Our Advertising Budget calculator can help you answer this age-old question so you can come up with a sensible plan of attack
Too often, one of the first questions out of an advertiser’s mouth is: have you come up with a budget? Many “experts” will tell you to spend 5% or 6% of total sales on marketing; but, that’s an absurd and useless generalization because it doesn’t take into account:
the visibility of your place of business and signage, or
your mark-up and cost of sales.
If you have a highly visible location that gets noticed and, because of location and visibility alone, that’s marketing! So a prime, highly visible location might be more expensive, but might also be worth the added cost and should be factored into your advertising budget.
Similarly, not all sales are the same. An attorney’s billable hour is a completely different “sale” than ten pairs of jeans at a retailer. Why? Because the attorney’s hours have little to no cost of sales and the revenue from the “sale” can all go to pay operating expenses of the business whereas the retailer must deduct his/her cost of purchasing the jeans before using any of the “net” sale to pay operating expenses. So your net sales are the important number regardless of your “total” sales.
We’re here to help.
Although there is no “one size fits all” budget formula, this simple calculator below can help you figure out roughly how much you can afford to spend on advertising.
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Your Marketing Budget Results
Projected Sales & Markup
We are budgeting 10% to 12% of projected sales for your total cost of exposure – occupancy plus advertising. If you operate a service business, you still have a cost of sales – the time invested in each sale, the payroll for that time and for performing the service, any commissions you pay, etc.
Use whole dollars
Don’t worry about the tax return figure – use your operating figure
Note: When calculating your cost of sales, only include those items that are essential to the sale. For a retailer, this could be the wholesale price. For a service business, it might be the base salaries and/or commissions. But it’s not your total operating expenses – just those required to make the sale.
New service businesses or one-man shops may think they don’t have a cost of business, but you should then factor in the salary you should be making – even if you’re not paying yourself yet.
Occupancy Costs
Your total budget for exposure is 1 to 2 based on gross sales of 3 with a markup of 4. Now, deduct your occupancy cost to determine your budget.
Include CAM, utilities, taxes, etc
Be sure to include all, but only, expenses associated with your occupancy that are tied to the physical location. For example, include rent or property taxes because those are tied to a specific location, but not internet service because you’ll pay that at any location.
Annual Marketing Budget
Here is a general, common sense range for your marketing budget for the next twelve months.
1
Low End of Range
2
High End of Range
This comes out to approximately 1 to 2 per month, and represents roughly 10% to 12% of your gross annual sales.
Knowing you may be able to spend between 1 and 2 on growing your business and your bottom line, here are some ideas to consider.
Your Location
Your cost of occupancy is 3 of your gross sales, but are 3 of your sales because of your location? Can you increase your visibility via signage or some other way to increase sales? Can you move to a less visible, less expensive location and keep your sales up?
Your Website
Can you do a better job of converting visitors on your website to leads and sales? Odds are, most of your new customers will try to visit your site before they call or come in – that’s just a fact of life. If you can’t quickly and professionally solve their problem, you’re likely to miss the sale.
What are you doing regularly to increase sales without incurring higher and higher costs of sales? Digital marketing – social media, email, paid search, video – allows you to sell wherever your prospects hang out online.
If you can commit yourself to a 6 to 9 month ongoing marketing campaign of 1 to 2 per month – one that is constantly monitored and tweaked to be optimized – you are almost certain to see not only a growth in your sales, but enough growth to exceed what you’re spending on marketing so it’s no longer a losing proposition.
Based on the information you provided, you don’t have any wiggle room to advertise. Before considering a marketing strategy, you should review:
Occupancy Costs
Are you getting enough walk-in and phone-in business, or high enough sales prices or fees, to justify your location and occupancy costs? If not, it might be time to consider a new location to help you save money and free up funds to grow.
Gross Markup
Is it possible to increase your prices to improve your margins and free up cash to grow?
Can You Afford to Advertise? (Better Yet – Can You Afford Not To?)
Regardless of your budget, you can’t afford not to if you want to grow your business. We’re a great example of advertising on a small budget – nearly 100% of our clients come to us through our website or via referrals.
We’d like to do the same for you and add you to our long list of success stories. So call us now at (312) 313 9311 or send us an email below to strike up a friendly conversation.
