Use marketing allowables to develop your marketing budget rather than a percentage of sales.
This focuses your budget on your most profitable customers and less on what's left over. Drive your plans using a single evaluation process to create successful marketing programs.
For example, if your customer marketing acquisition is $200 for each new customer. And your business plan calls for 10,000 new customers to make plan. Your total budget for acquisition becomes a matter of simple arithmetic.
$200 per customer X 10,000 new customers = $2,000,000
Your promotion, staffing, fulfillment, product deliveries, returns, phone support and and other related marketing costs for customer acquisition fall within this $2,000,000 budget.
You will also want to develop a customer retention allowable to add to your budget.
Keep it as simple as possible by quantifying your financial goals. Then determine the customer mix you need to achieve those goals.
This simple concept makes a lot of sense to CMOs, CFOs and CEOs. The devil lies in the development and agreement on the allowable details.
The customer lifetime value drives the creation of a reliable allowable. Most companies save the needed information to calculate customer lifetime value.
1. Average sale for all customers
2. Average profit margin per average sale
3. Average number of annual sales
4. Number of years and months the average customer remains active
5. The above information yields the average lifetime value of a new customer
Once you have the lifetime value, then the CFO or someone on his team calculates the allowables. His team will include present cost versus future value to come with the final allowables.
So far, my discussion revolves around the vital role of the allowable in preparing the marketing budget. The allowable plays a critical role in evaluating channel mix, offers, and creative executions. It can ven help divide the budget by marketing strategy such as social media support for traditional campaigns.
Through testing, how does TV or direct mail alone perform without the support of outbound telemarketing? How is social media contributing to acquisition or retention? Are we spending beyond our allowables? What mix performs best based on the allowables.
We must work to find ways to quantify all marketing spends. The first step is to create a reliable evaluation KPI. I know the allowable remains the Key Performance Indicator for all marketing activity.