Dividing the marketing budget

A common problem for marketers is deciding how to allocate their marketing budget. Some money will go to getting more sales from existing customers, and some to acquiring new customers. The challenge is finding the best way to divide the budget between these two activities. This paper describes a model to do so that depends only on the ratio of revenues from existing and new customers, and on a company’s estimate of how much more costly it is to acquire a new customer compared to making a sale to an existing customer.