How much should you spend on marketing?
How much should you spend on marketing?
When it comes to how much to spend on marketing to acquire customers, the goal is not to be cheap. It was Dan Kennedy who said “whoever can spend the most money to acquire a customer wins”.
But first – a warning…
…you really need to know your numbers before you start spending on marketing to get customers. If you don’t know what the value of a customer is to your business, then you need to. And there are two things that you need to measure:
The first is a customer’s 30 Day value. How much does a new customer spend within the first 30 days of your relationship with them?
The second is a lifetime value. What is a customer worth to you over a longer period? You need to know and understand these numbers before you can start working out how much you can spend on getting a new customer.
You see if a new customer is worth £100 to you within 30 days. Let’s say we’re selling low end barbecues. Then repeat business isn’t typical so that customer’s lifetime value isn’t going to be much higher than that £100.
So what would you spend on marketing to get a new customer worth £100? 20 pounds, not much higher than that I suspect depending on what your profit margins are.
If the business is different let’s say window cleaning that’s done monthly, then the customer would spend £20 to £30 in 30 days and then £20 to £30 pounds a month, every month. Then the lifetime value is clearly much higher. It could run into many thousands if you can then upsell to roof or patio cleans too. In this scenario, the amount you pay to get a new customer would be more than the barbecue business. You should spend at least all of that first month’s £30, maybe even more if month on month retention rates are good. A really aggressive business might go deep underwater spending £300 or more to find that new customer. Once you know and understand how much customers want you then you can start thinking about how much you’d be prepared to pay to get a new one.
As long as you know your numbers and your numbers are solid, then my advice would be to be prepared to spend as much on marketing as you can afford to. Why?
First, it helps you appear above the clutter. I mean how many emails does your prospective customer get in a day? How many get ignored, deleted marked as spam? How many pieces of sales material do they see in a week? How much of that gets ignored?
Every business is trying to get new customers as cheaply as possible; and all that marketing, all those same sales letters and quarter page adverts are too easy to miss or ignore. They’re doing the easiest thing for them – the business – but not the best thing for the potential customer. And that is a big mistake. increase marketing spend and you can cut through that clutter to get your business noticed. Most businesses spend the bare minimum. So the bar is not very high. When was the last time any business you know did anything out of the ordinary or memorable?
Second reason it allows you to outspend your competition. If you can outspend everyone else in your market, then you can dominate that market. Makes sense right? Now spending doesn’t require huge amounts of cash in many cases. It just requires a better understanding of your numbers and what you can afford to spend to acquire a customer based on what they’re worth to you. Once you know this and you’ve got a crystal clear picture of who you want as a customer, then you can spend all of your marketing budget on them. And hey, presto, you’re spending less actual cash than your competitors, but it’s all going to the right customers. So you’re out spending them in only the places that matter.
Third reason spending more typically gets you a better customer. We’ve all had those price shoppers haven’t we – those looking for a bargain. Those are the cheap customers and they only buy on price. And I am sure we’ve all had them, and we know cheap customers well they’re typically more demanding. I mean cheap customers cause way more hassle and grief than their expensive counterparts. Think about this for a minute. Having less customers who pay you more could be a seriously attractive place to be with much higher profits for you and less work as well. But the customers that are hard to reach are often the customers that spend the most money. When you spend more money to get a customer you’ll typically see that customer overreaching your average customer value, while cheaper customers would probably under hit the average. So this is really worth thinking about.
How to calculate how much you should spend – check our our marketing budget calculator article