It’s amazing how many companies cannot tell you what their ideal customer is worth to them? This is either because they’re not really sure who their ideal customer is, or, they have not done the analysis of what those customers spend with them on average over a period of time. It’s easy to spend money on advertising, but when do you know whether your campaign is effective or not? You obviously have to do the maths.
So firstly, make sure you know who your ideal customer is. Look at say your top 20 customers that you invoice. Analyse what they spend on average with you per month. Look at how long they’ve been spending that with you, or, get a feel for the time period customers typically stay with you. Then you’re in a position to calculate the “Life Time Value (LTV)” of your ideal customer and what they are worth to you. The analysis might take some time, but the LTV calculation is simple, you take the monthly average spend and multiply it by the average duration a customer spends that with you.
That’s the one side of the equation. Now you need to look at the “Cost of Acquisition (CAC)” for an ideal customer. After running some trial campaigns with limited budget on Facebook and/or Google, you’ll get a good idea of what a typical lead will cost for your industry or niche. You then need to understand how many leads it takes to convert a single lead into a paying customer. From your experience you would know roughly how many leads convert, or, how many proposals you have to send out to get someone to purchase. If you know that, say 1 out of every 10 turns into a customer, your CAC is that number (i.e. 10 in this example) multiplied by the cost per lead.
Your marketing campaign is optimised when your LTV:CAC ratio climbs and reaches a point where it starts plateauing out after you have tweaked and optimised all the elements of your advertising campaign. The main elements you should be looking at are the copy (headlines and contents), the graphic design (photos, images, colours) and the Facebook / Google audience you are targeting.
Feel free to contact us if you have questions around this.