How To Advertise:
Planning Your Small Business Advertising Budget Strategy

by Tom Egelhoff

Author Tom Egelhoff

Small Business Advertising — It's probably the toughest part of any business.

How much to spend, where to place the ads, how often, what message to send, and to who?

It's not possible to answer all these questions in one article so I'm going to deal with the budget creation.

For tips on low-cost advertising strategies, See: "25 Low Cost Advertising Tips."

How Much To Spend?

The most common answer to this question is, "How much have you got?" Advertising has a way of depleting your bank account very quickly.

If you asked 100 businesses that question, the most common answer would be, "a percentage of gross sales." This not only works for advertising but most other budgets too. Here's how it works.

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Percentage of Sales Method

Take your total last years gross sales or (if you don't have a last year) use average industry standards. A specific percentage of that amount is allocated for advertising. Depending on the business this amount may be a daily, weekly, monthly or quarterly expense.

The percentage amount will also vary depending on your profit margins, industry, location and market size. Most business operate with an advertising budget of 2-5 percent of their previous years gross sales.

If you are new in business, you can obtain industry standards from associations or trade magazines devoted to your type of business. Check your local library for these resources.

One of the main reasons most businesses like this form of budgeting is the safety factor. Rather than having to "predict" the future and adjust, they are always dealing with a "known" amount.

The down side is an opportunity to capitalize on changing events or customer trends are often lost due to the restrictions of the budget which is tied to a set amount, not the current business climate.

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Sales Objectives Method

Using this method, advertising managers will set sales objectives they feel are attainable in the current business climate. Advertising and promotion is then used as needed to help realize the sales goals regardless of what happened in previous years.

The up side is that if the advertising is done correctly it becomes an investment, not an expense and can fuel more advertising at later dates.

The company grows and expands at a faster rate than it would with the percentage of sales method.

The down side is that advertising based on a bad promotion or incorrect advertising can be very costly. Suddenly future advertising becomes an expense not an investment.

Costs like this cannot always be recouped quickly and may start a downhill slide that can destroy a company.

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Save Money By Unadvertised Testing

Ever go to a store and find an "unadvertised special?" This is the store's way of testing the waters for a specific product or service. If the product tests well, the store can run future ads promoting the product.

Another advantage: Several products can be tested against each other and the winners are promoted later with a greater expectation of success.

Service businesses can test additional services at a discount to customers when the primary service is purchased at full price.

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How To Budget For An Individual Ad

Now that you know two methods for budgeting your advertising it's time to look at putting them to work. Advertising is like eating an elephant. It's done in small bites not one big one.

You will run several ads over a period of time rather than one large ad. How much the ad will cost depends on the answers to the following questions.

All advertising must accomplish a specific definable goal. What will this ad do for your business? What is the short-term benefit to the company for running this ad? The long-term benefit?

Is this ad financed by the percentage of sales method or a sales objective percentage method? What is the dollar amount allocated to this ad? Co-Op funds available? What is the expected revenue this ad will produce?

Are comparable ads being run for competitive products? What size ads do they use? Can you run similar size ads?

What is the specific time period for achieving the advertising goal? What form of evaluation will be used to assure that the ad is working or not working?

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How To Evaluate Your Ad Results

Advertising that doesn't work is like an employee that doesn't's costly. You must be able to track whether the ad is working or not and why.

Create a "tracking sheet" for each and every ad you produce in each type of media. This sheet will be filed with a copy of each print ad and the script for each radio or TV ad. Each sheet will contain two major tracking areas.

First tracking area. The history of the ad. When was it run? What media? What days? What was the cost of each run? What was the cost for the entire run of this ad? What amount was paid by co-op advertising, if any? Art and design charges?

Second tracking area. The goal of the ad. Who was the ad directed toward? New customers? Regulars? Were projected sales met? If so, why? Adequate inventory? Proper staffing? Weather? Other events that drew traffic to your area?

If projected sales were not met, why? Competing sales by competitors? Better promotions or products available elsewhere? Conflicting civic events? Other events that drew traffic out of your area? Error in the ad? Weather?

When the time comes to run this promotion again, the history of both the costs and results of the ad will be readily available.

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Some Ways To Prepare Customers In
Advance For Upcoming Promotions

Some products require education of the customer. Offering educational information to the customer does two things.

First, it alerts you to the customers who have at least some interest in your products.

Second, it shows them you are an authority on this product or service.

Offer free information about your business in your ad such as, "Ten Common Mistakes Home Buyers Make." Make the information specific to your own business, not generic to your industry.

Make sure you use the information to separate yourself from your competitors.

For example: Let's assume you have a furniture restoration business. If your competitor uses XYZ glue, and you know it is cheaper and inferior, you might say, "We use ABC glue exclusively because it's the best."

Do not "bad-mouth" XYZ glue, just plant the seed of doubt in the customers mind that anything less than ABC glue is questionable.

Send out the information and follow-up with a letter or call in a few days volunteering more information. Invite the customer to see your business first hand. Show testimonial letters and past successes.

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The Final Customer Questions

Keep an eye out for red flags when talking to your customers. Customers will use certain phrases to disguise problems they have had with other businesses.

See Customer Service: (Customer phrases to watch for)

Learn the phrases for your industry and make sure everyone who comes in contact with your customers knows them. Make sure you address the common ones in your ads.

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Some Final Thoughts on Small Business Advertising Budgets

Advertising doesn't have to be hard. But, it does require study, testing and planning. The most important lesson in advertising that almost everyone misses is, tracking customer response and income produced by advertising. Does it pay to advertise in the media you've chosen?

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