The Most Valuable Way to Look at Your Advertising Budget

by | | AGM Blog, Blog | 0 comments

I’ve had the privilege of meeting people who were completely broke financially and billionaires.


But here’s what I’ve learned from each of these groups of people.

They both have the exact same amount of time each day to get things done.

The biggest difference in their life positions is how they view things; it’s all about how they view what’s in front of them.

For someone who’s gone bankrupt, it’s either sit in misery or “How do I turn this around?”

For Billionaires it’s wondering where to go during the summer or “How do we go from here to there?”

When it comes to running paid advertising, the way you look at spending your advertising budget can also determine your success, and how fast you get to where you want to go. 

 

Your Advertising Budget


Every business owner should have an advertising budget set aside every month to make sure the company is putting enough attention out into the world to get a return on their investment AKA money.

The size of the advertising budget should be based on a number of factors, including the target audience, how much money the business made the previous month and the results you want to get. Something to also consider is the cost of different advertising channels you want to test and seeing what the potential return on investment could be.

But one of the most common ways businesses look at spending their money is immediate return on investment, which would make sense a century ago.

As other factors like inflation, rising advertising costs, and more businesses coming in to compete with you on these marketing platforms it makes it almost impossible to make a profit on immediate ROI.

Does that mean advertising is dead?

No!

 

New Spend Strategy


As a business owner, you should always be looking for ways to get the most bang for your buck.

And that’s exactly what the biggest companies like Netflix, Disney, Amazon, and others do.

When it comes to advertising, one of their most important factors they consider is called “customer lifetime value”.

A customer’s lifetime value is the amount of money that a customer is expected to spend with your company over the course of their customer journey.


When you take a customer’s lifetime value into account, you’re making sure that your hard earned dollars are being spent in a way that will maximize long-term profits.

So if your average customer is worth $149 (meaning they spend on average $149 with you) and it costs you on average $49 to acquire them, that’s $100 gross profit.

So then you can decide to do 2 things:

  • Try to lower your cost of advertising to acquire a customer.

Or

  • Increase a customer’s lifetime value with more products, nurture emails, or higher priced items. 

If you ask me, I’d do both, but #2 will benefit you in the long-run and you can always hire someone to create attention grabbing ads anytime to help with #1, (as long as they’ve been in the game long enough).

Once you understand your customer’s lifetime value, you can make more strategic decisions about how to spend your advertising budget.

Then with the right planning, you can work towards a very very profitable business, all by changing the way you look at how to spend your advertising budget.

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