How to work out how much you should spend on Internet Marketing
I confess before we go any further that this blog will not leave you with an exact figure as to how much you should be spending on your Internet Marketing such as on SEO, PPC, Your website, Facebook Ads, Youtube ads and so on. What will do is educate you to a level where you should be able to determine how much you should be spending. I have broken this blog into short snappy subjects so you can jump straight to the part which interests you the most, but I do encourage that you try to read the whole thing.
You may just want to do something like commit 10% of company turnover on acquiring new business but you be as smart as possible with this 10%.
The Fundamentals – Book Keeping
Before we go any further I must stress the importance of keeping regularly updated company accounts. If you can’t tell me exactly how much money you made with last week within a few clicks, what you took, what went out, your profit margin – You get the idea. You have to get this sorted immediately. Otherwise to accurately monitor what you spend will become very difficult. Unless you are Stephen Hawking or the character Ben Affleck played in The Accountant who could do it in their head. You need to be able to analyse the data. Fortunately, there are some great cloud based software out there which is super easy for people who are expert book keepers. I use Xero and thoroughly recommend it. If you are a bit bigger you may want to consider a book keeper or an accounts department.
If you are business which likes to not be entirely honest with the taxman you are shooting yourself in the foot when it comes to monitoring your internet marketing as you accurately monitor the performance you will need to accurately monitor each and every sale.
Monitoring Your Existing Marketing
This sound so “Blee-ming” obvious that I should even have to tell to this but the vast majority of businesses out there are not even doing this. They are spending a fortune with no idea how well it’s performing for them. I mean how do you know what it working and what isn’t? How do you know what to spend more on and what to spend less on or stop altogether? You may find some free cash here alone to be invested in new Internet Marketing strategies such as search engine optimisation and pay per click.
I strongly recommend putting a system in place that can do this and the numbers can quickly be associated with the company accounts, when you received the sale and how much it was for and so on. Again, there are many Customer Relationship Management (CRM) systems that can do this for you but you don’t have to use a CRM. When I first started in business I simply created separate sales accounts in my accounting package for each form on marketing I did. I created many accounts which gave me very accurate data on what was working and what wasn’t. Things like ‘returning customer’, ‘referral’, ‘Google Search’, ‘Facebook’, ‘Direct Mail’ each got their own accounts plus loads more. With every sale I religiously asked the customer where they heard about us, at my paper copy receipts which I often handed out for customers had a line at the bottom which asked the customer where they heard about us. I would give these to the girlfriend and she could copy them into the accounting system – how’s that for organisation?
Analsyse the data
Now we have a system that records your money and your marketing success, we can do all sorts of things to work out what you should be spending on acquiring new customers through internet marketing.
Something like Excel can be used for the all of the following.
Your average customer value
This is a great place to start as it shows you what your lifetime of your customer is, obviously the longer you are in business the more this will go up. You may be in a business where you will only ever receive a single purchase from a customer, typically large or luxury items. Or you have a business that has regular transactions with customers. Like our business, we provide websites completely designed and maintained for £80 per month and SEO services from only £99 per month.
I know a guy who actually sells bicycles online at a loss because he knows that he will make his sales on the back end. He sells at some on the lowest prices online as a loss leader or at cost to attract the buyers in. He will then make sales on all the nice little extras like kick stands, comfy seats and all the other bits and bobs that go with bikes. He can do this confidently because he remained on top of his numbers.
You work out your average customer value (AVC) by:
Taking your total company turnover (T) and divide by the number of customers (C) that you have. This equation is great as it will also take into account all the upselling, down selling and repeat custom.
T / C = AVC
You may find that for businesses with a larger back end sales process that you can afford to make little, nothing or even a loss on the first transaction knowing that you will be renumbered in the long term.
Work out your average Invoice value (AIV)
This is great to know as when you combine this with your marketing success you can even use this to identify where your larger more profitable purchases are coming from. To work out your average Invoice value (AIV) you will need to take your total company turnover (T) and divide it by your total number of individual invoices or sales (S)
T / S = AIV
Work out your profit margin (PM)
You can do this on an individual basis by taking your total turnover (T), deducting all your expenses (E) which will include your operating expenses and your direct expenses and then dividing by your total number of sales (S). This is very useful to work on average how much you will make when you make a do make a sale.
(T-E) / S = PM
How Scalable Is Your Business?
If you have a product of service that is easy is distribute, a little extra cost. Anything online or digital is usually great for this. Things like membership sites, E-books, Audio books, Affiliate marketing can be delivered to an unlimited amount of people at little or no extra costs you can afford to spend more on your acquiring your customer. Alternatively things like physical products where you will know the fixed costs of the sale. Services like PPC click, Google Adwords, Facebook and Youtube Ads are great for this as these enable you to track your conversion rates and cost per sale accurately. Usually these would require some upfront investment but when you have a campaign that is working it can be used almost like a bank – The more money you in the more money you get back.
With a strategy, you like this you may be prepared to spend 80% of your profit margin delivering new sales. I know this seems high but it simply the profit at the end which is what would concern you the most. Profit is profit.
If your business is limited by what it can do and will be difficult to scale, these are usually services rather than physical products where time is the limiting resource you not want to be as aggressive as the above. For larger ticket items with a larger profit margin you could still afford to spend a fair amount. For smaller value transactions that are also of a scarce resource. Something like a plumber for example will want to spend less to get your profit margins acceptable. Local SEO would be great as a strategy for the type of business as you won’t be constantly paying for new traffic – sure it will take a bit of money to get you and keep you on the first page on Google but after that every visitor to your website is free.
With a strategy like this you may only want to spend 25% of your profit margin or less as more effort will be required to deliver the new sales. It really does depend on the business and the numbers.
Monitoring your advertising expenses
When you commit to a strategy there are several ways you can monitor the success of the marketing. This is more the world of landing pages, web page hits, conversion rates, cost per acquisition, keyword research, search volumes and analytics. This is whole new subject itself – worthy of a whole new blog coming soon…
We are not accountants I promise!
Now I just want to ad that this blog would probably be more likely to appear on a accountants website as a guide to marketing but getting a basic knowledge of the above really does give you a distinct advantage over your competition.
When you work with Creative Edge Design these are the things we like to look at to be able to best advise you on which way to go. Personally, we would likely also advise having your website optimised for the search engines (SEO) as I believe it is a pillar in which others can be built off and we are experts at it so maybe we are a little biased.
If you want to book your completely free no obligation Internet Marketing assessment worth £249 please do contact us and we will get that arranged for you right away.
Until next time
Tom and Donny.