MBA1742 How Much Should You Spend on Marketing? + Free Ride Friday

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Hey oh. Welcome to the Hunter $mba Show. Because when you're better, so is your business. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner back in 2014. And just a heads up, today is Free Riot Friday. Every Friday we give away a lifetime membership to one of our training programs. We're giving away easy course, our $500 course over at easycourse co. If you want to win it, just leave us an Apple Podcast rating and you enter our weekly random draw. Listen in on Friday, like today to see if you won. It's that easy. It's our way to say thanks for showing us love on Apple Podcasts. In today's lesson, you'll learn how much money should you be spending on marketing? Whether it's Facebook or Google Ads, paying an influencer, sponsorships in person events, how much cash should you be dropping on marketing? Bringing in a customer? Many businesses think about this in a totally wrong way. They think, oh, I should be spending 20, 30, 40% of my budget on marketing. Well, in today's episode I'm going to give you a simple formula to know how much you should be spending to acquire a customer and the total amount of money you should be spending on marketing. You're going to want to take some notes in today's episode because this one might just be a game changer for you. So let's get into it. Let's get down to business.

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It feels good to save big. It feels good to Geico marketing. It's money we have to spend to bring in new customers. It's one of the things a lot of entrepreneurs neglect and they wonder why they're not making enough revenue. Well, in today's episode, I'm going to give you a simple formula to know how much to spend to acquire customer and how much in total to spend every single month on marketing. A lot of people go around doing this the wrong way. They kind of just think, I want to acquire a customer in the cheapest way possible, or I want to acquire as many customers as possible with the least amount of money. No, no, no. Okay, I'm going to save you a lot of headaches, a lot of time, and especially money. So this is what you're going to do. Your first step is you need to understand the LTV of your customer, the lifetime value. How much money on average does each customer spend at your business? Now, you might be using some sort of data or revenue analytics tool like ProfitWell or Parametrics or Chart Mogul, but to keep things simple, if you don't have one of those tools, by the way, ProfitWell is free. So if you want to check them out, they kind of integrate with your payment processor. But an easy way to figure out the LTV is to calculate all the revenue you've ever made in your business and divide that by the number of customers you've had. So to make things simple, let's just say I made $100,000 in revenue in my business so far, and I've had 100 customers. If I divide that, that means my LTV per customer is $1,000 on average. The amount of Money I take from each customer in total is 1000. So some customers will spend more, some customers will spend less, but this is, on average, $1,000 per customer. Now, this could be because some customers are buying more of your stuff or coming back are if it's a subscription service or are buying upsells. This all is factored in the ltv. It's an average of how much money you make per customer. So this number is really important, your ltv. Why? Because now you know how much you make per customer. So every time you get a customer, on average, you're going to make $1,000 from them in the lifetime of that customer's relationship with you. So now you know you need to acquire this customer for less money. You have to factor in how much it costs you to get this customer. Not only in terms of, you know, maybe ad dollars, if you're running Facebook ads, but if there's somebody that's on your team that's hired to do this, like a marketing person or you're using some sort of service, you have to include that cost, too. But if you're doing it yourself, then we're going to go straight up the cost to acquire this customer. So if you spent $2,000 to have a booth at a conference and you got four customers out of that conference, it costs you $500 to get each customer. If your LTV is 1,000, that's not bad. Okay, you doubled. But if your LTV is 300, you lost money on acquiring that customer. This is why your LTV is so important to know. How much money are you going to get by acquiring this customer? So once you know your ltv, you know you have this much wiggle room on acquiring that customer. Now, I like to at least start by spending 25% of my LTV on the customer. Why? Well, because I have other expenses of my business and I want to be able to scale this as much as possible. So if my LTV is 1000, I don't want to spend more than $250 to acquire that customer. If your LTV is $400, then you don't want to spend more than$100. Obviously, the lower the CAC, the customer acquisition cost, the better. That means you are getting a tremendous amount of upside, tremendous amount of value from that customer with very little cost on your end to acquire them. So that's the next thing you need to figure out. How much does it cost you to acquire a customer? Not every channel that you try to market is going to get you the Same. So you might run Facebook ads. And let's say, for example, it costs you $10 per lead to get a lead, and you can convert those leads into customer at a 25% conversion rate. That means it costs you $40 to acquire a customer on a Facebook ad. You might sponsor a podcast and you have a unique link, and that unique link tells you how many customers you get. And this is why when it comes to something like sponsorships, it's good to experiment and see with a few episodes how well it does. So understand the CAC so that you can double or triple down on this medium, on this avenue of marketing. Now, now that I have my CAC, let's say, for example, it costs me $50 to acquire a customer. Look at your growth goals. If you want to grow and bring in a hundred new customers this month, you now know how much you have to spend to get those hundred customers. A hundred times 50 or CAC, which is $5,000. Now, if your LTV is $100,000, because 100 customers times 1,000, and if your LTV is 1,000, then your total LTV for these hundred customers is $100,000. So you don't mind dropping five grand to make 100 grand. This is how you find out how much you should spend on marketing. It's your CAC times the number of customers you actually want to bring in. Now you might be saying, how many? Well, Omar, I want to bring as many customers as possible. First of all, that's not true because you don't know if you can handle infinite amount of customers. If you have the right customer support team, if your system can handle that kind of traffic, if you have the right servers, if the right redundancy in your technology to be able to handle that in your online store. This is why it's good to have milestones. So your first month, you might say, okay, I want to bring in 100 customers, 100 times my CAC, that's $5,000. Awesome. I'm going to bring in those customers, then I'm going to up the ante and I'm going to try to go with 150. Next month I'm going to reinvest in the money I made from that marketing and all those new customers I acquired and go for 150, then go for 200. And by slow and steady, you will start to see the things you need to scale on, whether it's customer service, whether it's your servers, because you'll start to see a little bit of extra load or Slowness that you need to prep for that. You need to actually upgrade and invest money into that. But now you know how much you should be spending on marketing every month. Find out your ltv. Find out how much it costs you to acquire a customer. And then multiply the number of customers you want to bring in times your CAC cost per acquisition per customer, and you got your monthly spend.

