One-third of ecommerce merchants operate on a gross margin of 25 percent or less, according to an Internet Retailer survey conducted by Vovici.

"With a margin of less than 35%, there is very little room for error in terms of operating or discretionary expenses like marketing," said Mary Brett Whitfield, senior vice president of TNS Retail Forward, told Internet Retailer.

"After they pay their overhead, they must be prudent in analyzing how they can leverage profits to help finance growth," Ms. Whitfield said.

Many established online retailers usually spend about 10 percent or less of their total ecommerce revenue on areas including marketing, technology, fulfillment and research and development. Only 7.5 percent of companies are spending more than 10 percent of their total revenue on new technology, while 45 percent are spending between 3 percent to 10 percent and 46 percent are spending 3 percent or less.

"There are exceptions, but if merchants are keeping their percent of web sales spent on a typical expense category to within the single digits they are in line with the industry," says Whitfield. "Smaller retailers will be watching out for their expenses and probably only expanding organically where it makes the most sense."

Retailers were third when ranked by industry online marketing spending according to a July 2007 Nielsen//NetRatings- AdRelevance study.

Ecommerce Marketing