When starting a new project at any business, the question of “how much is this going to cost?” is typically the first thing that needs to be addressed before you can move on to the actual game plan. This is a great place to start, as deciding your budget should be the first thing you consider before you make any major decisions regarding your marketing strategy. At Pronto Market, we specialize in MSP marketing and are here to help guide you through the MSP marketing landscape as well as gain a better understanding of how you can effectively market your company.
How Much Should You Spend on MSP Marketing?
Most MSP owners whom we talk with about business and marketing, ask us this question more often than any other to really understand how much they should expect to budget to properly market their company. So, if this is also a question that you’re asking yourself, know that you’re not alone.
After working with MSPs for so many years, we have naturally been exposed to all kinds of different mindsets related to marketing. There are those who believe that word-of-mouth and referrals are the only sustainable marketing channels able to sustain their company year after year. And there are those who instead have a marketing budget but no plan on how to spend it and decide to burn it real fast with the hope it’d yield some positive return. Let me tell you, none of these two approaches works well long-term.
The amount of money you invest in marketing your company online varies considerably based on where you are located geographically, the services you offer and want to promote, and the typology of clients you generally consider good fits for your business.
Cost Per Lead: Lifetime Value
The average lifetime value of a customer is the most important number for you to know when it comes to marketing. Do your clients pay everything upfront? Do they pay a setup fee and then a monthly or bi-monthly management fee? These numbers can vary considerably based on the sort of IT services you offer and the payment plans you implement for your customers.
Once you’ve figured out what your average client’s lifetime value is, you’ll need to figure out how much you’re willing to pay in order to acquire a new client. In the marketing field, this is referred to as cost per acquisition.
Below, we’ll provide some examples of what an average cost per acquisition might look like for an MSP:
Say one of your services is worth $1,500/month, and you spend $1,000 in acquiring that lead. That means you’ll still make a profit of $500 on the first month and $1,500 every month after that until the client cancels. So, if we assume that the average client remains subscribed to your service for 12 months, their total lifetime value will be $1500*12= $18,000.
Remember, however, that you’re valuing your client on his or her lifetime value, not their one-off number. So, with your $1,000 marketing budget, you may actually be getting that $2,500 case in addition to every other case that comes from them or anyone they may refer to you.
This means that if you wanted to break even to acquire a brand new customer through various online marketing channels, you could potentially spend up to $18,000. We don’t recommend that, since you’ll likely want to take home a portion of that revenue as profit for you and for your business to reinvest and acquire more customers.
What Does a Typical MSP Spend On Marketing?
Most business experts recommend investing between 8-10% of the company’s gross revenue in marketing. This number, however, may differ depending on where you are located and the sort of business you run.
For example, in the United States, companies tend to spend around 11% of their gross revenue on marketing. This number can be higher or lower depending on the factors we listed above, but this is a good starting point to get an idea of how much you should expect to spend on marketing each month/year.
The bottom line is that there’s no magic number when it comes to how much you should spend on marketing as an MSP.
To help you make an informed decision, we suggest taking a look at your company’s cost per acquisition and customer lifetime value. These numbers will give you a good idea of how much you can afford to spend on marketing without breaking the bank.