New customers are the lifeblood of a growing business, but some small businesses treat their investment in marketing and advertising as a discretionary expense that can be turned on and off depending on how well they’re doing at the time. But that’s not the growth-focused way to look at it.
The right way to view your advertising investment is as the fuel for your business success. When your advertising doesn’t get the consistent funding it needs, the result is inevitable: slow growth or stagnation in good times and loss of both brand value and revenue when times are tough.
With Pinnacle&Co., you’ll get the growth you want, because we have the Formula For Success.
Our customer acquisition super-power
Knowing the right thing to say is to attract new customers is one of our super-powers. A smaller budget with a compelling message will outperform a much bigger budget with a bland generic message every time. We will investigate the market for you to see how much your competition is spending, where they’re spending it, and what they’re saying so we can devise a super-effective strategy to beat them.
So how do you know what you should be spending?
Every business needs to grow to survive – even if it’s just to keep pace with rising costs. Calculating the right growth budget for your business starts with a simple formula:
Desired revenue growth ÷ average customer value = number of customers you need to acquire
Calculating the Customer Acquisition Cost (CAC)
Once we have the number of customers we need to attract the critical number we need to work out next is how much it costs to acquire each new customer.
There are several factors that influence that amount, but we can start by looking back at your historical CAC:
Number of new customers acquired (in a set time, say 1 year) ÷ total amount spent on advertising in that time = Average CAC
That gives you a realistic benchmark to compare with future results. Usually we can significantly reduce a new client’s Average CAC with insightful strategy and clever use of media. We will present your target customers with the right message in the right place at the right time – so the impact of every dollar spent is maximised.
Obviously, it’s worth spending more to acquire and retain potential repeat customers than one-offs, which is why we’re so passionate about building long-term customer loyalty and referrals.
Other factors that influence your CAC
The long-term value of a customer to your business
Clearly a customer who makes just one transaction is less valuable to you than someone who returns to buy regularly. For example, if you have a joinery business, builders who might need 20 kitchens a year have a much greater LTV than individual home owners who only want one kitchen every 15 years.
Average transaction value x estimated number of transactions over your relationship = LTV
Knowing the LTV of your customers will help us target your advertising at your most valuable customers.
Awareness of your business
If you’re a new business or opening up a new territory, you haven’t invested in advertising before or you’ve been taking a break from advertising, your brand awareness is likely to be low. If that’s the case a higher investment will be required to reach and convert enough people to achieve the success you’re aiming for.
Experience tells us that brands with low awareness need to invest in two complementary strands of advertising at the same time:
- Brand advertising that tells their customers why they should consider you, and puts you in the picture.
- Performance advertising tells them why they should choose you, rather than the other people they’re considering, and makes the phone ring.
The size of your audience
Big brands like supermarkets and banks spend mega-dollars on TV and radio alongside more direct channels like Google advertising and social media, because they have massive nationwide markets. But when you know exactly who your most valuable customers are, you can be much smarter than that. That’s why our clients have such success with the finely targeted advertising channels we specialise in. We hone in on your most valuable customers and direct all our efforts at them.
Measuring success
If you’ve read our other blogs or emails you’ll know we love measuring results. It’s because we’re devoted to maximising the impact of every dollar you spend, and we never stop trying to improve our effectiveness. Some of the metrics we consider are:
- Customer acquisition cost – we want it to reduce over time so your bottom line grows.
- Return on ad spend – we want each cent to produce more.
- Brand awareness – the more people who know your brand and what you stand for the easier it is to convert them into customers.
- Website traffic – more people using your website means awareness is improving and the more chance we have to convert them into customers.
- Conversion rates – we are continuously looking for ways to optimise conversion rates.
If you’ve read our other blogs or emails you’ll know we love measuring results. It’s because we’re devoted to maximising the impact of every dollar you spend, and we never stop trying to improve our effectiveness. Some of the metrics we consider are:
How to calculate a marketing and advertising budget in three steps
We start with your growth goals and work backwards to determine the recommended budget.
Step 1 – Define the growth objective
Example:
12-month revenue goal: $4,000,00
Current revenue: $3,500,00
Revenue growth needed: $500,000
Step 2 – Determine the customers needed
Average revenue per customer: $2500
New customers needed: 200
Step 3 – Estimate acquisition cost
Estimated cost to acquire each customer: $150
Required 12-month advertising investment: 200 × $150 = $30,000
Why this method works
- Clear and measurable
- Tied directly to growth strategy
In summary – your budget should match your growth ambition
The most successful companies we work with at Pinnacle&Co. treat marketing spend as a strategic investment tied to measurable growth outcomes, not simply a discretionary expense. An effective advertising budget is determined by a range of factors that we can quantify. That will give you an accurate picture of the spending that’s necessary for you to reach your growth goals. If you have growth ambitions and want a partner who can help you succeed, we’re here to help.
Make every cent count! Let’s get together now.
Success starts with a conversation about your goals, so let’s have a coffee.