January is the time when many people set goals they would like to achieve over the course of the next year. Today, I’d like to invite you to set some goals for your business. Ask yourself the following questions:
1. Where would you like your business to be at the end of the year? What about three years from now? Five years?
2. What will it take to get there?
Take out a piece of paper and write down the answers to those questions. Then, read the rest of this blog post to find out how to use your answers to determine your marketing budget.
Determine the lifetime value of a customer
If your business goals involve any type of growth, at least a part of that growth will need to come from adding new customers. In order to determine how many new customers you need to add to achieve your goals, you will need to know the average lifetime value of a customer. Ideally, you should know this already, but if not you may have to just make an educated guess for now.
Determine your customer acquisition cost
After you’ve determined about how much profit your business generates from the average customer, you need to determine as best you can about how much it costs you to acquire a new customer. This is very difficult for many businesses that don’t carefully track their marketing, but it is absolutely critical that you come up the most accurate answer possible. If you’re not quite sure, err on the side of caution and guess high. Now, plug the numbers you’ve come up with so far into the following formula to determine your annual marketing budget.
Divide your desired growth in profits by the average lifetime value of a customer to determine the number of new customers you need to add. Multiply this number by your customer acquisition cost, and you have a very rough calculation of your annual marketing budget.
Divide this number by 12 to determine your monthly budget. If the final number you came up with is higher than you were hoping, be sure to go here to download our free guide to doubling your return on investment from printed marketing materials and advertising. You can also concentrate on increasing the average lifetime value of a customer through upselling and cross-selling.