What do you, or what does the company you work for spend on online marketing campaigns? And has this budget been determined on the basis of a calculation or based on feeling? Have you thought about how you will tackle this in 2022?
In this article I give you:
- Tips on which data you need to make the calculation for 2022
- How to calculate the online marketing costs for 2022
- A questionnaire that you can easily fill in to determine the budgets
Determine Online Marketing Budget for 2022
Suppose you invest 500 euros per month in online marketing. This results in a turnover of 2000 euros per month.
What are the actual costs?
The actual costs you incur are not just that 500 euros per month in online marketing budget. What is often forgotten are the costs that are still deducted from the 2000 euro turnover. Think of packaging, shipping, storage, personnel, et cetera. So calculate how much margin you have left from 2000 euros. Imagine that 50% is costs and 50% is net profit. That leaves 1000 euros of the 2000 euros. Calculate the average margin on your products.
What is the actual yield?
The actual yield is not 2000 euros. This is a lot higher. There will be a percentage of customers who do not make a one-time purchase, but come back more often. Calculate what a customer spends on average per year in your webshop.
Example: eand new customer makes a first purchase of 60 euros and then comes back four more times. You can see for yourself how often customers come back and what the average revenue is per customer.
In this example, the customer thus yields 150 euros (5 x 30 euros) in margin (= net profit). Calculate your net profit. Subtract costs from revenue.
How much of this net profit do you set aside for acquiring a new customer + retaining current customers?
What do you invest in online marketing?
For example, you could choose to invest $30 in acquiring new customers and $20 in retaining current customers. Think of remarketing campaigns, email marketing, a savings system. Below is an overview of the costs and revenues per year per customer. Think about how much of the net profit you want to reinvest.
|Packing, shipping, etc.||€150 (30 x 5)||€300 (60 x 5)|
To be completed to determine the online marketing budgets for 2022:
|What were the costs of online marketing last year?||€6000|
|How many new customers has this generated?||200|
|What are the marketing costs per new customer?||€6000/200 = €30|
|What does a customer spend on average in your webshop in a year?||€300|
|What is the average margin on your products?||50%|
|What is the net profit per customer (turnover – costs)?||€150|
|How much of your net profit do you want to reinvest?||€50|
|How do you want to divide this between acquiring new customers and retaining current customers?||€30 new customers / €20 existing customers|
|Advertising costs per new customer?||€30|
|What is the revenue per customer for the first purchase?||€60|
|Revenue / Advertising Cost||€60 / €30 = 2|
What should I use for my online marketing budget now?
It doesn’t matter whether you spend 100 or 1000 euros per day on online marketing. If the costs per new customer only remain around 30 euros and the cost of a purchase from an existing customer remains around 5 euros (divide 20 euros by 4 purchases). Of course, customer value must also stay the same (or increase).
Look closely at last year’s data. What were the costs per new customer at the time? If this was too high, it is better to start with a lower daily budget. Was this lower? Then it is better to increase the daily budget a bit.
Switching from CPA to ROAS
In the example above, you invest 30 euros in advertising costs for a new customer and realize a direct turnover of 60 euros. You work with a ROAS of 2 (60 euros / 30 euros).
For campaigns that focus on new customers, it is therefore best to aim for a ROAS of 2.
Do you want more market share?
If your focus in the first year (or longer) is on gaining market share, you could choose to reinvest all turnover in (online) marketing activities. Then you gain more market share by reinvesting your profits.
In summary, to determine your online marketing budgets for 2022
- Analyze your data from the past year carefully
- Calculate what your costs are for online marketing
- Calculate your average margin on products
- See how often a customer comes back and what a customer spends on average
- Think about how much of your net profit you want to reinvest in your company
- Do not only invest time and money in acquiring new customers, but also in retaining current customers.
Have any questions? You can drop them below in the comments. Not ready with your 2022 plan yet? Then read this blog about 5 innovative trends in 2022.
Source: Frankwatching by www.frankwatching.com.
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