How much should a small business spend on marketing?
The answer to that question begins with a conversation about how much a new customer is worth to you. As you evaluate how much can you afford to spend to acquire a new customer consider what a customer will be worth over time. To determine the value think about the following questions:
- What will the average customer spend each year?
- How many years will the average customer continue to do business with you
- What is your typical gross margin
Combining these factors and applying a discount rate to adjust for inflation will give you a ball park estimate you can use to evaluate the value of a customer. To help with you analysis we worked with Howard Cox of Somerset Advisors to develop the Lifetime Value of a Customer Worksheet.
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