What Should You Budget For Marketing?

by Adam Kreitman

It came up yet again the other day.

And no surprise. It’s one of the most common questions I get from prospects and clients…

How much should I spend on marketing?

My flip answer to that question is “Whatever lets you sleep at night.”

And that’s partly true, but the question deserves a better answer than that so here’s mine…

The most important number to consider when deciding what to spend on your marketing is the Lifetime Customer Value (LCV).

In other words, what is a customer worth to you over the course of their relationship with your company?

That’s a key number to understand.

Once you know that number, that’ll tell you what you can afford to spend to go out and market your business to get new customers.

For my business, a consulting client that hires me on a monthly retainer could be worth tens of thousands of dollars to me over the course of their relationship with my company.

Knowing that, I’ll gladly budget a good chunk of change to acquire a new customer whether it’s paying for “expensive” clicks in AdWords, sending out highly targeted, high quality direct mail pieces via FedEx to make sure they get read, or using other forms of paid marketing.

But that may not be the case for someone who sells a software product for $59. They may have to focus on less expensive forms of marketing (or, better yet, add some cross-sells and up-sells to the mix so that they increase the Lifetime Customer Value of their customers).

Calculating the LCV can be a challenge, but here’s a great infographic from KISSmetrics (sister company of Crazy Egg, for which I’m a regular contributor to their blog) to help you sort it all out.

It uses Starbucks as a Case Study and goes into the numbers you have to know in order to calculate Lifetime Customer Value.

This is a great exercise for any business to go through and will give you a much better clue as to what you should/could really budget for marketing.

Previous post:

Next post: