It's not just the money, it's the time as well, but as this short article is mostly about numbers, I'll focus on what a business or organisation pays in cash.
Most businesses "do" marketing as an ad-hoc activity and the associated costs are for ad space, graphic design, online activity, brochures etc etc - occasionally even I get in there with some copywriting!
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| How much do you invest in marketing your business? |
Most businesses also have little or no idea of the ROI on all this marketing spend - and frankly I don't blame them because it's very difficult to get a clear idea without having a way to measure results.
So how can you simply calculate how much you should be investing in your marketing?
I use Life Time Value (LTV) as the start point.
It's quite easy to look back and calculate the average gross profit each customer generates over a year.
Then make a considered guess on how long you keep that customer as a active customer.
I usually keep it real by using a maximum of 5 years - but in some sectors it's less and others considerably more.
Take the gross annual profit or contribution, multiply by the notional time in years you anticipate keeping them happy and you have a rough idea as to the LTV.
Now work out how many customers you have or need to hit your targets.
Calculate 2% to 4% of the LTV and you an approx budget for your marketing activity each year depending on individual market conditions and where your businesses is placed in the business cycle.
If you are developing a new market it will be more than if you are managing a declining market, but it's a starting point that has always proved useful for me.
Image courtesy of Pong at FreeDigitalPhotos.net
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