October 26, 2022
Marketing Budget Balancing Act: Spend vs. ROI

Balancing act – Marketing spend vs return on investment

Deciding on a marketing budget can seem complicated, but think about it this way: if you’re running a business, the whole point is to make a profit. Your marketing should be a money-making machine — you get more money out than you put in. If it isn’t, you’re running a non-profit organization! (I know, it can feel like that sometimes…)

Marketing your business is unavoidable if you want to attract new clients, but how do you know if your marketing dollars are well spent? There’s not much point in paying for marketing efforts that bring you little to no return on your investment.

But how can you tell if what you’re getting is worth the cost?

By using a little bit of math.

How profitable are your clients?

First, you need to know how much each client is worth to you in their first month. (I’ll calculate this on a per-month basis because most dog trainers do their marketing efforts monthly.)

To calculate your average customer value per month:

Step 1: Take your total income per month and subtract your monthly expenses. That leaves you with your monthly profit.

Step 2: Divide your monthly profit by the number of clients you have per month.

This will give you your profit value per client — how much each client is worth to you in their first month. 

Let’s say you run 5 classes in each 6-week block at a rate of $150 per class.

You take a maximum of 6 students per class but your classes don’t always fill.

With an average number of 5 students per class, running 5 classes each week, your total number of students in classes per month is 25 students per month.

Your income per student each week is $150/6 = $25 per week. So if each class brings in 5 students at $25 = $125 per week

Therefore your total income from classes per week would be $125 x 5 = $625 per week

And your total class income for a month would be $625 x 4.3 = $2687.5 per month*

*Remember that a month = 4.3 weeks. (52 weeks in a year / 12 months = 4.3 weeks per month)

Let’s say you also do 20 hours of 1-hour private training sessions per week.

You sell these as blocks of 4 sessions to be taken over one calendar month.

With an average number of 20 private clients per month at a rate of $100, your total income for private sessions per week would be 20 x $100 = $2000 per week

And your total income for private sessions per month would be  $2000 x 4.3 = $8,600 per month  **Remember that a month = 4.3 weeks. (52/12 = 4.3)

After calculating both classes and private sessions…

Your total income would be $8600 + $2687.5 = $11,287.5 per month

If your expenses are $5,287.50 per month, profit after expenses would be $11,287.5 – $5,287.5 = $6,000 per month

Between classes and privates, your total number of clients per month is 45 (20 + 25).

Therefore, your profit per client is $6,000/45 = $133.3 per client

To keep the math easy, let’s round that up to $135 per client. Once you have that number you can work out…

Your absolute maximum marketing budget

Firstly, note your ideal number of clients/students per month. Then look at how many you actually have signed up. For example, if you’d like to have 15 clients for the month of June, but you only have 10, you want to bring in an extra 5 clients for that month.

Your maximum marketing spend to bring in those extras would be the number of clients you want, multiplied by the expected monthly value of each one.  

So, your maximum marketing budget would be 5 x $135 = $675 per month.  

This gives $0 profit from those clients in the first month they’re with you, but you’re not going backwards either. 

Note: this isn’t a target! Think of it as the top limit of what you can afford to invest in your marketing efforts for that month — a marketing budget. Gaining those 5 extra clients without spending that much is even better!

Spend your marketing budget wisely

To know which marketing efforts are paying off — getting you clients AND adding to your profits — you need to know one thing:

Your customer acquisition cost (CAC) per marketing tactic, which is how much you have to spend on any given marketing tactic, or channel, to gain one client. 

For example, training your dog in the park and gaining clients face-to-face would be one channel.  Placing flyers and business cards in the local pet store might be another. And paying for ads on Facebook would be yet another. Each channel would have different costs associated with it.

Training in the park might have a CAC of $0. Fantastic! However, the other options might have a CAC that’s higher than your client value — Oops.

To work out what pays and what doesn’t, you need to divide your dollars spent by the number of clients gained per channel.

Let’s look at some examples:

We’ll compare three marketing tactics: a Facebook ad, attending a live event, and networking with vets and pet stores. Remember that each client is worth $135 in their first month with you.

  1. You run a Facebook ad and spend $30. It brings in 3 new clients. CAC = $10 per client.
  2. You have a display at a live event but it costs you $300 to attend. You get 2 new clients. CAC = $150 per client.
  3. You network in your local area and spend $50 on business cards/flyers. It brings you 10 new clients. CAC = $5 per client.

If you spend in lump sums for things like free puppy packs that will be used for multiple months, take the cost of producing them and divide by how many clients you got from them before you had to create more.

What to do with the numbers

Once you’ve worked out how much each channel is costing you per client, and how much each client is worth, you can make some informed decisions about which channels to continue using and which to ditch.  

In the examples above, the most effective tactic was the third option — networking. You should definitely repeat that one! The Facebook ad was cost effective, too, so that can stay. The live event was a bomb — it cost you more money than it brought in. Remember your max budget is $135 per client!

Knowledge is power

If you know how many clients you need to attract per month, you can adjust your spending accordingly.  There’s no point in spending more on marketing than you need.

Understanding your business numbers like this might seem tedious or difficult but it puts you in control of your marketing efforts.

By using math, not guesswork, you can be effective, efficient, and profitable. And who doesn’t want that?


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