Many proven models are available for building businesses online so that you have no reason to “pick numbers out of a hat” any longer. In fact, you can pick virtually any financial number you want to receive per month or per year and have a very close idea of what kind of budget will be required to get you there. Use this formula to determine your own online marketing budget:
Determine your desired annual gross revenue.
In other words, decide how much money you want to make by the end of a 12-month period. For this example, use the number that seems to be in everyone’s sights these days: $1 million in gross annual revenue.
Calculate your average sales value (ASV).
An average sales value is the total dollars received for all purchases within a given time frame divided by the number of purchases made. It is neither cost related nor profit oriented. Average sale value is simply a number for you to use as a marker to help determine how many overall sales of all products combined you need in the future to reach a desired gross revenue.
You might have only one product or service to sell right now — and that’s okay. You can work on that later! Maybe you’ve been in business for years, with multiple product lines, a variety of pricing, and a number of purchases for each price point per month. In any case, you need an average sale value to work with to determine your Internet marketing budget.
For the following example, keep it simple and say that you have an average sale value of $27 for an e-book you created.
Project your required sales per day.
Create a basic spreadsheet showing common average sale values and how many sales per year you would need to arrive at $1 million in gross revenue. In the following formula, DR is desired revenue, ASV is average sale value, and SPY is number of sales per year:
DR / ASV = SPY
For example, with a $27 e-book, you need 37,037 sales of your e-book over one year’s time. Broken down further, that translates to an average of 3,086 orders per month, or 102 orders per day.
Remember that is on average. So, the first few months could be considered ramp-up time during a new product launch phase, and you could still hit that number by the end of the 12 months if you play the numbers.
These are simple calculations to make, but sometimes you don’t really see it until you truly see it on paper.
The numbers you calculate here are starting points. You can also use techniques of upselling, cross-selling, and back-end selling to turn a small $27 sale into a sale of $100 or more. Then, if every $27 sale turns into a $100 sale, you would need only 27 sales per day (versus 102) on average or 833 sales per month (versus 3,086) to arrive at your desired $1 million revenue goal.
With a better idea of how many sales you’re after per year, month, and day, read on to discover how to calculate the website visitation rate you need to arrive at those numbers.