How do you decide how much to spend on your advertising?

by | Business Growth, Marketing

Most businesses will look at their figures for the last financial year and say I spent this amount of advertising, so that’s’ my budget. But here’s the question you need to ask yourself, “was I happy with the return on investment from that advertising spend and did I see growth in the business?”.

If the answer is yes, you’re happy with the spend, but there was no growth in the business, then I guess you have the answer. Whatever you did, maintained but didn’t grow the business. If your figures show a decline in revenue, then either what you were spending wasn’t enough, or you didn’t get the right advice.

The advice on how much to spend on your advertising hasn’t changed much. There’s a formula based on the revenue that says a successful business spends about 4.5% of its turnover each year on advertising. If you have a $5M turnover, then your advertising budget should be around $225K each year. While a business with a $500K turnover would spend $22.5K each year. Although this is recommended, many businesses don’t spend or allocate enough budget for advertising, and many struggles to spend just 1% on advertising and marketing. ($50K/$5K respectively) This lower budget, of course, leads to lesser results as you are not able to get the reach and frequency you need to convert to sales.

And the most common reason businesses don’t spend enough money on their advertising is that they have not budgeted for it or just don’t have access to the funds from cash flow or savings.

You need to spend money to make money. This means you need to plan long term advertising and marketing strategies using the most cost-effective means available to you.

As marketers we deal with business people every day that ‘think they know marketing’, have had a history of working in the media or have a relative that knows all about marketing. It’s like saying “I’ll get my nephew to pull out my tooth because he went to dental school for a year”. You might get some advice, but unless you are working in the industry or have access to the people better at it than you, you’re not going to get results.

Like accountants, good marketing advisers are worth their weight in gold because the advice they give you helps you grow your business by growing customers every year.

A good marketing strategy is based on a solid foundation and that means a plan of action that can be adapted to market changes every 6 months or so. Your marketing plan needs to include a mix of brand and call to action advertising, over the long term and the short term. You need to know the strengths and weaknesses of each platform and work with it.

What advertising platforms are available to you?

Television, newspaper, and outdoor advertising come at a high price. Television might give you the reach that you need, but it won’t afford you the frequency. Newspapers everywhere are closing down due to dwindling readership and circulation figures, so both reach and frequency are lower than it was a decade ago. Outdoor advertising, high cost creative and rental but if you can afford to keep the message long term, is a good form of brand advertising.

Television advertising is not affordable for long term advertisers due to its high cost. If you have a seasonal or stock reduction sale then, it can return dividends on short term call to action campaigns, but the cost of the creative can be eye-watering! Radio is about the only traditional media that offers a cost-effective way to reach an audience and maintain reach and frequency over the long term. Data released last month by Commercial Radio Australia show that there’s been an increase in listenership of radio across the age demographic.

Digital content marketing can be very time consuming but effective if it’s done properly. It’s not effective as a long term brand awareness campaign, but used alongside radio a good SEO manager can increase brand awareness and Google ranking for your website.

Don’t expect results overnight

Brand awareness requires a long term commitment to advertising to position you to potential customers now and in the future. It shows how McDonald’s has positioned itself over competitors in the burger wars, Coca Cola over Pepsi and Nike over Adidas. Long term branding can bring you immediate recognition as the preferred supplier of that brand or product. It requires continuity of messaging across all platforms so you are not sending mixed messages to your customers. If you are looking for advertising to create a quick fix to your financial woes, it’s important to have the money to put into advertising to allow you the right reach and frequency, and also to have a long term strategy in place.

If running a business was as easy as putting a sandwich board outside your store or a graphic up on your Facebook page, then don’t you think everyone would be doing it?

When revenue is down, we pin our hopes on a miracle advertising campaign but the reward or outcome you get will be directly related to the money, time, and effort you put in and the advice you get. If you don’t have a long term strategy to build your brand and bring in more customers, then maybe it’s time to work on it now so you are not in a position of playing catch up with customers and cash flow on a regular basis.

Rebel Connect’s business consultants work with the 7 Steps to More Customers Plan to help you build your long term marketing strategy using multiple advertising platforms. The plan includes making sure you have the tools to effectively bring in and influence customers in the digital world and how to close the circle to stop losing customers to your competition. For a free consultation contact us now.

You need to ask yourself as a business owner, what would you spend to increase your income by X amount of dollars? If you are currently bringing in $1M per year in sales and want to double that to $2M, would you be prepared to spend 10% to do that? If you answered YES, then you would have a budget of $100K to spend on advertising to achieve it. The issue here is that businesses owners want guarantees that they will bring in the extra sales which are impossible as there are so many external factors that can affect your sales – not only advertising results.

For example, you may receive the additional work, but don’t have the infrastructure set up at your workplace to deal with the additional costs or work. You may have stock issues, your website may not be set up to covert sales. There are so many factors at play that could affect your campaign that needs to be considered ahead of time.

Related article: What’s the most important part of your advertising campaign?

Related article: Do you have an unrealistic view of your advertising and what it can do for you?

Related article: Ways to Dominate Google’s First Page without spending a huge amount of money!