Spillover? Closed loop? How is Xiaohongshu’s budget allocated?

With the rapid growth of e-commerce GMV on the Xiaohongshu platform, the closed-loop conversion rate has increased significantly, but users' consumption habits of "seeking first and comparing prices later" are still significant, making it difficult to completely avoid spillovers. From the perspective of brand placement, this article discusses in detail the contradiction between "spillover" and "closed loop" in the Xiaohongshu ecosystem, and proposes a budget allocation strategy from "cast-net placement" to "sniper layout".

The more Xiaohongshu's ecosystem improves, the more prominent the contradiction between closed loop and spillover becomes.

Data shows that in 2025, the e-commerce GMV of Xiaohongshu platform will increase by more than 200% year-on-year, and the closed-loop conversion rate will increase significantly, which shows the determination and effect of the platform in closed-loop construction.

However, despite Xiaohongshu's efforts to close the loop, users' consumption habits of "seeking first, then comparing prices" are difficult to change. 70% of users on the platform will still choose to jump to Tmall flagship store to complete the purchase after being seeded with Xiaohongshu. This is related to Xiaohongshu's "real sharing" gene. Users are more inclined to regard Xiaohongshu as a decision-making reference platform rather than a direct transaction venue. Especially for some high-end items and durable goods, users still trust Taobao Jingdong more for the after-sales system.

On the one hand, Xiaohongshu is determined to close the loop of e-commerce, and on the other hand, it is the conflict between user habits and platform genes. How should we plan and allocate budget for spillover and closed loop? From "casting net" to "sniper layout"

1. Cold start period: spillover as the main method, closed loop as the auxiliary method

Budget ratio recommendation: 70% for spillover and 30% for closed loop

New brands lack user awareness and need to quickly reach the target audience through Xiaohongshu, but the closed-loop conversion ability is weak and users have no trust in the brand. At this time, the focus of the delivery should still be on spillover, guiding users to jump to Taobao Jingdong to complete the first order conversion.

At the same time, we use spillover data detection tools such as Little Red Star and Little Red Alliance to observe what kind of content has a more obvious spillover effect. This can not only test which selling points of the product users are more interested in, but also have a precise control of the market and provide guidance for the content.

Of course, if there are notes with strong spillover effects, you can also copy them into business notes on the site to observe the effects.

Key actions:

Focus on seeding notes, accumulate user assets, and accumulate conversion-type note materials

Strong spillover notes are copied as business notes and published on the site

2. Growth stage: Balancing closed loops and spillovers

Budget ratio recommendation: 50% for spillover | 50% for closed loop

When a brand has accumulated a certain amount of popularity, it needs to improve the closed-loop conversion efficiency through Xiaohongshu store broadcasts and store activities. For example, the maternal and infant brand Quanmianshidai has increased its closed-loop ROI to 1:3 through the scenario-based content of "sleeping with panda-eyed mothers" + limited-time discounts on the site.

As long as you start doing store broadcasts on the site, you need to coordinate group chats, broadcasts, and sales notes. If the three areas cannot be coordinated, the effect of store broadcasts will not be good. For brands, store broadcasts that only rely on traffic are too costly. You can appropriately allocate the budget to sales notes.

Key actions:

The proportion of sales notes has increased, and Dabo and group chats are synchronized with store broadcasts

The traffic strategy has shifted from "general exposure" to "search advertising + information flow combination" to accurately intercept the user decision-making link

III. Maturity: Closed-loop feedback and spillover to build a moat

Budget ratio recommendation: 60% closed loop | 40% spillover

Mature brands need to accumulate user assets through Xiaohongshu, such as building brand topic communities and launching UGC co-creation plans. Proya accumulated 140,000 real discussions through the topic of "Morning C and Evening A", which in turn increased Tmall's search volume by 30%.

Key actions:

Tilt the budget toward "brand content + spotlight advertising" to strengthen users' repurchase mentality;

Use Xiaohongshu data to feed back external platforms, such as optimizing Douyin materials through hot search terms on the site

The hidden minefield of budget allocation

1) Minefield 1: Closed loop = opening a mall, spillover = advertising. Closed loop is not only about opening functions, but also about content scenario design. For example, a food brand launched the "Office Craving Relief Combo" on Xiaohongshu Mall, and increased the closed loop conversion rate to 15% through the "Workers' Snack Drawer" series of content.

2) Minefield 2: The more budget, the better the effect. Xiaohongshu traffic has diminishing marginal effects. When the population size is limited, when the monthly budget increases from 200,000 to 500,000, the CPM (cost per thousand impressions) increases by 40%, but the conversion rate only increases by 5%.

3) Minefield 3: Hot articles do not mean strong spillovers Hot articles may bring about false prosperity. Hot articles can be divided into effective hot articles and ineffective hot articles. Often, many hot articles are overly entertaining and lack purchase guidance. It is necessary to observe the spillover effect of notes jumping to Tmall at the same time.

4. Final Thoughts

In 2025, Xiaohongshu's competition has upgraded from grabbing traffic to occupying minds. Brands need to view their budgets as user relationship investments rather than simple advertising expenditures. Through personalized operations in the comment area and UGC co-creation plans, users can be transformed into brand communication nodes.

Based on this, here are some key suggestions:

1) Spillover and closed loop are not in opposition, but a collaborative ecosystem. Spillover is responsible for attracting new users, while closed loop is responsible for retaining existing users.

2) The essence of budget allocation is to optimize the cost of the user decision-making process, embedding hooks in each link of the user's "search-compare-purchase" process

3) The victory of long-termism belongs to brands driven by "content + data", using content to build trust and data to improve efficiency