| |
| |
|
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
Information To Include On Your Business Card The logo and graphic elements that you include on your business card are quite important, but having the right text and contact information on the card is equally important. Here are our tips about the elements to include:Your name - Consider whether you want to include your middle name or initial, degrees or professional credentials that are unique to your field. Tips for Using Paid Advertising Quite a few business out there can't survive without some type of advertising and/or brand recognition, so advertising your business is one of the most important aspects in running certain types of business. It's also one of the most frequently asked questions for "how to". How To Track Your Advertising Like A Hawk Tired of pouring endless money into advertising? Do you wonder which ads are "REALLY" working for the business you manage? Would you like a bullet-proof system for capturing the results from your advertising and marketing? Below are three concepts that will enable you to track your advertising and marketing like a hawk! Really, it's that simple!Developing a tracking system: As a business owner/executive/manager, you need an efficient way to record and evaluate the results from your advertising and marketing programs. To get started, you will need a "prospect card" which includes a list of ALL the places you advertise and market your company. Is Your Yellow Pages Ad Putting Cash in Your Pocket... or Sucking Cash Out? Any idea? It's a question that more than a few Yellow Page advertisers ponder. If you are currently spending money every month to run an ad in your local directory, you don't want to wrestle with that question. Non-profit Coupon Books and Coupon Mailers for Small Businesses Many groups like the Chamber of Commerce, ASB at the local high school, etc. will ask if their members can get a discount if they shop in your store or use your service. If You Invest Money on Advertising, then You could Save Thousands through this Simple Little Secret A few years ago, I analysed the statistics of where one of my clients, M & M Pest Control in Sydney, generated all their leads from. As a result of this, Ray Milton, the director of the company said:"Scott measured the results we were getting from our advertising, and as a result, this confirmed my decision to eliminate over $42,000. LED Score Boards LED scoreboards can be utilized in most of the sporting event for eye-catching effects replace traditional scoreboards. This high- tech lighting system is both energy - efficient and able to produce a very bright light. What the Newspaper Ad Person Won't Tell You Newspapers are considered the PRIMARY advertising medium by 99.4% of all retailers. Effective Promotions Through Local Classified Sites Today's online marketplace is extremely competitive. People want to market their products and services with the most cost effective manner possible. How To Create Instantly Compelling Ads Every Time Use This Quick 3-Question Evaluation Process, So You Can Be Sure Your Message Will Sell!EVALUATION #1: "Well, I Would Hope So!" When you make a claim, don't think about it in terms of words coming out of your mouth. Think of it in terms of words entering your prospects ears. Electronic Display Signs Electronic display signs are used nowadays in great extent to display important information instantly all over the world, which uses LED technology, which stands for light- emitting diodes. These are widely used in the worlds of commerce, government and even non-profit organizations. Attention-Grabbing Fixes that Make Your Yellow Page Ad Leap Off the Page Stand Out in Ways that Matter to Directory Users A Yellow Page directory presents a difficult challenge for advertisers. All the competitors are packed together, within the space of a few pages. The Secrets To Successful Radio Advertising Ask some businesses about radio advertising and they'll tell you it's the greatest investment they ever made while others will tell you it was a complete waste of time and money. So why does radio work for some and not for others? What's the secret to successful radio advertising?Know this: Radio can be a major player in your advertising mix if you know how to do it and I'm about to give you the secrets to successful radio advertising so read on. Go Ahead Im Listening In today's fast paced environment, interaction with family and friends is often relegated to a few left over minutes here and there, leaving many people feeling isolated.Radio fills the gap. Increase Business By Being Nice I have been reading articles on increasing sales using search engine optimisation as well as writing them for a very long time and I have not seen many which point out the best way to increase sales.The answer is obvious yet often overlooked; you just have to be as good to your customers as you would expect any other site owner to treat you. Why Your Ad Failed So you spent good money on an ad, put it in a magazine or newspaper, and waited patiently for phone calls that didn't materialize. You're upset: you feel that you've wasted money and time, and now you're convinced that advertising doesn't work. Successful Print Advertising Designs Do you often see print advertisements outdoors, as much as you see Web advertisements when you surf through the Web? I'm pretty sure that you have entirely different views and reactions upon seeing and actually taking notice to these two different kinds of advertising. The differences may vary in their use of color, typefaces, and space. Is Your Advertising... Sexy? Ever hear the term 'sexy' advertising? It's not necessarily what you think. Sure, some people's idea of sexy advertising is hot babes in bikinis spraying beer all over each other, but that's overtly sexual and not what we're about to discuss here. 5 Tips for Hot Yellow Pages Ads Yellow Pages advertising is one of the most popular forms of advertising in the country today. Almost every home in America (96. Imaging Isnt Everything Many home improvement contractors attempt to use advertising to expand their client base and increase profits. Whether it be yellow pages, mailers, ads, or valpak; for many it's a total waste of time and money.
|
| Article List | Index | Site Map |
|
All logos, trademarks and articles on this site are property and copyright of their respective owner(s).
The comments are property of their posters, all the rest is Copyright © 2006 CanadaSEEK.com - All Rights Reserved. |