How The Big Marketing Players Structure Their Marketing Budget

How The Big Marketing Players Structure Their Marketing Budget

How much should my marketing budget be? This is a question I get asked at least once a week by new clients. My response almost always catches them by surprise.

How The Big Marketing Players Structure Their Marketing Budget

The beauty of using direct response marketing is that everything is quantifiable. Unlike brand/institutional style advertising, with direct response, return on investment (ROI) is easily trackable.

The savviest direct response marketers understand that the goal of front-end marketing is to acquire maximum new customers/clients at break-even. In other words, for every dollar we invest in front-end marketing our objective is to generate a dollar back (with the front-end initial transaction) in the form of a new customer/client.

Hence, if we invest $1,000.00 in front-end marketing, our aim is to acquire $1,000.00 (in initial transactions) of new customers/clients.

Understood in this context, that means the money we spend to acquire new clients/customers is not an expense at all. But, is an investment.

A true expense in your business is anything that doesn’t bring you a return on its cost. Things like utilities, for example, are an expense. But, marketing that brings you back every dollar you’ve invested in the form of an equal amount of new clients/customers is not an expense. Again, it’s an investment. And, it should be treated as such.

So, how should this impact what you allocate towards marketing dollars in your business?

Well, let me answer that with a question:

How often should an investor fund an investment that immediately returns their money AND gives them an asset that will generate more and more profit in the future?

The answer should be obvious – as often as they can.

The same holds true for an entrepreneur using direct response marketing to grow their business.

If, for every dollar you invest in marketing you get back a dollar in the form of a new customer, it makes no sense to arbitrarily set a limit on how many of those dollars you can invest. This is why the common approach to setting a marketing budget based on your revenue is not embraced by the biggest and savviest marketers.

Your goal, when investing in front-end customer acquisition should be to invest as much as you can. Not the least. The most.

All else being equal, the marketer who invests the most amount of money in the acquisition of new clients/customers will outgrow their competitors.

Let’s look at a quick hypothetical example (assuming two marketers are breaking-even on their front-end campaigns).

Marketer A invests $3,000 a month on customer acquisition.
Marketer B invests $9,000 a month on customer acquisition.

Marketer B generates three times the number of new clients/customers. And, even though they both broke-even on the front… Marketer B now has three times the number of clients/customers in their backend marketing funnel to generate profit from.

Hence, Marketer B wins!

For YOU…. your goal should be break-even on the front-end. Then re-invest those dollars into more new clients/customers as quickly and as often as possible.

Get it?

Good!

Question: What are you using right now to track the return on investment from your front-end marketing? You can leave a comment by clicking here.

7 Comments
  • yassin
    Posted at 13:44h, 15 December Reply

    Great article todd!

    I would add that before trying to get new clients on the frontend one has to know/have two things:

    1. Whats my customer life time value? (which will justify how much to spend on acquiring new clients)

    2. Do i have a ninja backend sales process in place?

    I always enjoy reading your posts, keep them coming.

  • Todd Brown
    Posted at 14:16h, 15 December Reply

    Hey Yassin – thanks for compliments.

    Keep in mind… when launching a new venture, an entrepreneur will not know the lifetime customer value. Nor will they have a backend.

    The savviest marketers will begin working on a backend after they have proven the front-end and have created a critical mass of customers.

    • Alan Tutt
      Posted at 17:31h, 28 March Reply

      Todd, you’ve surprised me with this comment. I thought the top marketers would have a backend in place before launching the frontend.

      While I haven’t always done this myself, I’ve usually tried to have a general idea of what types of follow-up offers I can make to new customers within a month of their frontend purchase.

      As to the initial post, I completely agree that marketing is an investment and you should do as much as you can do while being profitable.

  • wilson
    Posted at 17:17h, 28 March Reply

    Hi Todd, thanks for your post, i really enjoy it

    I have a question for you…

    To begin a funnel is not necessary to have the front end and the backend products in place and working?

    I have 2 ways to look this:

    If i have not a backend products my front-end customers could boring it and leave to look another marketer that has everything in place (back-ends products).

    If i have a backend products that consume me a lot of time creating it and maybe that niche finish to wont be profitable so i can jump quick to another…

    What approach do you prefer?..

  • James
    Posted at 17:51h, 28 March Reply

    So what happens when you don’t break even and lose money? Is that a bad thing? Isn’t there a loss sometimes in acquiring new customers? And isn’t a loss ok as you have started to build a list? I’m very curious about this because everyone says something different about investing in marketing.

  • Dan Ferrari
    Posted at 15:59h, 29 March Reply

    Great post and something that seems to be overlooked by anyone who doesn’t perform diligent analysis of their spend/revenue.

    I just had this conversation yesterday in fact – very few business owners have ever even heard the terms “lifetime value” and “cost of customer acquisition.”

    The solution for those of us who work in a client-facing capacity and deal with leads who have no background in direct response marketing and therefore cannot grasp this concept or are very uncomfortable with the idea of having “no budget” is to frame it is as a “testing or implementation budget” and then a “reinvestment of a portion of the profits” to maintain/improve operations.

    This way, there’s no additional expense in their eyes beyond the testing/implementation budget, which if you are doing a good job, they’ll recoup in short order and then just have an “automatic money machine.”

    This changes nothing that you’ve said here Scott, just a way for client-facing folks to sell the idea to the biz owners who might not like the idea of not having a budget.

    Cheers!

    Dan

  • DrGeorge
    Posted at 01:43h, 30 March Reply

    Great Post. I’ve always appreciated the importance of marketing, yet have always thought of it as part of my “overhead expense”. Not any more…it is now considered – at least in my mind – as an “investment”. Thanks!

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