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How much should you invest in marketing?

This is the million-dollar question for most businesses. Many businesses set out into the unknown when dealing with marketing, with several questions as to what a reasonable budget is and how to invest money wisely.

An art and a science

marketing budget

How can you be sure that you are investing your money in the right marketing channels? Some will say that marketing is more of an art rather than a science, whilst others will argue that there are clear frameworks and equations to determine the right amounts of money to invest and on which channels. In reality, marketing is a bit of both and successful businesses use data, financial metrics, math and creativity to understand how much investment is required to make the highest possible return. When discussing return, many would shift their view towards the financial aspect, with the metrics of success being those considering leads, sales and other business opportunities.

Marketing as a driver of company revenue

company revenue

Marketing activities need to be viewed in tandem with revenue generation, where such initiatives lead to actual sales. To identify and effectively determine how marketing serves in driving company revenue, the business will require different metrics to establish its return on investment. Such would include the cost to produce the products or services that you offer, the marketing investment including the production of material and media bookings, and the total revenue.

Understanding customer value

customer value

All customers have a quantifiable value. Once you understand the value of a customer to your business, you will establish how much money you should invest to acquire new ones. To understand the value of a customer, you would need to identify a number of variables including the average annual revenue per customer, average gross profit margin, the cost to service such a client and the typical number of years they would be serviced.

Cost of customer acquisition

customer acquisition

Once you determine how much value a typical customer provides for your business, the organisation would then need to understand how much costs it is incurring to acquire the client. In a nutshell, to determine your cost of customer acquisition, you will need to delve into your company data, group all the funds invested in marketing and divide that by the number of customers acquired. This figure would leave you with an accurate estimate of how much each customer would cost you.

Based on how much customers you want to acquire, you will need to apportion your marketing budget accordingly.

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