Determining Your Marketing Budget
Often business owners determine marketing budgets by calculating a percentage of revenue their company made the previous year—typically between 6% and 14% of gross sales. What we recommend is to first align your budget with your marketing goals and roughly calculate what those costs would be to achieve those goals. Then, calculate what the average lifetime worth of each client to your business. For example,
if your clients spend an average of $100 each time they buy from you. And they buy from you an average of 4 times per year, then their annual worth to your business is $400. Now if your clients stay with you for an average of 5 years, then the average lifetime worth to your business is $2000. ($400 x 5 years).
Now that you know each customer is worth $2000 on average, and you know your typical gross margin is approximately 30%, then you know the lifetime gross margin of a customer is $600 (30% of $2000). Now ask yourself, what are you willing to invest to get back $600 from each customer?
This is the most important thing to consider when determining a marketing budget.
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