Calculate How Much You Should Spend on Marketing With One Simple Formula

💬 Be sure to tell us in the comments – how much do you currently spend on marketing, and what have your results been?


If you’re interested in spending money on marketing, you’re going to face a big dilemma. Am I spending too much? Am I spending enough? How do I know how much to spend? And what about the cost per lead stuff?

It gets complicated, especially when you introduce all the marketing lingo, but there is a trick. According to Jeremiah Desmarais, award winning insurance marketer and author of the book SHIFT, there’s one simple formula you can use to find out how much you should spend on marketing.

This counts for any type of marketing – whether you’re investing in Facebook or Google ads, a billboard, direct mail, radio, seminars, or even email marketing software.


The old “Cost Per Lead” strategy

If you’ve purchased leads in the past, you were probably concerned with one simple concept: How much does each lead cost?

But in reality, that doesn’t really matter. When you factor in the quality of the lead, how much you stand to make from that lead, and more, the initial cost of the lead is irrelevant.

What really matters is what’s called Cost Per Acquisition (CPA). In layman's terms, how much does it cost you to get a paying customer?

Once you know how much it costs you to get a customer, you combine that figure with what’s called Customer Lifetime Value (CLV). I know, it’s more marketing lingo, but it’s a simple concept. How much is a customer worth over the life of their business?

In order to make smarter decisions about how much you’re willing to spend on acquisitions, you have to figure out how much revenue a single customer will bring you over the life of their business with you.

Calculate how much a customer is worth

It’s a simple calculation: determine the average annual commission you make per customer. Now, if you only sell one type of insurance, this is where you’re going to get left behind.

Agents who cross-sell will have a higher annual commission per customer. You’ll see that they’ll be able to spend more on marketing when we’re done.

Next, calculate the average time a customer stays with you. Hopefully, it’s a long time, but if you’re just starting out, you won’t know yet, so keep that number low.

Once you have those numbers, plug it into this formula:

Average annual commission per client X Average # of years a client stays with you – Amount spent to acquire that customer = Lifetime Customer Value

So, let’s plug in some sample numbers.

Let’s say your average commission per client in a year is $1,500. Let’s assume that business renews each year, and it renews for 6 years.

We have $1,500 X 6 = $9,000.

Now, we need to subtract how much it cost us to acquire that customer.

That might be harder to calculate, but here’s an example. You spent $500 on Facebook ads, and you made 4 sales. That means the cost to acquire a customer is $125. Referrals would be $0, and so on.

While $125 per lead sounds INSANE, consider the customer lifetime value….

$9,000 - $125 = $8,875.

In perspective, $125 per lead seems like peanuts.

So, what does this mean for you?

How to spend more on marketing than the competition

And this is where it all comes together. It’s doubtful that your competitors will be willing to spend hundreds of dollars on a lead. But with your formula, you can shoot past the competition, because you’re looking at lead cost from the right perspective.

But here’s what we know: in order to spend more on marketing, you need to raise your annual commission per client (cross-sell more), and increase the length a client stays with you (build a relationship).

That’s the only way to increase your customer lifetime value.

And that’s what it all seems to come back to.

For more tips on cross-selling, check out The Cross-Selling Roadmap.

And for more tips on how to increase the length of a client’s business, check out How to Generate More Leads and Keep the Clients You Have.


💬 Tell us in the comments – how much do you currently spend on marketing, and what have your results been?

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