If you’re considering promo product advertising, but you’re unsure how to budget for business promo items, this article is for you. Here, we’ll be discussing methods to budget for promo products.
There’s so many things you can spend your marketing budget on: radio ads, billboards, Google ads, Facebook ads, Web Design, SEO, and the list goes on and on. It can be very difficult to decide which balance of marketing tactics is the sweet spot where your phone is ringing, your website is getting enough traffic, and you have more than enough customers to make a profit.
Business promo items are one of the most under-the-radar forms of marketing right now. “Newer” and “trending” shiny objects are out there taking the limelight in the marketing world like social media, search engines, and banner ads. Don’t let all the trendy hype fool you though, business promo items are a very effective way to market your business if you add them into your marketing plan the right way.
Why Budget Percentages May Not Be The Way To Go
Many people will tell you that you should portion a certain percentage of your business budget for marketing. Sometimes, this can work, but sometimes, it may not. The percentage method doesn’t take into account how much the customer costs to acquire or whether you’ll get your money back over the life of the relationship. This can be very bad.
Instead, if you budget for business promo items using these 5 steps, you’ll:
- Know you’re spending less than what you make
- You’ll have the correct key performance indicators within focus to aid you to improve your profit margins
- and, you’ll build a sustainable business
Instead of forecasting a marketing budget based on a percentage of revenue, it would be best to first follow these 3 steps, then (if you want), go back and see what percentage you’ll be spending on marketing afterwards.
1. Calculate Customer Acquisition Cost (CAC)
In my previous post, How to Calculate Customer Acquisition Cost, I wrote in detail what customer acquisition cost is, and how to calculate it. Here, I’ll briefly summarize. Customer acquisition cost is the sum of all of the expenses you accrue to acquire a new customer. It includes:
- Travel expenses
- Promotional items
- Advertising/Marketing Tools used
- and other things you might not take into consideration like phone lines, stamps, etc.
Once the expenses are calculated, you want to compare that against your lifetime customer value.
2. Calculate Lifetime Customer Value (LTV)
Lifetime customer value is the average amount you receive from each customer. To calculate LTV, you’d go thru your accounting books to add the transactions of each of your customers.
Then, you’d add together the total amount each of your customers paid you, and divide that by how many customers you had. For example, let’s say, my accounting books look like this…
Customer 1: $100
Customer 2: $35
Customer 3: $400
Customer 4: $100
Customer 5: $125
In total, I had 5 customers, and my total revenue was $760. Now, I have to: Find the average amount each customer spend on my products/services. The total is 760/5 = $112 Since this business has no other previous records of business income, we’d use $112 as the average or use a competitor’s data to estimate lifetime customer value. If each customer is worth $112 to my business, should I spend $295 to acquire a customer? Absolutely not.
The Customer Acquisition Cost Dilemma
Choosing how to intermingle marketing tactics can become very complicated if you haven’t figured out how to make sure your customer acquisition costs are less than your lifetime customer value. In fact, maintaining a business where the customer acquisition cost is more than the lifetime customer value will cause your business to shut down if you don’t fix the problem quick. Let me explain…
Let’s say for example, you decide to use brochures and tradeshow marketing. You purchase a table throw, a retractable banner, 500 brochures, a T-Shirt, and pay your vendor fee.
So, the cost breakdown goes like this:
Table Throw = $130
Retractable Banner = $250
500 Brochures = $150
T-Shirt = $10
Vendor Fee = $50
The total cost is $590
From the tradeshow, you accumulate 50 new leads and 2 new sales. While it’s possible that other prospects may convert into a sale further down the line, in this instant, you paid $295.00 to acquire each customer. If your products or services don’t cost the customers more than $295, then you’d be paying out more than you received. When you pay out more than you receive for a long stint of time, the business isn’t sustainable and you’d have to shut it down.
You don’t want this. As a result, it’s important to make sure the cost to acquire a customer is reasonable in comparison to how much your charging for products and services.
How Do Custom Promo Items Fit Into Customer Acquisition Cost and Lifetime Customer Value
We talked about how to balance the scale, but now, how do business promo items stack up against Google Ads, Facebook Ads, or other marketing or advertising methods?
If you have $100 to market your business, you have to decide which method will gain my business the most visibility, brand recognition, and engagement for the price. Then, you can go down the list of marketing tactics and decide how you’ll get the highest return on investment.
Unlike other forms of marketing and advertising, business promo items have several appealing reasons that set them apart as an ideal way to market a business. You can check my article here for a full explanation of why to use business promo items, but in summary, they:
- Give you control because you’re not waiting on internet algorithms for exposure
- They’re appreciated by recipients
- and, they build rapport quickly
Custom promo items fit into customer acquisition cost. Some custom promo items like brochures can cost less than $0.20 per page, and you’d add that cost alongside the costs associated with getting the brochure to the customer and the conversion percentage. Some business promo items you create will convert better than others, but the most important thing is you want to make sure you’re not purchasing custom promo items because “they look nice” or “you like that” without taking into consideration whether you’ll be able to recoup your money with your lifetime customer value.
3. Experiment and Split Test Your Marketing Strategy
Unfortunately, no one marketing strategy will fit every business. You’ll have to test various marketing tactics and decide:
1. Which is most comfortable for you – It doesn’t help to have a great marketing strategy that you won’t implement. Choose a compilation of marketing tactics you’ll actually do.
2. Which is most effective for your target audience – While business promo items are a very effective form of marketing and advertising, you may find that internet marketing is also a good form of marketing for your business, and that’s okay. In order to grow your business, you want to actively experiment to see what works best, and continue tweaking and improving to stabilize a flow of leads.
3. What works – After you’ve decided on a business promo item that converts well in an ideal location, you want to repeat your success and scale. You can scale by finding more distribution locations, more traffic sources, or testing new business promo items.
Final Words on Business Promo Items
The goal of this article was to show how to budget for business promo items. Hopefully, these three steps help you create a marketing strategy including business promo items in a profitable way. If you have questions or concerns about this, don’t hesitate to leave them in the comments section. I’d love to help you out!
If you’re interested in getting started with promotional product advertising, check out my reviews of different vendors I recommend:
Now, it’s Your Turn…
Have you used business promo items in your business? Do you use an alternative to acquiring customers? Do you use these 3 steps to make sure your acquisition costs are reasonable? Leave your comments and questions below.