We've all been there. You hold onto a coupon, hoping to cash it in at the store, but then you forget about it and suddenly you've got a mountain of useless expired coupons.

Do you think this one's still good? Free milk.

Oh, mate, that expired in 1993.

Dang it.

Fortunately, there are better ways to save money. Like by switching to Geico, you could save about $900 on car insurance without ever touching a coupon.

Ooh, how about this one? Half off floppy disks.

Now you should try a bit of spring cleaning.

It feels good to save big. It feels good to Geico. To wrap up today's lesson, I want to just give you a quick heads up. That method of acquiring a customer has a shelf life. So you might be running a Facebook campaign to some sort of funnel, and it costs you $50 to acquire a customer. That CAC won't last forever. It might be okay for a week, two, three weeks, maybe a month, maybe even two months, depending on the market you're in, how saturated it is. But you're going to have to change it up. Your CAC will start to rise. It's going to cost you more to acquire a customer. That's just the nature of tapping into a certain niche or market or audience. It's not endless. You're going to have to pivot and change. Change the campaign, change the offering, change the funnel. So keep calculating your CAC as it changes and keep calculating how much you should be spending on marketing based on that. And always make sure that your CAC is reasonable. I like to say 25% of your LTV. Why? Because that rise in CAC is going to happen. So even if it's 30, 35, 40%, I'm still in a comfortable, profitable space. Thanks so much for listening to the 100 MBA Show. Today's episode's not over, though. It's Free Ride Friday. Let's see who won this week's Free ride to easy course, our $500 course over at Easy Course. And the winner is. John Koch. John Koch says, hugely valuable. 5 stars. Imagine you know a knowledgeable entrepreneur. Now imagine he offers to give you advice every day on how you can do better at what you do. Sounds good, right? I think so too. Subscribe thanks John Cock for that awesome review. You are our Free Ride Friday winner. Your mission is to email me at omar00mba.net so I can hook you up with the free ride to EZ course. It's that simple guys. If you want to win a free ride, just leave us an Apple Podcast rating interview and you enter our weekly random draw we call Free Ride Friday. Listen in on Friday to see if you want. It's that easy. It's our way to say thanks for showing us love on Apple Podcasts. Before I go, I want to leave you with this Marketing is magical. I love marketing because it's a simple formula. At the end of the day, how can I get a customer at a cost that makes sense? It's like a puzzle. How can I make sure I get the right customers to buy from me and have them stay with me for as long as possible? See it as a challenge, see it as a game and you'll have a whole lot of fun with your marketing. Thanks so much for listening and I'll check you in Monday's episode. I'll see you then. Take care.

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