How much should you really be spending on marketing? This is a common question among business owners, especially those transitioning from organic growth strategies like referrals to more structured marketing efforts. Today, we’ll break down a straightforward method to determine your marketing budget that aligns with your business goals without risking financial overreach.
Table of Contents
Understanding the Foundation of Your Marketing Budget
Your marketing budget shouldn’t just be a random figure; it should be a calculated decision derived from your business goals. It’s crucial to define clear, tangible targets like desired revenue over specific periods (monthly, quarterly, or annually) before setting any budgets.
Calculating Your Marketing Investment
Let’s say your goal is to earn $50,000 per month. If your product costs $100, the math starts by understanding the expected return on marketing spend. While aiming for a 3X return might seem ambitious, it’s a useful benchmark to start planning your expenses. Here’s how you can break it down:
- Target Revenue: $50,000 per month
- Product Cost: $100
- Desired Return on Marketing Spend (RoMS): 3X
Based on these figures, you’d aim to spend a third on marketing to achieve your revenue goal, which would be approximately $17,000.
Adjusting Expectations and Realistic Outcomes
Achieving a 3X return immediately might be challenging, especially for newer products or markets. It’s more realistic to target a 2X return initially, especially through direct advertising efforts. This would adjust your cost per acquisition (CPA) goals and overall strategy.
Beyond Direct Advertising: The Role of Lifetime Value
A critical aspect often overlooked by business owners is the lifetime value (LTV) of a customer. It’s not just about making a single sale; it’s about the continuous engagement and subsequent purchases that contribute to the business’s profitability. Strategies like email marketing, SMS campaigns, and value-driven webinars play a significant role in enhancing LTV.
Allocating Resources Wisely
Once your budget is defined, knowing where to allocate it becomes the next challenge:
- Traffic Acquisition: Primarily through paid ads, which are quick and scalable.
- Retention Strategies: Investing in email, SMS, and potentially social media for community building.
Conclusion
Determining your marketing budget doesn’t have to be a daunting task. By starting with clear goals and understanding the basic principles of investment return, you can set a budget that supports your business growth sustainably. Check out the detailed video to see these strategies in action and start optimizing your marketing spend today!
