What is a customer worth to you and what is their lifetime value?
What Is Lifetime Value? Life Time Value or LTV is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer. This 'worth' of a customer can help you determine your ad budget.
Lifetime Value can be calculated in many ways. It is the total income you expect to obtain from a customer including any add-ons and/or upsells that you anticipate from the customer. This is measured by multiplying the average order value by the number of expected purchases and the time of engagement. Hence, the LTV of a customer can increase or shorten over time-based on your contributions and expertise to grow the account.
Each customer will acquire a customized LTV. It is crucial you calculate based on that customer’s information and journey as opposed to other similar clients. This is subject to different pricing models and customers in different industries.
Don’t be cheap, be honest about your ad budget!
All of us love to save anywhere we can for our business but saving from your ad budget is one in which you need to evaluate accurately. Yes, it is equally as important to turn off ads that are not performing to your standards in order to save on wasted money - however, if your ad budget is lower then it should be your ads will never see the results it is set out to compile.
Be realistic with your ad budget and determine how much you should spend in order to receive the results you want. If you’re not willing to spend the proper amount of money on your ads then you’ll end up wasting your money regardless.
The secret to finding the happy medium between spending too much on your ads and then not enough is constantly monitoring your campaigns as they run and having many split test ads. This will help you determine which ads are winners or losers and which ones you can turn off or scale for the results you need.
How many customers do you want ad campaigns to bring in?
One other important factor in forecasting your ad budget is - How many customers do you want your ad campaigns to bring in throughout a week, a month or year? Even though you have determined your LTV your ad budget might be adjusted to increase the number of clients you’re looking to bring in as opposed to last year.
For example; if you’re looking to bring in an increase of 15% of sales this year and equate that to 10 new clients for your business your ad budget will most definitely have to increase.
Ad Spent Is Not The Only Cost
Lastly, if you’re hiring a marketing agency you’ll have to factor in the labour costs that will result when creating your ad campaigns. Even if you do not hire a marketing agency there will be additional labour costs to consider such as;
Design, Graphics, Videography, Visuals
By investing properly in your ad budget and social media marketing efforts it will result in your business that might have few social media followers to reach thousands of users which, in turn, could bring in new leads.
While this strategy to set the perfect social media ad budget gives many the ability to advertise effectively and at cost, it can be expected that these strategies are constantly evolving over time which tends to usually come at a higher rate.
If you’re struggling to find your perfect social media marketing ad budget and need help contact us and will help you achieve realistic social media marketing budgets for your business.