Knowing how much to spend on marketing can be challenging for many tech companies. To help you make informed decisions, here’s a step-by-step guide using a marketing spend calculator. By answering a series of questions, you can estimate your required marketing budget to achieve your desired customer acquisition goals.
- How much is your average customer worth to you?
First, calculate the lifetime value (LTV) of your average customer. This involves estimating how much revenue an average customer will generate over their entire relationship with your company. Consider the next 2-3 years for a more manageable timeframe.
Example: If an average customer spends £1,000 per year and stays with you for 3 years, their LTV is £3,000.
- How much would you pay to get one of those customers?
Based on the LTV calculated above, determine how much you are willing to spend to acquire one customer. This cost should be a fraction of the customer’s LTV to ensure profitability.
Example: If the LTV is £3,000, you might decide that spending £500 to acquire one customer is acceptable.
- How many leads do you need to get a customer?
Understand your lead-to-customer conversion rate. If you convert half of your leads into customers, you need 2 leads to acquire 1 customer. This ratio will help you determine the number of leads required to meet your customer acquisition goals.
Example: If you need 2 leads to get 1 customer, your conversion rate is 50%.
- How much can you spend to get a lead?
Divide the cost you’re willing to pay to acquire a customer by the number of leads needed to acquire that customer. This gives you the cost per lead (CPL).
Example: If you can spend £500 to get a customer and need 2 leads, your CPL is £250.
- How many new customers do you want next month?
Set a goal for the number of new customers you aim to acquire in the next month. This target should align with your business growth objectives.
Example: You want to acquire 10 new customers next month.
- How many leads do you need next month to get that many customers?
Multiply your target number of new customers by the number of leads needed per customer. This gives you the total number of leads required for the month.
Example: If you need 2 leads per customer and want 10 customers, you need 20 leads.
- How much marketing spend do you need for the next month to get that many customers?
Finally, multiply the number of leads required by your CPL to calculate the total marketing spend needed for the month.
Example: If you need 20 leads and your CPL is £250, your total marketing spend should be £5,000.
By answering these questions, you can create a clear and effective marketing spend calculator tailored to your tech company’s needs. This approach ensures that your marketing budget is aligned with your customer acquisition goals and helps you make data-driven decisions to optimise your marketing efforts.