| |
| |
|
Advertising Information |
|
|
|
How Much Money Do I Need to Spend on Advertising?
Q: I've never really done much advertising for my business; I've always relied on networking and word-of-mouth. Now I'd like to launch a small campaign, but I'm frightened it will cost a lot of money. How can I figure out where to start? A: The first thing you must do is calculate your minimum and maximum allowable ad budgets: · Step 1: Take 10 percent and 12 percent of your projected annual, gross sales and multiply each by the markup made on your average transaction. In this first step, it's important to remember that we're talking about gross markup here, not margin. Markup is gross profit above cost, expressed as a percentage of cost. Margin is gross profit expressed as a percentage of the selling price. Sell an item for $150 when it only costs you $100, and your markup is 50 percent. Your margin, however, is only 33.3 percent. This is because the same $50 gross profit represents 50 percent of your cost (markup,) but only 33.3 percent of the selling price (margin.) Most retail stores in America (carpet, jewelry and so on) operate on an average markup of approximately 100 percent, some operate on as little as 50 percent markup and others add as much as 200. More expensive items, such as cars, recreational vehicles and houses, typically carry a markup of only 10 to 15 percent. · Step 2: Deduct your annual cost of occupancy (rent) from the adjusted 10 percent of sales number and the adjusted 12 percent number. · Step 3: The remaining balances represent your minimum and maximum allowable ad budgets for the year. At this point in the calculation, you may learn that you've already spent your ad budget on expensive rent, or you might also learn that you should be doing a lot more advertising than you had previously suspected. Now let's calculate an ad budget. Assume that my business is projected to do $1 million in sales this year, I have a profit margin of 48 percent, and my rent is $36,000 per year. The first thing to do is calculate 10 percent of sales and 12 percent of sales ($100,000 and $120,000, respectively). Second, we must convert my 48 percent profit margin into markup, because markup is what we've got to have to make this formula work. Most business owners know their margin by heart, but never their markup. To make the conversion from margin to markup, simply divide gross profits by cost. Dividing $480,000 (gross profits) by $520,000 (hard cost) shows us that a 48 percent margin represents a markup of 92.3 percent. Bingo. Now we multiply $100,000 times 92.3 percent to see that our adjusted low budget for total cost of exposure is $92,300. Likewise, we multiply $120,000 times 92.3 percent to get an adjusted high budget for total cost of exposure of $110,760. From each of these two budgets, we must now deduct our $36,000 rent. This leaves us with a correctly calculated ad budget that ranges from $56,300 on the low side to a maximum of $74,760 on the high side. Most advertising salespeople will tell you that "5 to 7 percent of gross sales" is the correct amount to budget for advertising, but don't you believe it. It simply isn't possible to designate a percentage of gross sales for advertising without taking into consideration the markup on your average sale and your rent. Yes, expensive rent for a high-visibility location is often the best advertising your money can buy, since a business with a good sign in a high-visibility location will need to advertise significantly less than a similar business in an affordable location. To prove this, just look at the example above and change the rent to $75,000 per year. In this case, the ad budget would range from $17,300 to $35,760, representing just 1.7 to 3.5 percent of sales. The formula I've given you is the only one that reconciles your ad budget with your rent as well as the profitability of your average sale. Good luck! Steve Moundzouris, 423-653-2201 BigWater Media Group, Bigwater Media Group is a full service advertising and marketing agency.
