This post is especially for the benefit of new entrepreneurs and all those business owners who are running Small/Medium Size Enterprises and are looking for digital marketing as a means to grow their business.

Most of the times businesses send enquiries to agencies using web forms or call them. The first telephonic conversation is like a filtration tool for the business owners to decide if they would like to meet the agency or not. Sometimes the interaction leads to a preliminary meeting too. But in most cases this tele-conversation gets stuck when the client is asked for the marketing budget. And it is this question which many a times leads to decisions, which clients regret later and by the time corrective action can be taken much has been lost. I hope that this post will help all business owners to be prepared for this question with a proper response.

"We have not decided a marketing budget? Why don't you tell us what our budget should be? Actually we want someone to tell us what budget we should start with?" If that's the kind of reply you end up giving a digital marketing agency you have called for managing your campaign, then something is not right. At your end.

Why don't you have a budget?

Don't you know the final cost of your product? Don't you know your competitors' products and their competitive prices? Don't you know the sales numbers you have to do to reach break-even and then outgrow competition?

If you have been running your business even for a short time, won't you know the effort that goes into getting yourself a customer and the cost associated with it?

Isn't the above enough to help you understand the cost of acquiring one customer?

You should know how much you will pay for acquiring your 'first set' of what I call 'stability customers' and then the cost of acquiring growth customers.

What is your customer acquisition cost?

Each customer you acquire has a cost associated with this acquisition. Though this will differ from business to business there is a general cost of acquiring a customer which all business owners should know.

What you need to know is simply the overall cost of acquiring a customer and also of acquiring a customers from each medium you use to market your products / services. Lets keep it simple here, you need to know:

(a) which media is working for you

(b) which media is more cost efficient

(c) which media gives you better volume but at low margins

(d) which media gives you better value customers and many such answers.

That's what you need to know to ensure better returns from you marketing monies. Don't forget the cost you incur towards pre-sales like manpower, some post sales cost till delivery etc to give you a fair glimpse of the overall acquisition cost.

Now if you have a fair estimate of your customer acquisition cost the next big question is - are your looking for a best media mix for optimum customer acquisition cost or you have benchmarks and are looking for customers within a pre-defined cost range?

How can you know the cost of customer acquisition from a digital medium?

The answer lies in smart campaign tracking.

What's beautiful about the digital medium and one of the reasons I love it is the ability to get almost real time performance data for better campaign decisions. e.g. When managing an Adwords campaign the campaign manager will know how many users clicked, from which geography, which keywords, which ad got clicks, which landing pages are converting, which ads are not working etc. Similarly one can know which users came from which social media, which location, did what kind of interactions or how much money was spent on branding / visibility banner ads and what type of view-to-conversion rate was delivered or which among the mailer delivered the best open rates & performance.

This data along with the clients inputs at regular intervals will allow the campaign managers to tweak campaign strategy to get better returns! Such data management allows for better management of tactical digital marketing campaigns and leads to a win-win situation.

So what's all this got to do with the budget?

Everything. A budget is linked to an objective, this objective is what the client expects an agency to help it with. The agency is able to evaluate the client expectations given the target market, the product, product category, price, competition vis-a-vis a budget. The agency can assess the possibility of delivering to the clients objectives and suggest if the budget / objectives need to be reviewed. This information also allows the agency to suggest media which will be most cost effective for a budget & objective combination. 

So, entrepreneurs / marketing managers please be ready with the budget and the objectives next time you are meeting a prospective digital marketing agency. This will ensure that you are able to roll out effective campaigns & faster.

A big or small budget does not matter as long as you start with realistic amount for achieving your marketing goals. All the best!

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.