Expense To Return Ratio: Finding Out Where You Marketing Works & How Much You Need To Spend To Reach Your Revenue Targets

Every business especially an online business needs to invest in a budget to market the product or service they are providing. Online marketing is competitive and without an adequate budget your business will simply fail to grow and thrive.

In Digital Marketing we have a concept called an Expense to Return Ratio. It is the amount of money spent/invested relative to the revenue returned from marketing. Example, if you spend $100 per month on a marketing campaign and the campaign brings in $500 of business revenue then your Expense to Return Ration is 1:5. For every dollar you spend you are getting $5 back. Another Example, you spend $250 per month on a marketing campaign and it delivers $1000 per month. Your Expense to Return Ratio in this scenario would be 1:4.

After your marketing settles in and you optimize your approach you will reach a sweet spot, a place where you are getting a maximum return for every dollar spent. People need to give their marketing time and experiment with what works for their business and audience. People also need to be realistic in their approach. I have had many start up business owners tell me they have a marketing budget of $150 per month and expect to make $5000 per month. My response is very brutal. I simply tell them that they most likely won’t even make $500 and if they are serious about making $5000 per month they will need to add a zero to their $150 monthly budget.

Many business owners especially startups want the world and just don’t have the budget. I have no shame telling these people they are not in touch with reality. The number one reason why startups fail online is because they don’t have a sufficient budget to marketing their business online and after a very short time are forced to give up because they are making nowhere near the money they predicted. They got their math’s and forecast all wrong. They did not work out what their Expense to Return Ration was. At a minimum to start an online business in a low level competition niche you would need $1000 per month and be prepared to invest this month after month for at least eight months. If you don’t have this type of budget then don’t start. Save and build up your resources.

Also don’t spend all your monthly budget in one area. Your will need to invest heavily in both SEO and SEM as SEO takes at least several months to take effect and once it does you are still one out of several players on page one. Dominating search is important but creating content on a regular basis is essential and takes time and if you are paying an agency this costs money. They you need to share this content on social networks and relevant forums where your audience will be. Simply posting it will not be enough, you will need to run campaigns for each platform and most importantly measure your clicks, conversions and Expense to Return Ratio. You want to know where your budget is being spent and what works well. This will lead to an optimum Expense to Return Ratio.

From my experience the businesses which have the greatest success online have a multi-tiered marketing strategy where they are simply everywhere their potential audience is and to do this effectively they have a very sizable marketing budget that can be sustained for months. If you are planning to set up a startup business online and don’t want to spend money on marketing you will fail!!!