AEC leaders are often skeptical about allocating budgets to professional marketing programs because it’s often difficult to correlate the return on investment with the dollars spent.
In fact, many companies feel so unsure that they tend to stick with the old methods of customer acquisition that have worked, for better or worse, in the past. The danger in doing nothing to improve of course, is that if your competition are embracing new ways of approaching customer acquisition, you’ll be blindsided and one day find yourself a long way behind on this important front.
The cost of ‘catching up’ will then be significantly higher than the cost of putting a reasonable program and measurable budget in place, year-on-year, to ensure you keep pace in the first place.
So what is a reasonable amount to spend?
The answer differs for each company, but the formula used should be based on the customer lifetime value, along with the company’s annual revenue goals.
By using key performance indicators (KPI’s) you can actually calculate how much you should spend on marketing to make your revenue goals a reality.
The first KPI to consider is your Customer Acquisition Cost. As buyers are engaged with both sales and marketing during a sale, it’s critical to align the sales and marketing functions so one is strategically supporting the other. It therefore makes sense to group the costs of those two functions together for the purposes of understanding the true cost of acquiring a customer. Your customer acquisition cost can be calculated with this simple equation:
The next KPI to consider is the Customer Lifetime Value adjusted with your gross margin, and the attrition rate in the business. As follows:
Once you know your Customer Acquisition Cost and your Lifetime Customer Value, you can compare the two figures to get a better understanding of the return on your sales and marketing investment. This will allow you to create a growth model that can systematically drive sales.
Contact us today and we’ll run your numbers through our financial modeller.