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July 29, 2011

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I attracted a search for "How much should I pay for local marketing?"

It's difficult to say exactly because it all depends on what you mean by local marketing and what work has to be done.

I can give you a rule of thumb

You should be paying no more than 20% to 25% of the profit you expect to make from the marketing.

two things to emphasise

1 - profit not sales
2 - you should look over the expected life of the relationship with a customer

lifetime value or marginal net worth are critical concepts to understand about your marketing

http://businesscoaching.typepad.com/the_business_coaching_blo/2007/10/marginal-net-wo.html

e.g. cost to acquire customer $50
profit on first transaction $40

it looks a terrible deal but the picture changes very quickly if the average customer buys from you ten times and you make $40 each time.

Suddenly you are comparing a cost of acquisition of $50 with a lifetime value of $400 - well worth doing if you can afford the short term negative cash flow but not if cash is a big constraint.

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