Steal my $10M ARR companies marketing budget

Summary

In this video, the speaker outlines a systematic approach for determining an effective marketing budget, focusing on the cost per booked call (CPC) and cost per acquisition (CPA). The key insight is to move beyond traditional ROI metrics and calculate the **Marketing Contribution Budget (MCB)**, which accounts for all business expenses such as payroll, software, and events. By factoring in cash flow, cost of goods sold, and desired profit margins, businesses can calculate how much they can afford to spend on ads while ensuring long-term profitability. The video offers a detailed guide on managing ad spend efficiently for sustainable growth.

Takeaways

• 😀 Understand your marketing contribution budget: Factor in all business expenses, including payroll, software, and events, before deciding how much to spend on ads.
• 😀 Don't rely on just Return on Ad Spend (ROAS): Many businesses use a simple 2x or 3x ROAS to determine their budget, but this can overlook hidden costs and lead to running a nonprofit.
• 😀 Include your cost of goods sold (COGS): Your marketing budget should account for the expenses of delivering your product or service, such as salaries, software, and team overhead.
• 😀 Factor in business overhead: For example, if your company has a $20,000 monthly overhead, this needs to be considered when calculating your marketing budget to ensure profitability.
• 😀 Be mindful of your profit margins: Decide your minimum acceptable margin (e.g., 30%) before allocating any marketing funds, so you remain profitable over time.
• 😀 Adjust your cost per lead (CPL) and cost per acquisition (CPA) based on actual data: Knowing your customer lifetime value (CLTV) and churn rates is crucial for setting realistic ad budgets.
• 😀 Use cash vs. revenue distinction: Cash flow (money received upfront) is different from total revenue (spread over time), and both should be considered when calculating marketing budgets.
• 😀 Don't overlook delinquency rates: A portion of your clients may not pay or may refund, so it's important to factor this loss (e.g., 10%) into your marketing calculations.
• 😀 Know your book-to-close ratio: Understand how many booked calls actually convert into paying customers to accurately calculate how much you can spend on ads.
• 😀 Be prepared to adjust for risk: If you're willing to be more aggressive, you can spend more upfront on acquiring customers, but ensure you're still profitable long-term.
• 😀 Calculate realistic customer acquisition costs: To remain profitable, ensure that your total marketing spend per customer is within your calculated budget, based on all costs and margins.

Q & A

What is the primary focus when determining a marketing budget for ads according to the script?

The primary focus should be on the *marketing contribution budget*, which accounts for all business expenses (like payroll, software, events, etc.), rather than traditional metrics like return on ad spend (ROAS) or return on investment (ROI). This helps ensure profitability by factoring in the full cost of running the business.

Why should businesses avoid using ROAS and ROI as the sole measure for setting ad budgets?

ROAS and ROI can be misleading because they only measure the revenue generated per dollar spent on ads, without accounting for other business expenses like payroll, software, or overhead costs. Using the marketing contribution budget instead ensures that all expenses are covered, allowing for more accurate budgeting and profitability.

What are some examples of business expenses that should be included in the marketing contribution budget?

Examples include payroll, software subscriptions, event costs, office space, leadership team salaries, and any other overhead expenses that are required to operate the business.

What is the difference between cash and revenue in this context?

Cash refers to the money collected upfront when a customer signs a contract or makes a payment, while revenue refers to the total contracted value, which may be paid over time (e.g., in monthly installments).

How is the cost of goods sold (COGS) calculated in the example provided?

COGS is calculated by dividing the total monthly expenses ($106,333) by the number of clients serviced (25 clients). This results in a cost of $4,200 per client to cover all business expenses like payroll and overhead.

What is the recommended minimum cash profit margin for a business to operate profitably?

The recommended minimum cash profit margin is 30%. This means that out of every $8,000 earned per customer, $2,400 should be reserved for profit, leaving the remaining amount for business expenses and customer acquisition.

How can businesses calculate their cost per acquisition (CPA) based on the marketing contribution budget?

To calculate the CPA, businesses subtract the desired profit margin from the revenue per client and then account for the cost of goods sold. In the example, with an $8,000 revenue per client and a 30% margin, the remaining budget for customer acquisition is $546.

What is the book-to-close rate, and why is it important for calculating the cost per booked call?

The book-to-close rate is the percentage of booked calls that successfully convert into closed deals. It's important because it bridges marketing (which books the calls) and sales (which closes the deals), helping businesses calculate the maximum cost they can afford to pay for each booked call while maintaining profitability.

How can the book-to-close ratio influence the cost per booked call budget?

If the book-to-close ratio is high, meaning a greater percentage of booked calls convert into deals, businesses can afford to spend more on acquiring those calls. Conversely, a lower ratio means that the cost per booked call must be kept lower to stay within the marketing budget.

What is the benefit of being more aggressive in ad spending, as mentioned in the script?

Being more aggressive with ad spending can be beneficial if a business has enough historical data to predict future revenue and can afford to spend more upfront to acquire customers. This strategy is typically used by companies willing to accept slimmer margins or longer payback periods in exchange for higher potential returns.