Do you ever feel like you are wasting money on marketing?
Would you love to have an unlimited marketing budget?
For this to happen, you need to start thinking about your marketing as an investment.
Just like if you were to invest in property or shares – you want more money to come in than goes out.
i.e. if I invest money into marketing, it must give a return.
So how do you know if this is the case?
Well, the first thing you must do is measure your marketing results. That way you know what is working and what is not.
And then, there are two key numbers that you want to understand. Understand these and you can spend as much as you want on marketing.
1) Acquisition Cost
The first one is your acquisition cost. This is the cost to buy a customer. For your business it might be $50. It might be $100. It might be $1000. The key is to know what this number is for your business.
Every business has a number that will work for the business. This will depend on the value of the products or services that you sell and also the margin you are making on these products or services. By knowing the portion of money that you are making, you can then work out how much you can afford to give away to buy a customer. That’s your acquisition cost.
Your goal is to get your acquisition cost down over time. You can do this my putting more of your marketing budget into more cost-effective strategies.
2) Lifetime Value
The second number to understand is your lifetime value. What is the lifetime value of a customer – how much would they spend in their life time? Think about how much someone would spend on dog food over their lifetime or toilet paper or even gym memberships. I remember one of our clients who runs a fruit and vegetable wholesale business worked out one of his customers had spent over $1 million dollars with him!
Every business has an average. The transaction size may vary and some customers may be a one off but others might have many repeat transactions over their lifetime. Work this out for your business.
Your goal is to increase your lifetime value. You can do this if you’ve got recurring or repeat business as part of your business model. Also focus on retaining your customers longer.
3) How to Have an Unlimited Marketing Budget
So how can you have an unlimited marketing budget? Well, provided your lifetime value is greater than your acquisition your marketing is giving you a return on your investment.
Let’s look at some numbers
Let’s say your acquisition cost was $50 and your customer spent $5,000 over their lifetime. That’s a great investment. Every time you spend $50, you get $5,000 back. Now it may take a little bit of time for that to come back, but you know that you are getting a return. So how often would you invest $50 to get $5000? Every day of the week! With numbers like these you can afford to have an unlimited marketing budget.
Now, ideally you want to make your money back in your first transaction although that’s not always possible. But once you know these numbers in your business you can work out how much you can spend.
So if you don’t know them already, take the time to work out your:
- Acquisition cost – your cost to buy a customer.
- Average lifetime value – how much your average customer would spend in their lifetime.
That way you’ll be able to set a marketing budget that works for you. And if the numbers work you can have an unlimited marketing budget. You’ll be able to scale and grow your business simply and easily by making the numbers work for you.