For any successful marketing campaign, the Cost per Acquisition should be significantly less the average Customer Lifetime Value(LTV)
What Should Be Your Marketing Budget?
You have to always work your budget backwards to get a clear picture about the campaign. I have divided the process into 5 simple steps to make it easy for you.
The concept is very simple. Set a goal for the campaign which you are going to launch. Figure out number of leads you need in order to make those sales. Figure out the traffic you need to get those leads and calculate the cost per lead.
For example, if your goal is to acquire 50 customers then find out how many leads you need to get those 50 customers. This can be calculated by lead-to-customer conversion rate. You will learn how to do this in the next section of this post.
Following is the step by step guide to Create a Marketing Budget plan for any business.
5 Steps to Create a Marketing Budget Plan
♦ Step 1 – Figure out the goal for your campaign
Before starting out to create a campaign, you need to set the goals for your campaign.
What are you trying to achieve through this campaign? How many customers you want to acquire with this campaign or how many sales you want to make?
For example, a goal can be “Acquiring 50 new customers” or “creating 100 unique sales”
♦ Step 2 – Find Lead-to-Customer Conversion Rate
Now that you’re clear about the goal of your marketing campaign, next step is to find out lead-to-customer conversion rate. It is the percentage of leads converted to paying customers.
For example, If 50 people showed genuine interest in buying your product and filled a signup form. Then How many of those people purchased your product?
Formulae to calculate Lead-to-customer conversion rate is,
(No.of customers acquired in specific time period ÷ No. of leads acquired in the same period) × 100
you can get this data based on your previous campaigns.
Note – If you are a startup and haven’t done any campaigns before, then make an assumptions based on market research or test out by creating campaigns. Unless you start testing your campaigns, you cannot tell which platform or process is working best for you.
♦ Step 3 – Find traffic-to-lead conversion rate
Now that you know the lead-to-customer conversion rate, you also need to find the traffic-to-lead conversion rate. It will give the amount of reach or traffic you need to acquire the desired number of leads.
By doing this you will know how many PPC clicks(or traffic) you need in order to get the reach you need.
The formulae to calculate Traffic-to-Lead conversion rate is,
(No.of Leads acquired ÷ No. of prospects visited your website in the same period) × 100
♦ Step 4 – Find Cost per Lead
This is the tricky part,
Cost per each lead will be different for different marketing channels and also depends on various other factors.
If you are after paid advertising on a niche website then the advertiser may charge you based on leads or per click
If it is based on CPC then figure out how many clicks(or reach) you need to get your desired number of leads or If it’s advertiser is charging per lead then it is well and fine. By the end of step-4 you will know average cost per lead.
If you are after google adwords search advertising where 90% of the marketers or business owners rely on, then you can evaluate the cost per lead based on the keyword bids in google keyword planner.
♦ Step 5 – Calculating your final Budget
Now that you know
- Your Goal
- Leads-to-customer conversion rate
- Traffic-to-Lead conversion rate
- Cost per Lead
Now you know the percentage of reach you need, you can easily calculate how much it will cost you to acquire the desired number of customers.
Although there will be other factors involved based on type of business, I hope this article gave you the overview of how to calculate the marketing budget.
Comment down below if you are facing any difficulties in calculating your budget