# How much should I spend on Adwords and other online marketing?

### One of the most important exercises that you must do in your business is to calculate the “Lifetime Value of Your Customer”.

Not sure what this means? Keep reading – you’ll find out in 1 minute.

### Start by answering 2 questions:

1. How many appointments / jobs can you book from one customer?
2. What is the average amount you earn for 1 appointment or job?

### Let’s look at an example:

#### Meet Robert. He is an Electrician.

• Robert’s customers work with him for about 2-3 years.
• During this time, they order Robert’s services 4 times.
• Robert earns an average of \$250 from a single job.

This means that the Lifetime Value of Robert’s customer is around \$1,000.

### Why is Lifetime Value of a Customer important?

When you know your customer’s lifetime value, then you become aware of 2 critical \$ figures:

1. the money you earn from each new customer, and…
2. the money you can invest to attract a single customer

#### Let’s look at Robert from our earlier example:

• Robert’s lifetime value of a customer is \$1,000.
• A portion of this revenue is deducted for expenses -\$500.
• The remaining \$500 is a profit that Robert keeps for himself.

If Robert decides to invest into growing his business through advertising and marketing, then he knows that he can spend up to \$500 to attract a single customer, without loosing money.

Here are Robert’s profit and marketing amounts:

• If he invests \$400 into marketing he profits \$100 per customer
• If he invests \$300 into marketing he profits \$200 per customer
• If he invests \$200 into marketing he profits \$300 per customer

### Once you calculate the Lifetime Value of Your Customer, you’ll know how much to invest into marketing.

Once you know your LTV, you can choose your marketing strategy quicker and with more confidence.

You may choose to diversify your budget into 3 digital marketing channels:

3. Search Engine Optimization (SEO)

Give each channel a fixed budget and a fixed time frame for measuring.

#### In our example, Robert is testing SEO

• Robert chose to invest \$600 a month for 6 months of SEO services.
• Since Robert’s Lifetime Value of a Customer is \$1000, he needs to attract 2 new customers a month to cover his marketing costs and earn a profit.
• Robert wants to spend his money wisely, so he is tracking his phone calls and email messages.
• At the end of 6 months, Robert will calculate how many customers he attracted.
• If Robert will attract at least 12 new customers over this 6 months period, then his investment in SEO was successful.

Measuring the outcome of his Search Engine Optimization performance, gives Robert clarity on how to proceed with his marketing strategy. If SEO was successful, he may choose to proceed with it further. If SEO didn’t work well, then he may invest into Adwords or Bing advertising.

### 2 thoughts on “How much should I spend on Adwords and other online marketing?”

1. Why is it important to calculate the lifetime value if most of my repair jobs are one time customers?

• Hey Luo,

In appliance repair businesses, the Lifetime Value of a Customer might take longer time to calculate.

So, there are 2 ways you can approach it:

1. You can calculate the average order value (ie. service calls & repair fees) that you get from your customers.

For example, if you do 20 service calls a week, get the total amount you charged for all these jobs, then divide them by 20.

You can use this average order value, as your Lifetime Value of Customer.

Or…

2. Track how many orders you get from one customer over 3-4 year period. This way requires more dedication.

To make this work, you need a way to remind your customers to call you again when they have a different appliance issue.

For that you can use “fridge magnets” and “holiday mailings”.

Regardless of which method you use, you need to get that Lifetime Value of Customer number.
Once you have it, you can make marketing investment decisions better.