Setting Targets

The Law of Diminishing Returns

Scaling isn’t as simple as just raising your marketing budget. As we raise marketing budget, marketing efficiency will decrease. This is the Law of Diminishing Returns.

When a brand is running at a low scale, marketing efforts focus on "low-hanging fruit"—potential customers who have a high affinity towards your products. 

Since these individuals are already inclined to purchase your products, the cost of getting them to buy is cheaper, leading to a relatively higher ROI.

Setting Efficiency Targets

Efficiency targets are what allow us to maintain the profitability levels we need to achieve while still pushing for Revenue growth. 

The 2 major efficiency targets I use are CAC (customer acquisition cost) and MER (marketing efficiency ratio).

CAC - how much it costs to acquire a new customer. 

Monitoring CAC in combination with LTV allows us to project future acquired revenue and maintain acquisition efficiency.

MER - This is the ratio of gross revenue to marketing spend. A higher MER indicates more efficient marketing. 

For instance, an MER of 4 would mean that for every dollar spent on marketing, you're bringing in four dollars in revenue. 

Maintaining target MER ensures correct cash flow and profit margin month over month.

Make a copy of this Google Sheet to calculate your CAC and MER targets.

Click image to make a copy

Structured Scaling

Once we have our efficiency targets set, our goal should be to maintain these CAC and MER targets while acquiring as many new customers and as much revenue as possible. 

Say our target MER is 4.00 and month to date we’re coming in at a 4.30 MER. We have additional room in our MER to increase marketing spend and acquire more scale.