#032: Marketing 101: The 3 Metrics to Figure Out Your Marketing Budget

Curious about how much you should be spending on marketing and sales? Here’s some easy math for you.

You need to look at THREE primary numbers:

• Your marketing spend (cost of acquiring a customer, specifically)
• The average cart value (first purchase)
• The lifetime value (average spend with you over time)

What you want is for your cost of acquiring a customer (CAC) to be at or below the CART VALUE – that’s what we in marketing call the “front-end”.

So let’s say someone buys $50 from you in their first purchase, on average. Your CAC should be this or less. (You can go higher, but you need to know your LTV and be deliberate about this.) Multiply that by as many customers as you need and voila – that’s what you should be spending on marketing.

But let’s say you serve higher-ticket clients. Or maybe you get business orders. Well, the cost to acquire THAT business might be as high as 4 or 5 figures if that’s their initial order. This is how businesses justify having sales people and doing direct outreach in the form of direct mail, events, samples, and so forth — it’s just that valuable to get this kind of business.

Now, you might be saying, “But Lynn! If we spend up to break-even on the first purchase, how the heck are we going to make money?!”

I’ll tell you how:

You KEEP marketing to your customers and get them to buy and buy again. This happens in the form of direct mail, email, retargeting ads, direct outrach, special offers, etc. And hopefully, you ascend them to spending more and more with you.

This is what we in marketing call the “back-end”.

You should have some part of your marketing budget dedicated to “remarketing” / “nurturing” these customers to get them to keep buying. The total amount over time is their lifetime customer value, or their LTV.

But in order to do any of this well, you have to be tracking. And THIS is how people justify CRM systems (HubSpot, Klaviyo, etc) and shopping systems (WooCommerce, Shopify, etc).