Calculating a marketing budget
Businesses that don’t yet have a clearly defined marketing budget often need a little help.
Businesses that don’t yet have a clearly defined marketing budget often need a little help.
Here’s a formula that I have learned along the way that works every time.
Question 1: What is your CLV (average customer lifetime value)?
The simplest formula for measuring customer lifetime value is:
Customer Lifetime Value = Average Total Order Amount x Average number of purchases Per Year x Retention Rate.
Example (manufacturing client): £300,000 x 0.1 x 80% (one big purchase every 10 years) = £24,000
Example (retail client): £40 x 12 x 80% = £384
Question 2: How much would you pay to get one of those customers (give a realistic figure based on the CLV and your desired profit margin).
Example (manufacturing client): £2,000
Example (retail client): £15
Question 3: Conversion ratio - How many leads do you need to make one sale?
For example, if you sell to a third of the people you speak to, you would need 3 leads to make one sale?)
Example (manufacturing client): 1.2
Example (retail client): 5
Question 4: How much can you spend to get a lead?
Answer 2 divided by answer 3
Example (manufacturing client): £2,000 / 1.2 = £1,667
Example (retail client): £15 / 5 = £3
Question 5: How many new clients do you want next month?
Example (manufacturing client): 1
Example (retail client): 50
Question 6: how many leads do you need next month to get that many clients?
Answer 3 x answer 5
Example (manufacturing client): 1.2 x 1 =1.2
Example (retail client): 5 x 50 = 250
Question 7: Marketing spend
How much marketing spend do you need for the next month to get that many new customers?
Answer 6 x answer 4
Example (manufacturing client): 1.2 x £1,667 = £2,000
Example (retail client): 250 x £3 = £750
If you’d like some help calculating (or spending!) your marketing budget, please get in touch with our team today!
Licorne Agency was founded with one goal in mind:
To offer fully managed web and branding solutions that let SMEs focus on what they do best—running their business.
If you want us to look after your website or branding, please get in touch.