Wednesday, May 18, 2011

How much should you spend on advertising?

Ahhh, the age-old question, and when the answer is being provided by an ad agency, you might feel a bit suspect. Wary or not, however, there are guidelines to advertising expenditures; the numbers are tangible and the concepts behind them more black and white than you might realize.

While there are, of course, many variables—including industry, business size, growth rate desired, etc.—both the Counselors to America’s Small Business (SCORE) and the U.S. Small Business Administration (SBA) define an adequate small-business advertising and marketing budget to be between 2% and 10% of sales.

Sound like a lot? It is. And frankly, most companies under-spend, believing that not to spend is to save. Unfortunately, this strategy can backfire. You’ve heard the old adage “you have to spend money to make money” right? Well, when it comes to your advertising and marketing efforts, the money you spend does directly affect your revenue. It’s a tough concept to swallow, but during lean periods like the recent economic downtown is not the time to cut back.

Too often businesses estimate their annual sales, subtract overhead and inventory, etc.
and then allocate anything left over to pay for advertising. When you consider that you must advertise to generate those sales to begin with, you can begin to see why this strategy may not be such a good plan after all. A better strategy is to consider your advertising or marketing a fixed budget item on the front end of your accounting, not a number that waxes and wanes depending on how business is going.

The key is to spend your money wisely and carefully tailor your campaign to fit your market and fulfill your goals, and that’s where your ad agency comes in. We can’t determine your budget. But we can, based on your budget, your market and your goals, determine the best way to allocate your marketing dollars to keep those sales high to pay for all that great advertising!

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