In any marketing campaign, it’s imperative to determine how much you should be spending on marketing.
You already know that you must keep your marketing budget in check so you don’t overspend.
But, how do you determine how much your marketing budget should be?
Once you know this number, you can start planning your marketing budget.
For example, let’s say you are a family lawyer and you want to expand your business. You have put aside $15,000 for a 2-month marketing budget, giving you $7,500 each month to spend on marketing. But you’re not sure if you should go with PPC or not – You really want to be confident that you’ll at least double your return on investment.
You know that the average cost per click in your area for the top keywords is around $45. The digital marketing agency you’re considering has an average conversion rate of 10%.
That is, out of 100 clicks, you’ll most likely get 10 calls. You just started tracking your law firm conversion rate – you are converting 30% of the calls you get into paying clients.
Your monthly ad spend is $7,500, and each click has an average cost of $45 – so you’re looking at 166 clicks.
$7,500 / 45 = 166
On average the agency can convert 10% of those clicks into phone calls. That would give you 16-17 calls. If you convert 30% of those calls into paying clients, you’d end up with 4-5 clients.
So now the big question is, do you celebrate the win or restrategize? In other words, was the $7,500 you just spent on advertising actually worth it?
Let’s say your average case value is $5,000. In this scenario, you would be bringing in $20,000 – $25,000 in revenue. That is, you just more than doubled your ROI (with 4 new clients), and even tripled it (with 5 new clients). Bravo!
But, if your average case value is $3,000, you ended up a bit short of the goal of doubling your ROI (with 4 new clients). If you landed 5 new clients, however, you then nailed your target of 2x ROI. Excellent!
The famous quote by Yogi Berra really sums it up for digital marketing:
What Is Average Case Value Used For?
- Ad spend budget
- General marketing budget
- Max CPC (cost per click)
- CPA (cost per acquisition)
Without knowing the accurate average case value, you’re just guessing on whether or not paid advertising will be profitable or not.