Nick Roberts

I am often asked how much clients should spend on marketing. Some advise rules of thumb - say 3% of turnover. Others use benchmarking and here the average is 1 - 2%, less, in many cases than the annual telephone bill.

Typically, an accountant will say marketing is an expense and should be minimised. However, if you know the secrets of successful marketing, you can spend lots!

Firstly, calculate the lifetime value of your customers. Multiply the gross profit per average sale by the number of times they buy from you annually and then by the number of years they stay with you. This tells is how much a customer is worth to you. This may change your view on customers forever!

Secondly, you need to know how much it costs to acquire a new customer by determining the exact cost of each of your marketing strategies and how many new customers each brings, by recording the source of each new customer. When you know just how many customers were obtained from each strategy it's simple!

Now, hopefully, you're in business to make a profit. In the context of marketing, this means acquiring a new customer with a lifetime value in excess of the cost of acquiring that customer. Armed with this knowledge, and having thought about cash flow, you now know how much you need to spend on marketing to obtain a given number of customers. And, of course, that's before you've even thought about the many ways you can maximise the value in every customer.....

But ..... don't do anything without testing and measuring all your marketing strategies first on a small scale. Adjust your approach, if required, drop any that aren't effective and keep doing those that work. Then, get ready to expand your business!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.