As an entrepreneur, you naturally want to let more people know about your business. It’s a great way to market it and also to find new, potential customers.
We’re sure you must have a marketing plan or budget in place. And as an entrepreneur, you want to make sure that you get the maximum bang for your buck. It becomes even more critical if you’ve taken a small business loan for it.
Read on to know how you know whether you are maximising your small business marketing budget or not.All you need to think of our three simple terms.
#1 Cost per acquisition
Simply put, cost per acquisition (CPA) is how much money is spent on acquiring a potential customer.
This is easily measured. All you need to see how much money was spent in getting a customer to take some positive action towards your business. It could be sharing an email id for future communication, or downloading your brochure or app, or calling your business, or in the best case, making a purchase.
CPA is, quite simply, understanding how much money was spent to convince the right customer to take the right action.
In this digital age, it is perhaps easier to improve the quality of customers and thus target your marketing effort better.
Say you only wish to get people to download an app. You will focus all your effort on mobile and other handheld smart devices, and exclude desktop users entirely.
Or perhaps you run a local business that caters to people only within a limited radius. Your advertising spend will only be used to target those who stay within your area and you need not look at anybody else.
#2 Customer Lifetime Value
This is not an indication that once you get customers they will stay with you forever, although that is a best-case scenario.
No, Customer Lifetime Value (LTV) is the total value (monetary) that the customer is expected to create for your business. This could be a week, a month, few years or just one day, like with an app.
Once you can put your finger on LTV, you will be in a better position to know what kind of CPA to put in.
It isn’t unheard of for different channels to generate customers with different LTVs.It often depends on the specific marketing channel that the customer has been acquired from. For example, a customer coming from a professional channel like LinkedIn will be of a better quality than someone from a more mass-driven channel like Facebook.
#3 Return on Investment
This is a more commonly heard term. In fact, the acronym ROI is more popular than its expanded form.
This term is a measure of how efficiently you have spent your marketing budget. You can use this to compare various channels. Do note that some channels might exhibit low CPAs but they could also be low on LTV, while some could deliver exceptional quality customers but require high CPAs.
You can spread your budget across different channels, like postbox mailers, social media advertising and ads in local newspapers.And then evaluate the CPA versus LTV of each customer to understand which channel gives you better ROI.
Our last word on this topic is to rely only on data to arrive at a decision. Your marketing budget is critical to your business. And if you indeed have taken a small business loan for it, you want to ensure that you get the most from it.