Don't Spend More Than 1/3 of Your Income on Winning New Business

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I always hear people talking about budgets left, right and centre. "We have got X to spend on marketing this year" is certainly a recurring statement. What people don't consider though is:

  1. Will you actually get any measurable return on that "marketing spend"?

  2. Will it be enough to grow your business sustainably in the long term, say 3 or 5 years down the line?

I am a great believer that you should never start your "budget" calculations with the question, "How much should I spend?" but with, "How much will I gain." Let's see how you can start winning new business in a more sustainable way.

In order to grow your business successfully, you need to define how much new business you want, over what time span you want it and who they want it from.

Then calculate how much lifetime value these customers will bring in. If you are not sure why or how you should calculate your customers' lifetime value, have a look at this post.

Once you have done that, you need to focus your mind on not spending any more than 1/3 of that total lifetime value on winning that new business.

The interesting thing about that is that if you could win that new business for 1/3 of the money, you'd keep doing it. If you get a 3 times return, you know that your marketing strategy is working.

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About the author
David Finch

Managing director at Purple Frog, business income generator and keen cyclist

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