In this episode, Matt and Rick discuss how to create a marketing budget for a fitness business and which key metrics should determine marketing spend. When it comes to marketing, most businesses struggle with the all-important question of how much should you spend on marketing to reach your revenue goals? Most people drastically underspend on marketing, mostly because they can’t see an immediate return on investment.
Two Important Metrics to Determine How to Create a Marketing Budget
- Lifetime Value of a Client (LTV)
- Total Client Acquisition Cost
The higher the total lifetime value of a customer, the more you can spend on the acquisition. Rick and Matt recommend that for a fitness business, the ratio of the total lifetime value of your average client to customer acquisition cost should be about 10 to 1.
To give an example with our personal training business, the average client stays for 36 months and pays about $300 each month. This comes to a total lifetime value of around $10,000. The ideal amount of money we should be spending on marketing efforts to get each client then should be $1,000.
Rick also goes into more detail with fitness business formulas and metrics in regards to leads and who actually shows up to become a customer. Typically when you have a lead you have a certain amount of people that actually show up and become a customer. In the Alloy Personal Training business they typically have 20% of leads that actually become clients. His example shows that with 100 leads, they get 20 clients that sign up. So customer acquisition cost is not cost per lead. It’s cost per customer. So if it costs $1,000 to get 100 leads and end up with 20 new customers then it is 1000 divided by 20 that would be the acquisition cost. The Alloy acquisition costs then range from $200 to $400 a month. The LTV of Alloy is high which is good. Now what if your lifetime value of a customer was really low, like in a boot camp fitness business. Boot camp fitness has a lower price threshold and the shorter term. So if a boot camp business is collecting $120 a month for four months then that would only be a $480 LTV. Now that business could only afford to spend maybe $100 or less to get a new customer.
The opportunity with the Alloy Personal Training brand is the higher lifetime value of client is $10,000. Now you can literally outspend competitors to grab their attention and drive more leads. Then you know we will get 20% of those leads to become customers in the gym. Now that is a consistent formula for success.
Click play on the episode to learn how to create a marketing budget and use these important business metrics and formulas to help you understand how much you should spend on marketing.
- Why most people drastically underspend on marketing (03:01)
- The total lifetime value of a customer vs. customer acquisition cost (03:35)
- Determining the % of leads that end up as customers (06:53)
- Bullets before cannonballs from Jim Collins book Great By Choice (09:04)
- How to do maintenance marketing (10:52)
- Ensuring your team understands the value of a lead (13:33)
- Fixing the back-end before spending money on the front end (15:03)
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