to 42% of its revenue, while in Purplle’s case, the same comparison increased to over 80%.
That D2C startups spend a bigger chunk of their revenue (from operations) on marketing spend is not surprising. Most of these new-age brands compete among themselves and try to dethrone deep-pocketed incumbents. Hence, their marketing spend is bound to rise, unlike other ecommerce startups.
While the top ecommerce startups in India spent nearly $1 Bn on marketing and promotional activities in FY22, it should also be noted that marketing usually yields rewards months or even years down the line. So, ad spending by startups will fructify sooner or later and help drive growth.
Also, the spending came when Indian startups were flush with cash after the FOMO factor resulted in unprecedented funding activity in FY22. But with the onset of a harsh funding winter, FY23 saw startup funding at all stages shrink massively. As startups scramble to find a path to profitability and grow sustainably, marketing would be the first business expense to take a huge hit.
But we will only know the full impact when the FY23 report on startups’ ad spend comes out.
Check Financial Health Of Top Indian StartupsUpdate | April 6, 2023, 6:30 PM
An earlier version of the story carried incorrect advertising expenses of Furlenco. The figure has since been rectified.
