The biggest difficulty for small businesses, and often the one that is most troublesome is, "How much should I be spending to get myself out there?" And it's a very valid concern. Often, it's a misunderstood vantage point, and even more often, it's one that business owners simply don't calculate.
Just because you're small business doesn't mean you're small potatoes.
Look, life is mathematics, and business is no different. If you're going to be in business and you want to hedge your bets on being successful, you really need to have a good handle on the metrics of your work.
If you attended any kind of business school, you have a basic grounding in business mathematics, and you probably know how to determine a marketing budget based on your overall consumer and production cost evaluations. But if you're like most of my customers, you got into business because you are truly good at something, and often, that means you're not an Ivy League business wizard. But just because you're small business doesn't mean you're small potatoes. You should take every chance to operate on an efficiency level similar to that of a large corporation. Scale it to your size, sure, but still, act accordingly. I'll show you one way to do it below.
It's the most basic principle of being in business. How much profit do I need to generate in order to keep the doors open. Calculate every cost you have, and throw it into the mix. Light bills, garbage pickup, etc. And especially calculate ALL the time you spend working. There's nothing more disheartening than a business owner who is working their tail off only to discover that they make a return on their time that will not sustain the business because of something they forgot to factor in.
We'll say, for the sake of argument, your business costs are $5,000 per month. Hold on to that number.
And how much will they be spending on it? Calculate your annual/quarterly/monthly income from your consumer base, and hold on to that number. Whether you do it annually, quarterly, monthly or weekly depends on your consumer's life cycle in terms of engagement with your business, and that is something your given industry's best practices will dictate. But the consumer life cycle and average spend will tell you how many consumers you need to attract to break even, and that is exactly the number for which we're looking.
To make it easy, let's say we have 10 consumers on a monthly business life cycle, and you can expect about $10,000 through your sales funnel monthly on the low side. That means that each consumer spends $1,000 on that low side. We're not concerning ourselves with whales, just the low side, because you need to be able to survive on that number. Everything else is gravy. So for right now, you have a consumer that spends $1,000 with you every month.
With your overall costs to stay in business in hand, and your overall consumer spending in hand, you have your balance. From what we determined already, we know that it costs us $5,000 monthly to stay afloat, and we can expect $10,000 in consumer spending through our consumer's life cycle, also monthly. That is a difference of $5,000, which is your overall consumer profit.
From this you pay out your taxes, and you ear mark a certain amount for re-investment to grow your business, as well as other ancillary costs. We'll say that brings your number down to $3,000. This is your overall customer acquisition threshold. If you spend more than this, you're eating into your other needs.
Now, divide that $3,000 by 10 (number of consumers), and you get $300. This is your per capita customer acquisition threshold. If you are spending more than this per customer, you're doing something wrong.
Now here's where it gets fun … sort of …
The difficult part here is, if you spend that $300 CAT completely on acquiring that customer, that leaves you with zero profit (typically stored back for rainy days and unforeseens). So what we do is we ratchet that number down by a percentage. It might be 10%, it might be 30%. I like to set a scalable target for determining my marketing budget. I don't spend more than X, but I won't spend less than Y.
And this is really a subjective number, determined by your comfort level, your brand establishment level and your expectations for growth. You might have a 10-30 span, and you might have a 25-75 span, depending on how aggressive your needs are. But once you know what those numbers are, you have a solid determination on exactly HOW you can spend your marketing dollars, and a few of the decisions of marketing swim lanes you'll need to leverage will often become very clear to you.
The main goal here is, never let your customer acquisition cost overreach your scalable customer acquisition threshold. Those dollars are very precious in every sense. Utilizing them to their fullest advantage allows you to leverage them for your success, and knowing this simple math determines your marketing budget so that you don't end up getting eaten by sharks.
What it does for a marketing concern like RM3Media is, tells us exactly what we need to do in order to grow your book of business. Do we individually-tailor the marketing, or do we bulk the messaging? Do we give consumers a single product offering, or many at once? It tells us what economies are necessary to exploit in order to most effectively get your message and product out, and attract consumers to your sales funnel for close.