How much is too much to spend on marketing?

Monday, 23rd June 2014

Categories: Analysis

This is sometimes answered as a number based on a fixed budget created historically as a % of turnover.

There is a better way which makes the calculation easier to justify - it’s related to the cost of acquiring or keeping a customer.

You need some basic information including:

• Average margin per annum made on each customer
• Average lifetime in years you keep a customer

This gives you an indication of what each new customer you get is worth

Perhaps your customers on average spend £1500 with you each year and stay on average 5 years. You know that your net margin is £800 so each customer contributes £4000 to PBIT

Now how much are you willing to invest to get £4000?

Let’s say 10% £400

Do you currently invest £400 in finding every new customer?

In our experience clients focus on marketing communications activity based on historic investment. For example the last time an activity was undertaken the budget was say £5000 and this time it will be the same or less. We ask the difficult questions – what where the objectives and was it successful? If not why do it again?

Perhaps you should consider investing £10,000 but in a completely different way. With a bit of thinking and hard work, perhaps sending the right messages to the right people at the right time would give you better results.

Your investment should not be based on historical budgets but on focused on maximising your ROI. 

Author: Gamze Bilgili