How to Decide A Marketing Budget
Getting new customers is super important for any business. But how much should you spend to attract them? Spend too much, and you might not make enough profit. Spend too little, and you might not grow. Let’s break it down into simple steps…
Step 1: Know What a Customer is Worth (CLV)
Think of a customer as a piggy bank. Over time, they spend money with you. The total money they spend while being your customer is called their Customer Lifetime Value (CLV).
How to Calculate CLV:
How much do they spend each time?
How often do they come back?
How many years do they stick with your business?
→ Multiply these numbers together to get their total value.
Step 2: Keep Some for Profit
You don’t get to keep all the money customers spend. Some of it goes to buying products, paying rent, and other costs. What’s left is profit. This is why we keep the cost of getting a new customer (CAC) lower than their total value (CLV).
A Good Rule:
Spend about 1/3 of a customer’s lifetime value to get them.
Let’s See Some Real-Life Examples!
Here are some examples of businesses and how they can figure out what they should spend to get customers.
1. Beauty Salon
CLV Calculation:
Average spend per visit: ÂŁ50
Visits per year: 12 (once a month)
Loyal for: 3 years
CLV = ÂŁ50 Ă— 12 Ă— 3 = ÂŁ1,800
CAC Calculation:
If they want to spend 1/3 of the CLV to get a customer:
CAC = ÂŁ1,800 Ă· 3 = ÂŁ600
This means they can afford to spend ÂŁ600 to get a new customer.
2. Cosmetic Surgery
CLV Calculation:
Average spend per procedure: ÂŁ3,000
Repeat procedures over lifetime: 2
CLV = ÂŁ3,000 Ă— 2 = ÂŁ6,000
CAC Calculation:
If they aim to spend 1/3 of the CLV:
CAC = ÂŁ6,000 Ă· 3 = ÂŁ2,000
They can spend up to ÂŁ2,000 to get a new client.
3. Doggy Daycare
CLV Calculation:
Weekly cost per dog: ÂŁ30
Weeks per year: 50 (almost every week)
Customer stays for: 2 years
CLV = ÂŁ30 Ă— 50 Ă— 2 = ÂŁ3,000
CAC Calculation:
If they spend 1/3 of the CLV:
CAC = ÂŁ3,000 Ă· 3 = ÂŁ1,000
This means ÂŁ1,000 is the maximum they can spend to acquire a dog owner.
4. Yoga Studio
CLV Calculation:
Monthly membership fee: ÂŁ40
Months per year: 12
Loyal for: 2 years
CLV = ÂŁ40 Ă— 12 Ă— 2 = ÂŁ960
CAC Calculation:
If they aim for 1/3 of CLV:
CAC = ÂŁ960 Ă· 3 = ÂŁ320
So they should keep their CAC around ÂŁ320 or less.
5. Local Café
CLV Calculation:
Average spend per visit: ÂŁ10
Visits per week: 2
Loyal for: 1 year
CLV = ÂŁ10 Ă— 2 Ă— 52 = ÂŁ1,040
CAC Calculation:
1/3 of the CLV:
CAC = ÂŁ1,040 Ă· 3 = ÂŁ346
Spending up to ÂŁ346 to get a new customer is reasonable.
6. Personal Trainer
CLV Calculation:
Session cost: ÂŁ50
Sessions per month: 4
Clients stick around for: 1 year
CLV = ÂŁ50 Ă— 4 Ă— 12 = ÂŁ2,400
CAC Calculation:
1/3 of the CLV:
CAC = ÂŁ2,400 Ă· 3 = ÂŁ800
A personal trainer can spend ÂŁ800 or less to get a new client.
What Does This Mean for Your Business?
First, figure out what your customers are worth to you over time (CLV).
Then, decide how much you can afford to spend to get a new customer.
By using this simple rule, you’ll make sure you’re growing your business without losing money.
Why Does This Matter for Marketing?
If you know your CAC, you can plan your marketing budget better. For example:
You might spend on Google Ads, social media ads, or flyers, but you’ll know the limit.
If getting a new customer costs more than the CAC, the strategy isn’t working.
Want Help Figuring Out Your CAC?
If you're a local business and want to grow while keeping costs under control, we can help. We help you figure out your your CLV to running ads that bring in customers. Together, we grow your business!
A Good Place To Get Started?
Take your maximum CAC, multiply it by 5, and invest that amount monthly in our services. Why? Because if your product or service is even pretty good, we’ll probably help you at least double your ROI… at least! (Yes, we said it twice for a reason—because it’s true.)
Let’s turn your CAC into profit. Get in touch today and let’s grow your business! Apply here: tearitupmarketing.co.uk/contact
Sam Terrett