How to Calculate your Marketing Budget [Calculator]
We get it. Trying to work out your marketing budget is difficult. If you have historic data on how much it would typically cost to acquire a customer (CAC) it makes life a lot easier.
However, in the startup world this data often isn’t available. Sometimes the company is so new it hasn’t really been spending on growth yet. Or sometimes, the data is inaccurate due to a changing product, audience or lack of spend in marketing that gives statistically significant CAC figures.
Some numbers that are more readily available are your targets and promises to investors. These include customer acquisition targets, revenue targets, and lifetime value estimations.
So, we’ve conveniently made a calculator using exactly those exact inputs (you’re welcome!) to help you figure out how much you should be budgeting for your marketing spend.
Click Here to Explore the Growth Division Marketing Budget Calculator or read on to learn more about our handy tool.
How to use our calculator
Below I’ve explained the following outputs you will need to know and understand in order to get the most from our calculator.
How to calculate Monthly Customer Revenue?
Monthly customer revenue is the amount of revenue you are looking to generate per month per customer. In order to calculate this figure off your targets you divide your revenue target by your customer target then divide by the number of timeframe for hitting those targets in months.
(Revenue Target/Customer Target)/Timeframe
EG: if my revenue target in 12 months is £100,000 and my customer target in 12 months is 10, that’s an average revenue per customer or £10,000. So, across 12 months we will be getting £833.33 per customer per month on average.
How to calculate Customer Lifetime Value (LTV)?
First off, what is Customer Lifetime Value? Well, it’s a unit measurement of the total net profit a customer will give you, on average, over the lifetime of their time spent with your business. So, this is a pretty important metric to know.
If you know this metric you’re going to be in a good position to understand how much you can afford to spend to acquire a new customer and still hit your profitability targets. This is calculated like this:
Monthly Customer Revenue x Customer Lifetime
Where Customer Lifetime = the average number of months a customer will stay with your business.
EG: if my Monthly Customer Revenue is £833.33, as calculated above, and on average a customer stays with my business for 10 months my LTV would be £8,333.30.
How to calculate Customer Acquisition Cost (CAC)?
CAC is the average amount it takes you to acquire one new customer. So pretty simply, it is calculated as such:
Total Spend on Marketing / Number of Customers Acquired
Total Spend on Marketing = (Sales Costs + Marketing Costs)
You can also calculate your target CAC based on your LTV target and LTV:CAC ratio target, like this:
Lifetime Value / LTV:CAC Ratio
Where LTV:CAC Ratio = the ratio between how much it costs you to acquire one customer (CAC) vs how much revenue you get from the customer across their lifetime (LTV) with you. Generally anything above 3 is good.
EG: If your LTV is £8,333.30, as calculated above, and you’re targeting a x5 LTV compared to your CAC, you’d be willing to spend £1,666.66 to acquire one new customer (your CAC).
How to calculate CAC Budget?
Now you have your CAC figure you can figure out how much you need to be spending to hit your targets! To to do this use this formula:
Customer Target x CAC
EG: If your target number of customers is 10 and your CAC is £1,666.66, then your CAC budget is £16,666.60.
How to calculate Loaded Marketing Budget?
On top of your spend to acquire customers you need to consider the other costs incurred in your growth, this includes your growth team’s salaries. This can vary, but as a general rule of thumb we say you generally double your CAC Budget to get your loaded marketing budget, like this:
CAC Budget x 2
EG: If your CAC Budget is £16,666.60, then you add your team member’s salaries who are involved in sales and marketing using the 2x parameter you’ll get £33,321.20.
How to calculate Monthly Marketing Spend?
This one’s pretty simple, it’s the amount of budget you need to allocate to achieve your targets in the coming period of time. It’s calculated using this formula:
Loaded Marketing Budget / Timeframe
EG: If your loaded marketing budget is £33,321.20 and you want to achieve that in the next 12 months then your monthly marketing spend needs to be £2,776.76.
Ok… now how do I best invest my marketing budget?
At Growth Division we use the Bullseye Framework to determine where you should allocate your marketing spend and which growth channels you should invest in. You can read more about the Bullseye Framework here.
Or if you want help on hitting your growth targets and spending that marketing budget wisely, then book a call with one of our Growth Strategists.
Click Here to Explore the Growth Division Marketing Budget Calculator
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