How to Reverse Engineer Your Digital Marketing Budget
How much should your business allocate to digital marketing? The answer depends on your goals. Learn how to reverse-engineer your digital marketing budget here.
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Did you know that nearly 40 percent of the population makes New Year’s resolutions? Yet, just nine percent manage to keep them? Meanwhile, about half of all small businesses create a documented budget, and almost all that do stick to it. Writing it down and planning makes a big difference.
Another trick to ensure a business reaches its growth goals is to budget with them in mind. If you know someone this might help, please forward it along.
Step 1: Reverse-Engineer Potential Figures
Businesses can optimize revenue through customer acquisition, retention, expansion, and pricing. It’s helpful to run preliminary figures to better understand the budget type required to meet each goal exclusively through each revenue optimization tactic. An example based on customer acquisition is covered below.
Acquisition Need Formula
(Customer Lifetime Value) ÷ (Tenure in Months) = Monthly Revenue per Customer
(Monthly Revenue per Customer) x (12 months) = Annual Revenue per Customer
(Target Annual Revenue Increase) ÷ (Annual Revenue per Customer) = Total Acquisition Need
Acquisition Need Example
($115,200) ÷ (36 months) = $3,200
($3,200) x (12) = $460,800 = $38,400
($160,000) ÷ ($38,400) = 4.16; five customers must be acquired to meet the revenue goal
Step 2: Reverse-Engineer the Digital Marketing Budget
The next step is to calculate what it will cost to achieve the desired result.
Reverse-Engineered Acquisition Budget Formula
(New Customers) x (Cost Per Acquisition) = Digital Marketing Budget
Reverse-Engineered Acquisition Budget Example
(5) x ($6,000) = $30,000; a budget of $30,000 is required
Step 3: Confirm Value
With a CLV of $115,200 and a profit margin of 50 percent, a business can spend up to $57,600 per customer and still break even. In this example, investing $6,000 to acquire each of the five customers makes fiscal sense. The $30,000 budget is justified.
Let Me Know How I Can Help
If you know someone this might help, please forward it along. If you have questions about digital marketing budgeting or digital marketing in general, I’m happy to help. Feel free to hit reply or contact me through my website.
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