Google Adwords is a budgeted pay per click product so you can spend as little or as much as you want on your Adwords marketing campaigns.
But how will you know how much to spend and what return on investment you can expect?
One of the mechanisms or indicators to help you make that decision is the Life Time Value (LTV) of your customer. With that information you can see what a customer is worth to you and therefore how much to spend to get a new customer.
The projected revenue that a customer will generate for you during their lifetime.
How to calculate a Life Time Value or Lifetime Customer Value
The values you will need are
Value: Average Sale Value
Number: Number of repeat Sales in a Year
Years: Average Retention Time in Years
You will then calculate the LTV using the following:
LTV = Value * Number * Years
Average Sale Value x Number of Repeat Sales in a Year x Average Retention Time in Years
So if your average sale was €100 and you sold to your customers on twice a year and you kept your customers for 5 years that would be:
€100 x 2 * 5 years = €1000 Life Time Value of a Customer
So now armed with the information that each customer is worth €1000 revenue to you, you can then decide how much you want to spend to acquire new customer.
Cost of a Sale on Google Adwords
Once you know your customer LTV you will then know how much to spend on Google Adwords to get new customers, and of course, a Return on Investment.
With your newly calculated LTV you can decide how much you want to spend per Conversion.
NB: This is not how much to spend on your Adwords campaign but how much each actual online sale / enquiry should cost you.
