By: Michelle Calcasola, Certified Business Coach
Does this seem like an impossibility? At ActionCOACH, we believe that it is very possible. You will have an unlimited marketing budget when you treat your marketing & advertising spending as an investment, not an expense.
To begin, you must first figure out what your acquisition cost is for each new customer by a particular marketing strategy in any given period of time. To find your acquisition cost, you will need to divide the amount spent in that time period on a marketing strategy by the number of new customers (not leads) that are acquired by that particular campaign in the same time period. For instance, let’s say that you ran an ad in a newspaper for a month and it cost you $450. If you received 9 new customers in that month from that ad, your acquisition cost per customer for this marketing strategy would be $50.
The next step would be to know you average transaction fee or the amount on average that each customer spends at your business, in any given amount of time, each time they visit. To find this, you will need to divide the total gross revenue by the number of transactions (or sales) in the time period that you are tracking. For this example, let’s say that your gross revenue was $30,000 for one month and in that same month, you had a total of 200 transactions. That would give you an average transaction fee of $150.
Therefore, for this first campaign, if we spent $50 per new customer to “buy” that customer and they on average spent $150 on their first visit, this is a very successful campaign because with the first purchase, that marketing expense paid for itself.
Now, all campaigns may not appear as successful in the first visit. You may have had the same cost of $450 for a different marketing campaign, but it only brought in 2 customers. Therefore, the acquisition cost would be $225 per customer. With this scenario, the initial purchase of $150 on average per customer will not cover the cost of this campaign. So, does this mean you need to throw out this campaign? Not necessarily. Sometimes, we need to expand our view to consider the long term game. For instance, by tracking your numbers, you may realize that each customer on average, visits your business five times per year. With the same Average Transaction Fee from above of $150, you know that on average, each customer will spend $750 at your business. Therefore, in that first year, after taking out the cost of $225 to buy that customer, you still made $525. Not to mention, if you track a particular marketing campaign for a longer period of time, you may find that this particular method tends to bring in customers that on average spend more per visit. Or, perhaps you note that this type of campaign brings in customers that tend to refer more customers to your business or they visit your business more often.
Another way to gauge the success of a marketing plan is to know the lifetime value of your customer. That is, on average, how long does a customer continue to visit your business and how much do they spend, in total, over that period of time. If you measure and find that your average lifetime value of a customer is $4000, isn’t it still worth the $225 initial cost to “buy” that customer, especially if they tend to be a customer that you enjoy serving and that refer a lot of friends?
It is crucial to know your numbers for each campaign, because if one method is dragging you down, it may be time to cut that anchor and find another source. We advise our customers to have a minimum of 10 different marketing efforts running at any given time. With this strategy, if one campaign is lagging, it has the power of all of the other efforts to keep your leads and new customers streaming in while you find another way to acquire new customers.
At ActionCOACH, we believe it is important to not only measure each campaign individually, but also know a summary of all of your marketing efforts together in terms of acquisition cost as compared to your average transaction fee and the customer lifetime value to see if all of your marketing efforts working together are “paying for themselves”. If they are, you now have an UNLIMITED MARKETING BUDGET!