We are already in 2021 and there is still a whole year of things to do, we are very excited for more growth.
One of the questions I always get is: “How much budget should i spend on marketing in 2021?”
And here’s the surprising answer…..
There are two different ways to decide how much a company should invest in marketing:
How much budget should you spend on marketing in 2021?
The first approach to marketing is to simply take 10% of your revenue from last year and then use that as your marketing budget.
If you made $100,000 then your marketing budget for 2021 should be between $10,000 and $50,000.
Not only is this formula unscientific, but it also limits your potential to reach a wider audience.
For example, imagine if you were able to invest $20,000, $30,000, or even $50,000 in your marketing, and that led to a 10x increase in sales.
While this may be risky, we will show you how to scale your small business marketing budget using a methodical approach.
An example for how to calculate marketing budget.
So it’s time to get into the marketing budget formula we use.
Now CAC stands for Customer Acquisition Cost and a lot of this post will focus on determining your max customer acquisition cost.
We are going to help you succeed by asking you some questions and providing you with tips and ideas.
Through this, you can predict the aggregate dollars spent on marketing in 2021. Let’s get started!
Steps to Calculate Your Marketing Budget.
Question #1: How much time per week will you commit?
This is an important question to ask because if your time is limited, you’ll need to hire someone to do it.
And hiring someone is an initial expense. As we discussed, this is not factored into the marketing formula, but is something to be aware of.
When it comes to hiring, you select three alternative options.
- You can hire an employee either part-time or full-time, which for someone with 1-3 years of experience, you are looking at $20-30 per hour.
- You may hire our digital marketing agency, and rates start at $600 per month.
- You can hire a person or freelancer, whose rates can vary, but you should expect to pay about $50 an hour for good work.
- There are several pros and cons for each option.
If you hire someone as a freelancer, there is a risk that they will prioritize their own work over yours.
You are better off employing an individual than delegating that process to them.
However, if you are focusing on digital marketing then you will need to protect against a lack of cash flow.
But you should consider the time that you use in this area and how you use your time.
Now that we have received the project, it is time to determine your maximum customers acquisition cost.
Question #2: How much does your customer earn?
LTV is the total amount of revenue or value you generate from your customers over your lifetime.
Knowing LTV will help determine how much of a marketing budget you can and should have.
The higher the LTV, the greater you can spend, and the faster you can grow.
If your LTV is $100 and you wish to make a $20 profit, your max CAC is $80.
But you also have early-stage companies who have enough financial backing to survive even if they lose customers.
For example, when looking back at CAC = LTV – Profitability, if your LTV is $100 and you can handle a $20 loss, then your maximum CAC is $120.
Also there’s a popular quote from Dan Kennedy that reads:.
“the company that spends the most to acquire a customer – wins.”
As we understand the importance of LTV, let’s look at how to calculate it in our next question.
Question #3: What are your average product prices?
Now, the average order value or AOV is the average price your customer pays for your product.
So, if a consumer buys one product, the price will be $100.
But if you have multiple services and products, then calculating your ACV can become especially complex.
The best way to do this is by use historical data.
If you own a company, you can compare your total revenue divided by total clients.
If you are a new company, then try forecasting which products/services will be the most popular, and estimate the industry average.
You can always adjust your forecast as more and more data becomes available.
Question #4: How many times will this customer purchase?
In sum, what is the intended use for your product/service?
If it will be a one-time product purchase with no cross-selling, like stationary bikes.
Is the service/product considered automatic renewal that will recur every month like our internet marketing services?
Is this a product that will have an exceedingly high turnover rate and will have to be reordered often like food or toiletries?
To determine this, it is what helps you get to that LTV we were discussing earlier.
The stronger your Lifetime Value is, the more often you can get people to keep coming back.
Take into consideration Facebook, for example.
Their goal is not to get you to visit one time, but to keep you coming back every day and then keep you there for hours.
Finishing Up.
That is it! We hope this post will help you think about how much you should spend on marketing.
If you want to make use of your marketing budget, we have affordable digital marketing solutions that are perfect for businesses of all sizes.
If you contact us today, my team can schedule a free consultation.
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