MORE RESOURCES:
Advertising - Google News |
|
|
|
RELATED ARTICLES
Getting the Most Out of Your Networking Group Here is my personal list of things to do at your networking group:(1) Bring your business cards. Sound simple? Well, I regularly meet people at networking groups who have forgotten their cards or their cards are at the printers. Cinema Advertising is Big Business, So Mergers are a Natural Cinema advertising has always been an effective marketing tool for some advertisers, while for others they have yet to see the benefit of this unique form of media. When an advertiser hears the term "Cinema Advertising" automatically they think the slide that is shown on the big screen with the soothing music played in the background. Joint Ventures Increase Profits Quickly A joint venture is when two or more businesses join together to work on a project for a set period of time. Doing joint ventures with other businesses can increase your chances of beating your competition, increase your sales and increase your profits quickly. How You Can Create Advertising That Sells A well-planned and properly executed marketing program should include a sufficient commitment of capital resources to an on-going, well executed advertising program. Yes, this includes your business. Advertising For The Long Haul and Not the Short Term Gains New Age Media Concepts issues its first article of many that will focus on the advertising and marketing industry. "If a young man tells his date she's intelligent, looks lovely, and is a great conversationalist, he's saying the right things to the right person and that's marketing. Predictions for 2010 2005 puts us at the mid-point of the first decade of the new millenium. What will things look like at the end of the 1st decade of the new millenium in the world of advertising? I thought I'd project where the ad industry is headed and what 2010 (or sooner) might look like. Fax Advertising : Hitting Your Target Immediately In the business of marketing and advertising, it used to be that companies that wanted to get the word out quickly to key customers on a new development would rely on email with follow-up phone calls. But with the new technologies available in fax broadcasting, fax advertising has taken over as the advertising medium of choice when it comes to contacting your customers at the speed of light. Direct Response Advertising; Radio vs TV Radio advertising vs. television advertisingMany new advertisers assume that they should start on radio and "move up" sometime later to TV. 3 Things Every Yellow Pages Advertiser Needs to Know Too many business owners and marketers know that Yellow Pages advertising has an incredible amount of potential? but they don't quite know how to take advantage of it.Fortunately, it's a mystery that's solved pretty easily once an advertiser knows where to turn for advice. The Motivational Triggers That Make People Buy In order to sell more products and service, you need master customers' mind. Put youself into customers' shoes and think what customers want. Mobile Detailers; Customer Window Displays Mobile detailers have all types of customers, many of whom are self-employed. We know that these customers love their automobiles as most Americans and therefore love the services we provide. How To Make A Fortune With FREE Advertising! How To Gain FREE Advertising That Will Make You Rich!Okay-Just What Exactly Is "Free Advertising"???Before I get into the specifics of actually HOW to get free advertising - it's important for you to completely understand exactly what free advertising is."Free Advertising" is any mention, listing or "blurb" about your product in a magazine, newsletter, book, manual, directory etc. Printing - How Do I Buy It? Why should I care where I get my printed material from, I'll just go for tenders and go with the low bidder. If you do this probably you won't be in business for long or you'll never really run a successful business. Do Your Radio Ads Work? Most small businesses don't have a high powered advertising agency to produce selling radio commercials for them and end up with something akin to a high school play, or with the business owner reading tired copy.The radio salesperson knows that by suggesting the owner be the star, visions of Dave from Wendys or that guy with the talking dog who says "roll that beautiful bean footage" come to mind. Magnetic Business Cards: Make Your Marketing Message Stick What is it about magnets that draw people to leave them on fridges and file cabinets for years at a time?Many people like to have the contact information handy for common service providers without flipping through a bulky phone book. Magnets are the perfect solution for being seen in this situation. Persistant Advertising Will Do No Harm! From my experience, I've been on many discussion groups and have spoken to many other like minded people. The one topic that always seems to arise is how to get massive sales right away. Online Classifieds Choosing a Classified Website and creating your advertisements.The internet has opened a vast number of doors for people to market their products and services. Customer-Involving Signage and Selling Here's some easy ways to create signage that will attract, not annoy customers (and local government agencies that regulate signage):1. Since movement always attracts attention, any banner, sign set of a pole that might move with the wind or electrically-turned sign will stand out from the static messages around it. Ads Dont Sell - People Do ! More about advertising by BIG Mike McDanielAdvertising is not a substitute for good sales technique and superb customer service. Inserting an ad in a handy newspaper to call attention to a line of goods will not sell those goods unless you can back it up with intelligent, well directed sales efforts in the store. Do Your Adverts Get You More Sales? Philadelphia retailer and US Postmaster General, John Wanamaker, once said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half."If you're spending $10,000 a month on advertising $5,000 is going straight down the tubes.
|
| home | site map | references |
| advertising-s.net © 2007 |
