There has never been any question as to whether or not you should invest in advertising for your small business. With today’s competition and saturated market, the need to broadcast what makes you stand out is imperative. The real question, however, is how much do you spend on advertising?
To determine this, let’s first understand where advertising fits in to the realm of marketing. Marketing is an all encompassing term for all paid and earned media and promotion. Earned, meaning things like, press mentions and articles, social media re-shares and testimonials. Paid Media includes sponsorships, paid content, use of radio, TV, print, paid digital ads, Facebook ads, and more. It’s important to understand that there should be an overall Marketing budget, which would encompass all paid marketing initiatives as well as costs associated with earned media, such as wages and social media maintenance fees. Your annual Advertising expenditures should be separated from your total Marketing budget. Here are some tips to help determine how of your revenue should be allocated to your Paid Advertising budget.
Map Out All Campaign Lengths and Purposes
Planning a year in advance works best when determining your advertising budget. Map out any promotions, special events, or grand openings that will take place over the course of the year. These circumstances require different media efforts and budgetary obligations. Generally, for a grand opening, you’ll want to put a considerable amount of your budget in to making the community aware. Advertising doesn’t just drop off after a grand opening though, you’ll likely, move into a branding campaign and/or smaller campaigns for promotions or sales. For these smaller campaigns such as special events, sales or promotions, you’ll want to put some extra weight in your advertising for at least 1-2 weeks prior, depending on your industry.
The 2-10% Rule, and When to Break It
There has been an old adage in the advertising that “you have to spend money to make money”, but how much is the right amount? Typically, annual advertising budgets should reflect around 2-10% of gross profits. As an example, if your annual sales revenues total $300,000, then your minimum advertising spend should be $6,000 for the year. On the opposite end of the spectrum, you’ll be looking at an annual advertising budget of about $30,000. Mapping out your campaigns can help you determine what percentage is best for you.
There are couple instances in which you should not follow this rule:
If you’re advertising a grand opening: In this case, it’s important to make sure you reach the most amount of potential customers and have a decent frequency to help them remember. If you throw a party but neglect to send out invitations, no one will come. It’s not unheard of to allocate a budget of up to 30% of projected annual sales when budgeting for grand openings.
If you want a more honed Advertising budget: In this instance, there is a more precise formula to determine you’re budgetary requirements: Still using your revenues as a base, you would calculate both 10% and 12% of your total gross revenue. After you’ve determined these two numbers, multiply each one by your gross mark up percentage, or profit above cost. Because it said that high traffic locations provide more visibility, and can reduce your advertising needs, you’ll then take your total rent or mortgage costs and deduct the amount from each of the two numbers you have. Your lower number should represent your minimum budget allowance and the higher number, the max. This range is much smaller than the 2-10% spectrum, giving you a more resolute, or refined Advertising budget.
Factor in Campaign Objectives
Every advertising campaign will seek to accomplish a different objective, or set of objectives. Knowing what these are, not only allows the message to be developed effectively, but also helps to plan the financial requirements. A long-term objective might include developing or enhancing your company’s Brand, creating a more trusted view of your business from they eye of your customer. This objective will need a longer and steadier campaign and will require your budget to spread almost evenly throughout most of the year (with breaks and downtime where needed). Other objectives might include specific revenue goals or new client acquisition. I recommend checking out a few well-respected websites and blogs, such as; Entrepreneur.com, brandingstrategyinsider.com, or bionic-ads.com to gain some insight on how to set campaign objectives for the sake establishing the budgetary commitment you’ll need.
Consult with a Professional
If any of the above tips left you questioning your ability or, at even a little unsure, ask a professional. There is no use in spending ample amounts of time on marketing and advertising efforts, only to garner poor results because of lack of industry experience. In today’s Internet savvy age, everyones is quick to call themselves an expert on everything from Marketing to Medicine and from Nutrition to Real Estate. The list goes on, however, being both a Certified Nutritionist and experienced Advertising Industry Executive myself, I know that, in some cases, a trained professional can dispel myths and correct false information found on the Internet. An industry professional cannot only save you a ton of time doing research or doing it wrong, they can also save you the piece-of-mind knowing it will be done effectively, which can ultimately save you money or stretch your budget further.
Re-evaluate Your Advertising Budget
Depending on your industry, your gross profits may not fluctuate a whole lot quarterly, or even semi-annually, requiring only an annual evaluation. On the other hand, if there are a lot of changing variables, or you tend to have promotions and sales thrown in after your year already starts, then you might want to take a look at your Advertising budget and any plan that accompanies it every sales quarter. Re-evaluating budget amounts will help you stay current on any instability in your industry or plan for unforeseen events within your company. Re-evaluating quarterly or semi-annually also allows you to adjust where your budget is best allocated based on the continuing ability of each medium to reach your objectives. An annual evaluation should take place even if there have been no fluctuations in market, industry, or campaign performance.
Results Take Time
Keep in mind when developing a budget that advertising is a long-term investment for your business. There is no magic potion, or lottery that will increase your sales by 200% or drive 200 more hits a week to your website. It’s a slow and steady race to reach your goals. The higher the budget, the more likely you’ll see faster results. More money = higher reach and frequency. As long as the creative message is effective for your target market, you’ll likely see positive results. Set yourself realistic timeline expectations and consider that there are several factors that go into creating a successful Advertising campaign.
As a small business owner, using these tips should help you in determining your advertising budget and setting some realistic goals. When in doubt, follow the advice of Tip #4 and consult a professional Media Buyer. The time and piece-of-mind you save can be directed toward more important things, like making money for your business! Good luck, from one business owner to another!