Need more customers? Why not just buy them!
In this article, I’m going to show you how to use the customer net worth method to set the perfect marketing budget.
If your business runs on a calendar year, then you’ll be in the middle of planning and trying to figure out how much to spend on marketing. Business planning and budgeting aren’t exactly on anyone’s list of glamorous activities, but I’ve come to really appreciate the perspective that a solid budget brings to making good marketing strategy decisions.
I don’t know about you, but I spent a lot of years doing the “whatever we did last year model.” This highly technical process involved receiving a spreadsheet with last year’s numbers and a directive from management that I needed to slice the already-minimal budget by something like 25%. So I did what a lot of novices do: I put a formula in the spreadsheet that subtracted 25% across whatever we did last year. I would deal with the particulars later and besides, if management really wanted to do something, we would find the money.
A Better Way to Buy More Ideal Customers
There is a better way. It means getting a different perspective on what budgeting for marketing really means. Think about what you’re really doing with that money. You’re really looking at how much money you’re willing to invest to PURCHASE or attract ideal customers.
While you take a moment to allow that to sink in, I’ll give you my super-secret right-sized marketing budget process. It’s so easy – even a math-hater could do it. In fact, you won’t be able to stop yourself from doing it right now while you’re reading this article.
- Start by choosing a single “ideal customer.” Picture that customer in your head right now. Think about the people, what they buy, how they buy and how much they buy.
- How much revenue did you get from that “ideal customer” last year? Chances are you’ve got a pretty good idea of what that number is right now.
- Now, subtract the costs associated with that customer. You may not know that particular number off-hand, but you could probably estimate some general cost percent. It might be 25% or 30% of the revenue that it costs you to maintain that business.
- Now what you have left is the annual profit that this customer has ALREADY contributed to your business. See. That was easy. In fact, if you really want to get happy, take the number of years that they’ve been a customer and multiply it by that profit number. That is now the LIFETIME value of that customer.
That customer has already given that money. You might still have some in your bank account – or you may have already spent it. The key distinction that you have to make from now on is about how you will invest that money.
You can go on a vacation, you can hire more people, you can buy equipment — OR you can invest that money in creating a marketing system that will get them to choose you.
That is a right-sized marketing budget. I love this method because it ties the money you spend to the size or spending capacity of your ideal customer. It doesn’t make sense to over-build a marketing system for a customer that doesn’t require a million-dollar investment. At the same time, you might find that you’ve been grossly under-investing in your marketing system and it’s no wonder your sales with ideal customers are low.
Your marketing budget is like a fire. You don’t have to have a lot of wood or material to start it – but you do need to feed it if you want to stay warm.
What’s your marketing budget tip? Leave us a comment and share.