The Long-Term Effectiveness of Advertising Driven Sales for E-Commerce SMEs

The digital transformation allowed for new business models to emerge. As e-commerce seems to be the future of retail, an increased number of entrepreneurs are trying to better leverage advertising in a way that leads to a sustainable business model on medium to long-term. Retail enterprises are spending huge amounts of money on search engine and social media paid advertising in order to make their products visible and thus, become more profitable. However, the academic literature suggests contradictory findings on the effectiveness of paid advertising. While it seems that for already established companies like e-Bay, shutting off paid campaigns doesn’t proportionally decrease the website’s traffic, for other large companies with more competitors the findings show the opposite, meaning that most of the traffic goes down when paid-campaigns are shut off. The aim of our paper is to assess the impact of paid campaigns on the long-term revenues of small and medium enterprises activating in e-commerce. Is investing in paid advertising at the beginning enough to build a business model that can sustain itself or does less advertising translate directly in less sales? We conduct a study for a number of Romanian e-commerce businesses in order to determine the effectiveness of paid advertising and its impact on the long-term revenue stream. Our findings contribute to the existing research through valuable data on small and medium size enterprises and can help business managers make more informed decisions when it comes to their paid advertising budget and strategy.