How much should you spend from your marketing budget to get a new client?

The answer is really in the form of another question:

"What is a customer worth to you?" It can be more than you think.

Month after month, you might be feeling you're spending a lot of money (and time) to drum up new business...and wondering, "is it really worth it?"

But how can you determine if you're spending too much money to attract new customers?

Or, how can you tell if you're missing opportunities by not spending enough?

To answer these questions, you should take a look at:

• your marketing line item costs from your accounting records
• any reports you have that track the responses to your various marketing efforts (ads, mailings, etc.)

But two of the most enlightening elements in getting a more complete picture on whether you are overspending or under spending in your marketing are hidden in these two simple calculations (see links at the bottom of this article to access  the online calculators):

1. how much it costs you to get a new customer or client (called the "customer acquisition cost")

2. how much profitable revenue does a typical client generate for your business during the time period they do business with you (called the "lifetime value of a customer").

While these calculations may sound complicated or like a lot of work to figure out,  they are really quite simple to do (at least to get a rough estimate).  They are also perhaps the most overlooked calculations by small business owners when they evaluate marketing expenses.

For a better understanding of how these calculations can help you (and how easy they are to do with the online calculators), watch this short video tutorial below, which provides a case study example.

To start the video tutorial, click the play button at the bottom of the video screen below. (approximate play time is 7 minutes, 50 seconds)

While calculating the lifetime value of a customer is perhaps something you hadn't thought about doing when trying to put together a marketing budget, the most successful small businesses run these numbers because it helps them make better decisions about expenditures.

When you calculate what the estimated profitable revenue a typical customer brings into your business over time, and you compare that with the average estimated cost of what it takes to get a new customer, you'll often find that you are more willing to keep your marketing efforts going, or even make a larger investment in your marketing budget -- because you can see the long-term payoff.

ONLINE CALCULATORS:
Use these to run your own calculations.