Sales…and lots of them…make for success. Advertising makes the sales happen. Advertising is often as important to a small business as location, employees, and cash flow. It’s an essential form of business communication, for both products and services. It’s difficult to sell anything to people who don’t know about you. When a business owner looks at his or her budget, advertising is oftentimes seen as one of those expenses that can be cut if times are tough or if sales are down. Unfortunately, this is exactly the opposite of effective advertising strategy.
Before you put your creative energies to work, put your pen to paper and calculate an advertising budget for your business. This figure can be either a percentage of sales, a per-unit amount based on sales or a specific amount for a particular promotion or media. Advertising is a predictable business expense like rent or labor costs, and can be related to the amount of goods sold or services provided. Each industry has established a percentage figure or ratio of advertising to sales. Dun and Bradstreet, Standard & Poor’s and Robert Morris Associates are financial organizations that publish guidelines for most industries. You must decide which sales figures to use– past sales, estimated future sales, or a combination of the two. In using past sales, you can use one year or an average of two or more years. In most cases, the advertising budget will range from 1 to 7 percent of gross sales, depending upon the type of business and your competition. The average for retailers is about 3 percent.
Another way to calculate your advertising budget is by unit sales. Using this method, you decide how many units of merchandise or customers you need to sell and then multiply this figure times what it costs to sell to one of them. For instance, if you want to sell 100 mountain bikes and it costs $20 in advertising to sell each one, you need to purchase $2,000 worth of advertising.
In addition, frequency is a key to successful advertising strategy. Frequency is the number of times the average person sees an ad. Your objective is to hammer your message into the minds of your potential customers. You want them to recall your message and be motivated to buy from you at the critical moment. To accomplish this, frequency is vital. A consistent advertising program with a well thought out theme are vital to increasing sales through advertising.