How to Plan Your Online Marketing Budget
Want to know one of the biggest problems entrepreneurs face when they start using online marketing? Budgeting.
They have no idea what they can afford to pay per click, per impression, or per conversion. As a result, they start marketing online without a plan, which is almost guaranteed to fail.
For the most part, online marketing is performance-based. This means you’re able to determine very quickly whether your advertising will generate a return on investment or if it’s just a complete money suck.
I cover this concept extensively in LeadCraft because if your business and online marketing aren’t set up to generate profit – you’re dead in the water.
The core numbers you need to know.
In the online marketing world, these are the main numbers you need to understand and track:
- Cost Per Click (CPC) – Your cost when someone “clicks” on your ad.
- Cost Per Lead (CPL) – The cost for you to acquire a new lead (a prospect who gave you their email address).
- Cost Per Acquisition (CPA) – The cost for you to acquire a new customer (a prospect purchases something; now they have stepped across the line and become a customer).
- Customer Lifetime Value (CLV) – How much you typically make from a customer over their lifetime.
Know your numbers!
With a basic understanding of these simple numbers, you have the power to generate profit through online marketing.
If you’re currently using online advertising and don’t understand these numbers, become familiar with them before you lose your shirt.
If you’re starting out, the good news is you can actually work backward to understand exactly how much you can pay for a new customer. We refer to this as your “magic number” (cost per acquisition), and it’s crucial you have this in mind before you start advertising.
Obviously, it’s going to take some time to hit that magic number – testing and tweaking your ads is the name of the game – but you can start out with a series of educated guesses in order to determine very quickly what it will take for you to be profitable.
Let’s say you are trying to sell a product that costs $1,000 and you promote a guide to get people to sign up for your email list.
Your clicks cost $0.50 (CPC) and, on average, 1 in 3 opt in for the guide, so your cost per lead (CPL) is $1.50.
On average 50% of those leads also opt in for your webinar, which means your cost per qualified lead (or your Fast Lane lead) is $3.00.
Of those people who signed up for the webinar, you can estimate conservatively that 2% will purchase (our standard is around 8.5% at INFINITUS). That would mean that for every 100 people that show up to the webinar, 2 people would purchase.
In this case, for every $300 spent, you would generate $2,000, meaning that your CPA (cost per acquisition, or new customer) is $150 per a $1,000 sale.
Obviously, that would be great!
Now that you’ve seen an example, let’s look closely at a few elements.
Customer Lifetime Value (CLV)
Something we didn’t consider in the example above is the value of your customer over a period of time, such as 30 days, 90 days, or even a year. The CLV is the amount of total revenue that, on average, you will make per customer.
If you know the CLV, you have a better idea of how much money you can spend to acquire a customer. This becomes handy if you have a value ladder that’s dependent on selling something at a lower price at the beginning of your marketing funnel.
In that case, you may decide you can deal with a lower upfront profit for a longer term gain simply because you want to grow your customer base.
We’ll look at this more in a minute.
Calculating your “Magic Number”
In order to understand and properly put together your “magic number,” you need to understand your gross profit (before factoring in advertising costs).
Let’s say for example:
– $1,000 product
– $200 in variable costs
= $800 in profit
At that point, you can decide what your advertising budget will be. Let’s work with $400 to sell a product whose profit is $800.This means your profit after advertising would be $400 from a $1,000 product (remember; it costs $200 to produce it).
Working backwards with this in mind, you can now set your numbers inside your funnel to match this number.
Let’s look at a another scenario to illustrate this (selling via webinar):
– $20 in ad spend
– 5% conversion rate on webinar
For ever 100 people:
– $2,000 in ad spend
– 5 copies sold ($1,000 each)
= $5,000 – $2,000
Net Profit = $3,000
In this scenario, your CPA (cost per acquisition or new customer) would be $400, as per the target.
Now you know that based on your conversion rates, you can’t spend any more than $20 for someone to show-up to your webinar.
Multiple factors to weigh
There are a lot of factors to consider here:
- Landing page conversion rate
- Your traffic
- Your email campaigns
- Your offer
- Your webinar
The point is, while your leads via Facebook may be more expensive, assuming you have a great funnel (like the SSF Marketing Funnel), it wouldn’t matter as you’re getting someone to show up for less than your target cost.
So how does this fit into your full campaign?
Before you get started in any campaign, you need to know these numbers. They give you a realistic understanding of what you can afford to pay.
Without them, your campaign will fail.
HOWEVER – and this is important – don’t expect to get your target numbers overnight. That’s not typical.
This is where your lifetime value and your value ladder come in. Sometimes you won’t be able to hit your CPA. In that case, you need to remember something.
Every lead you generate is an asset, and you can continue to give offers to those leads over and over again.
On average, you can expect to make $2-$5 per email address per month once you implement an effective method of online advertising and email marketing.
This means that from a long-term perspective, you’ll typically end up ahead.
Putting this together
In short, without numbers, your marketing funnel is just a fancy piece of vaporware that will never generate the return you want.
Further, it’s important that you have a value ladder and understand your customer’s lifetime value. Regardless of whether you’re starting out or simply trying to make your marketing funnel work…
Numbers don’t lie.