Starting a Business is hard
And keeping it going perhaps even harder
One if the biggest challenges for new businesses and startups is figuring out or calculating your marketing budget.
This post will explore the subject further and offers a simple method of calculating your budget.
What is your Conversion Rate
Whether you are willing products or service, determining your final Conversion rate is essential to calculating your required marketing budget to achieve the goals you want.
Your Final Conversion Rate is like different to your websites conversion rate for lead generation type sites.
For example, if you get 5 enquiries and close 1 you have a 20% conversion rate.
Where as ecommerce sites it’s all based on sales. If you get 200 visits and 10 buy from you then you have a 5% conversion rate.
Determine your Lead or Transaction value
Your next step is to work out the value per Lead or Transaction.
For ecommerce. This is usually as easy and providing average order values or average product price. But you should take it a step further and work out your profit margins on each product to get to a true Transaction Value.
For lead generation sites, look at your last 10 sales (actual closed deals). This should give you an approximate value per Sale.
Example of the average value of the last 10 deals was $2000 then use that
After getting the average deal value, multiply the number by your personal conversion rate or closure rate.
Example, of your closure rate is 20% and your average deal value is $2000 then your value per lead is $400
While this is not exact, the numbers are helpful in calculating your market budget and the return on investment.
Calculating Your Return on Investment
This step looks at your Lead value, website conversion rates and calculates what it costs you get a lead, on average.
For your industry or type of business, this can vary a whole lot.
For example, insurance companies could expect to pay $20-50 or more for just one click on Google Ads. If their sites conversion rate is 5% then the cost is $400 or greater for one website lead. Let’s say the convert internally at 50%. Then that sale costs them about $800.
If the insurance policy is worth about $2000 to them, then they have made 150% Return in this regards. (We would call this Return on Ad Spend)
Putting it all together
Knowing that a sale costs the insurance company $800 on average they could then work out their marketing budget for a month, a quarter, even an entire year.
If your cost per Sale is $50 and you need 100 sales a month, then it’s easy to calculate a budget of $5000.
These are just some basic ways to calculate your cost per lead and conversions and ultimately help you with your digital marketing budgets.
As always feel free to reach out to us and we can help you work out the best marketing strategy for your budget.