Can You Afford Marketing?

Please follow and like us:

Practice makes perfect, or so I learned from a nice young age: see the picture below.

How can we afford to learn marketing and practice it? This is a key question I bring to each of my clients and The Writer’s Cue. As business owners, practice is scary because it requires time and often money.

Dealing with the Costs of Practice

There are two major time issues we face when we are practicing the art of marketing. One, how much time does it take you as an individual (or your employees/contractors) to do various marketing projects? Two, how much time will it take for your marketing efforts to take root and produce an income for your business?

On the money end, you face the question of how much money will it take to reach the right number of leads? And the second is, how much money does it take to convert a lead into a customer? At various stages of the business cycle, this amount can be zero (you do it all), or can go up indefinitely.

You will face each of these questions in new ways as your business grows. If you do not face them regularly, you run the risk of overbudgeting both time and money in your marketing. As the sharks on Shark Tank often tell people, marketing is one of the easiest places to lose money in business.

Important Metrics 

In order to ask and answer these questions, you need to understand your cost to acquire a new customer and your lifetime value per customer. Break down your marketing metrics to a per customer cost so that you understand how much you have to earn per customer to just replace the costs of acquiring them.

Cost to acquire a new customer – Finding the right individual who needs your service/product, can afford it, and is ready to buy is an expensive proposition. You either spend the money to find them or the time. Carefully consider what marketing and sales you do, what you pay for, and how many customers you currently have. This shows the cost per customer and the hours you spend per customer.

$ Marketing / # Customers = Cost Per Customer

Time Marketing/ # Customers = Time Per Customer

Lifetime Value – This can be difficult to predict until you have been in business some time and have put tracking in place to understand your customer behavior. If you have not been in business at least 5 years or do not track your lifetime customer value, then look at your Yearly Customer Value.

Simple way to do this is to look at your yearly or total income and divide it by the number of customers.

$ Earned per Year or Total / #Customers = Value Per Customer

Can You Afford to Practice to Perfection?

Now, I know the math is getting a little much, but bear with me. Calculate your wage opportunity cost by taking the time per customer and multiply it by your worth when you are working on a product or service (your average pay per hour of labor for your business).

For example, you earn $50 an hour when someone is paying you and you spend 10 hours per customer on marketing: this means that your wage opportunity cost is $500 a customer.

Add your wage opportunity cost to your cost per customer that you spend and you know have a total cost of acquisition.

Subtract that from the value per customer.

Value Per Customer – Cost of Acquisition = Return on Investment (ROI)

If this number is positive, then your marketing is paying for itself, and you can afford to continue practicing.

If your ROI is negative, then you need to look carefully at how you can either increase the value of a customer to your business or decrease the cost of marketing it. You need to increase value while decreasing costs until the ROI is positive.

Once your ROI is positive, you can afford to practice your marketing, continue improving, and pursuing the ever-elusive goal of perfection!

 

 

 

Tagged with

Leave a reply