Do you know how to calculate a marketing budget?

This is a trap, I am not going to show you how to calculate a marketing budget. Instead, I will show you how to know if your strategy is efficient with mathematical calculations that will give you a perspective on your marketing budget and your results, ROI, and ROAS.

Step 1: Define a CPA and an LTV

So, how do you establish your marketing budget? Let's start by determining a super important KPI, your CPA.

When planning your marketing development plan, first ask yourself the following question: how much am I willing to pay to acquire a customer?

If, for example, you are selling a unique product for $5,000 on which you make a net margin of 25%, which is $1,250: would you be willing to pay $500 to acquire this customer?

If you are instead selling a recurring product for $100 per month. How do you calculate it? With the LTV, the Life Time Value.

Here is a simple calculation to determine it over a period of 5 years:

• Annual purchase frequency X net margin X % retention X for 5 years

• 12 purchases at $100 profit X 65% retention X 5 years = $3,900.

How much would you be willing to invest to acquire customers who could bring in $3,900 over 5 years to your business? A good part will depend on your cash flow!

Step 2: Define profitable ad placements to maximize your marketing budget.

In fact, it’s all mathematical. To calculate a marketing budget, one must be able to measure the ROAS or ROI of their marketing actions; one must first be able to calculate everything. A good agency will ensure that your website is built and equipped with all the necessary tags for measuring your marketing actions.

Let’s proceed with the example of a bus: 

When I went to consult in Switzerland, the Audi dealership I was coaching had invested $40K in traditional placement, specifically the “wrapping” of a bus in downtown Geneva, which has a population of 200K, for 4 months.

If we speculate that the number of residents who will see/notice the bus in the city is about 50K people with a frequency of 7 times in the month,

Here is the calculation to measure the CPM:

(50K people X 7 times per month X 4 months) = 1.4 million impressions / $40K (Cost of wrapping the bus) = $35
$35 = CPM

A CPM of $35 for traditional “branding/marketing” is very high.

Why?

It is impossible or almost impossible to measure the ROAS or ROI. It costs much less to do placements on social media or search engines… and it’s much easier to calculate a marketing budget.

The average cost for Facebook campaigns in “reach,” which are branding campaigns where it is impossible to click on a link, is between $4 and $7 for 1,000 people reached. On Pinterest, we are talking more about $1 to $2. Additionally, on social media, it is possible to target specific people with very specific visuals.

For a social media advertising campaign aimed at getting a click to our website, we are rather looking at $9 to $13 in CPM that we will pay.

Here is an example using the same budget as the bus:

Our audience: men and women aged 25 to 65 who love the Audi brand and live within a 50KM radius of Geneva = 30K people.

We will push our ad at a frequency of 7 times per month (oh yes, it’s possible to specify this!).

(30K People X 7 times in the month) = 210K Impressions per month X $11 CPM = $2,310 / month. $30K / $2,310 = 13 months.

With the same budget, it’s possible to run ads exclusively to people we want to target 3 times longer. We will also be able to know the CPL and the CPA since everything is measured in our system!

Here is an ideal scenario on Facebook for a roofing company.

•  Budget: $5,000/month

• Average CPM: $12

• $5,000 / $12: 416K impressions

• CTR at 1% (average): 4,160 clicks

• CPC: $1.20

• CPL with a site conversion rate of 2% (average): 100 Leads, thus $50/lead

• CPA at 10% conversion on leads: $500

In this scenario, the established system must be optimal. It should rely on the following elements:

• Beautiful visuals

• Well-structured campaigns

• A well-built website

• Implementation of a marketing automation system

• An efficient BDC

Important little note:

You are probably wondering why it is up to you to know all this? In fact, one of the greatest marketing and business gurus, Gary Vaynerchuk, believes that a business must now fundamentally be a marketing business.

So, a dentist who wants to grow and dominate their market must rethink their mindset. They must become a marketing business that offers dental services. SMEs must be in control of their digital marketing since it often represents over 80% of their client “intake.”

Also, you are the best person to ask about your business, your market, your clients, etc. You will need to work as a team with your agency if you want to achieve optimal results. That’s why it’s essential for you to understand the right strategies and the language of digital marketing.

Step 3: Do A/B testing forever (bonus!) 

A/B testing is actually a practice that involves continuously testing two methods with a similar sample of a target audience, prospects, or customers (to upsell). For example, if your company does cold-calling and the results are good, we will take a sample of your list to perform marketing automation and measure the results.

Following these tests, we will be able to identify the KPIs of both methods and make the necessary changes in the future.

This could also apply to visuals, a “punch-line”, a landing page, a phone script, etc.

The key is to measure everything and do tests continuously. With this method, you will be able to learn how to calculate a marketing budget!

Conclusion

Even if you have the best marketing team at your disposal, the budgets, the desired product or service… the only way to be efficient is to synchronize each of our actions with the same mindset: to automate and enhance customer experience to the maximum.

You have all the tools necessary for your growth! Keep in mind that digital marketing in 2018 is ultra-simple if you take the time to understand it and use the right tools and methods!