That’s one of the top questions I get as a marketer and one that, embarrassingly for years, I didn’t have a good answer for.
Most of the times the marketing budget for a client was either a predetermined amount randomly budgeted or it was a percentage of the total budget that got allocated to marketing.
But neither of these scenarios justified the marketing expense. Was it enough? Too much? Well, seldom these budgets are too much, most of all cases it was not enough to get traction and see significant results.
If only marketers had a formula that allowed us to justify our expenses.
Wait. There is one, or several. But one in particular that can really help you figure out how much you should be spending in marketing.
Unless you know the Lifetime Value (LTV) of your customer, donor, member, you cannot determine with any certainty how much you should be spending on marketing.
There are three different ways to calculate a lifetime value, and most large corporations will use an average of these three models to come up with theirs.
But let’s keep things simple. Your customer’s LTV should be:
Total income per year X Total life span = Lifetime Value
Let’s look at Starbucks USA’s lifetime value using this formula.
The average Starbucks customer spends $24.30 per week, spending a total of $1,263.60 per year. Their average customer’s lifespan with the company is 20 years.
Using our formula: $1,263.60 x 20 = $25,272
Even if you are not looking at sales as your source of income, you should have a clear understanding of the impact members, donors or volunteers have in your organization and decide on an acquisition number that’s within your margins.
Is $50 too much to spend to acquire one customer? Well, if your LTV is $5,000 or even $500 then no. But If you only have one product and it costs $45, then yes.
Large nonprofits know that their appeal campaigns to new audiences will most often lose money, meaning the donations received from the campaign will not pay for the costs of the campaign.
But they also know that those who gave a small gift for the first time, over time, their average gift will increase, and they will stay engaged for years.
Next time you need to decide on how much you should spend on acquiring new people to your list, knowing your LTV can be a difference between success or failure.
If you want to know more how to use LTV in your campaign, sign up for my FREE training coming up here.