Determining how much you should responsibly allocate for marketing your business effectively can be quite challenging. As the Director of New Business in an inbound marketing agency, I know exactly how difficult this is for business owners no matter the size and scale of their entity.
Many times I ask business owners what they have budgeted to achieve their revenue goals and they have not set a marketing budget.
Faced with this conundrum, I have developed an easy process to calculate a responsible budget for inbound marketing campaigns which I am sharing with you today. Below is a handy marketing budget calculator to help you with the number crunching! You're welcome.
First, you need to calculate your Customer Lifetime Value (CLV). To do this, you need to estimate the average revenue you will receive from recurring customer purchases. Recurring customers are customers that buy from you more than once throughout their lifetime. If you're an existing business you may need to reference your accounting data to complete this form accurately. If you are a start up, you'll need to make an educated guess based on your industry.
This is the average sale or purchase amount for one transaction for a recurring client
Average Number of Purchases
This is the average number of purchases a recurring client will make with your company throughout their lifetime.
This is the average gross revenue from a single recurring client over their lifetime.
Next, you need to determine your one time customer revenue. Some clients will only purchase from you once throughout their lifetime and you need to take that into consideration.
This is the average sale or purchase amount for one transaction for single purchase clients.
Percentage of Client Base
This is the percentage of your client base that purchases from you on a one time basis.
Enter the average profit margin percentage of one-time and recurring customers.
Input your average margin. (Margin= net profit/sales)
Your Marketing Budget
To calculate your marketing budget, you need to determine what each new client is worth to you, known as the Customer's Lifetime Value. Key in the % of Customer Lifetime Value you want to spend on acquiring a new customer (10% is the generally accepted value). Then enter the number of new clients you need to acquire monthly to reach your growth and revenue goals. Your monthly marketing budget is automatically calculated as you complete the form.