Usually, in the first call with potential clients who are interested in working with me as their online marketing consultant, I quickly ask about the financials they are able to invest in marketing.
First, because I don’t want to waste anybody’s time – not theirs, and not mine. Sometimes, expectations about what can and cannot be done online are vastly different from the reality, in particular in certain highly competitive niches.
And second, because their financial situation determines the possible strategy and tactics that can be applied to your project to attract, convert and delight clients for your offer. Many times, future clients need to see and experience a brand and its offers throughout weeks and months before they decide – meaning a business needs to have the necessary financial security to maintain the campaign over that period.
How much is a new client?
I’m not interested in your overall marketing budget – I don’t even think there should be one in performance based marketing.
WHAT I DO NEED TO KNOW is, however, how much you can afford to spend on every new customer – the allowable acquisition costs (AAC).
This is largely based on your customer lifetime value (LTV) – the amount of money each customer leaves with you, subtracting all value stream costs involved in selling the product.
If most customers stay with you for 6 months, spending EUR 30,- each month, this would mean 6 x 30 = 180 EUR in total spendings. Count on a 30% margin to reflect your value stream costs, and you get to 140 EUR of allowable costs per new client.
Don’t base your allowable costs only on the first purchase – most clients will behave in a similar way, and if most of them usually repeat-purchase throughout 6 months, this is what determines your AAC baseline.
Have a test budget ready
Although you don’t need to have a set fixed budget, have your consultant or agency help you to determine the test budget necessary to try to proof that your offer converts.
The test budget needs to cover:
- the campaign strategy
- the campaign setup
- ad spend for ad platforms
- creatives, texts, content creation
throughout the reasonable time a prospect might take to decide to purchase your offer.
Pay for experience
Every digital marketing campaign needs testing, refining, re-aligning, and executing determined modifications. Be prepared to pay for experience in the early stages before the campaign starts to bring in results (and with it, new cash flow).