http://www.pcwomensjournal.com en-us N/A casey@ncdbs.com Mon, 06 Sep 2010 19:44:40 EDT 20 false false false clean http://www.pcwomensjournal.com/blogs/9/How-to-set-your-small-business-advertising-budget.html There is an age-old question business owners large and small face each year.

How much should your business spend on advertising?

There are two answers to this question, one being the more traditional method, the other being the more effective. Let's see which one you choose.

Let's look at 2 home improvements centers as an example.

Business A uses the "percent of annual revenue" approach and consults with an accountant to get an idea how many dollars to allocate for advertising and marketing. So, let's suppose Business A has annual gross sales of $500,000. The account runs a few profit and loss statements, prints some balance sheet and tax returns and tells the business owner, "based on your profits, you should spend $3,500 this year on advertising."

Now, armed with this information, you begin considering which media to use, i.e., how many units of "advertising and marketing" you can buy for $3,500. You meet with the local account executives from print, radio, television, web and direct mail. You learn $3,500 doesn't go very far, but you decide "what the heck, I need to advertise anyway, so I'll just go with the guy I used last year. Didn't work well, but it's something and I'll probably get a tax write-off anyway."

During the year you're approach by reps from different companies, but you "get rid of them" by telling them "we've already budgeted for this year." Of course, it's not working but you can avoid the sales call. Unfortunately, you are also avoiding learning about new methods, opportunities and effective ways to reach you audience.

Business B skips the trip to the accountant. Instead, the smart owner sets time aside to analyze his or her business and asks "what products should I sell," "who should I sell them to" and "how do I get the word out." So Business B decides that its line of garden tillers is especially popular from February through April. Business owner B knows this based on past year's sales. In fact, Business B notices the competition really hits the airwaves each year about this time advertising garden tillers.

So Business B decides "you know, I better be ready to advertise my garden tillers if I want to hit my sales goals." So, Business B makes a plan to sell 25 garden tillers at $750 each. Business B also know that when folks come into the store, they are likely to buy other products, so each garden tiller is really a $1,000 sale. So Business B sets a goal to sell $25,000 in garden tillers and related products from February to March.

Next step: Business B calls in an advertising and marketing professional. They discuss an advertising campaign that helps the business meet its garden tiller sales goals. They agree to a $5,000 budget and set the campaign timing. Wait, isn't that a lot higher than the accountant's plan? Isn't this risky?

Well, business is risky, isn't it. I love accountants, but isn't it riskier making decisions based on someone's opinion who doesn't work in the advertising or marketing industry? But by targeting the right product, at the right time, with the right message and the right results, Business B not only sells $25,000 in garden tillers and related products, but builds repeat customers and increases sales to all products.

So Business B, now sits down and takes the next product or service and repeats the same process. Each campaign can be tested and improved upon.

Business A, meanwhile, has allocated its $3,500 and stubbornly sticks to the "accountants plan," watching Business B take its customer base away.

One day, panic sets in and Business A has to "make up lost ground," only to find it will take many more dollars spent on full page advertisements, direct mail, radio, television and the internet to catch Business B.

The moral of the story: the right plan, the right time, the right budget, the right media equals the right results.

Consult with us on how you can be more like Business B and grow your sales. Call us at 252-413-0418 or write Casey Turton at casey@ncdbs.com.


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