Oh the places you’ll go … Yellow Pages, newspapers, magazines, billboards, TV, radio, Internet … if you say yes to every advertising opportunity that comes along. Being everywhere isn’t necessarily the best strategy, however, and few companies can afford to be everywhere these days.
Each business needs to establish its own rule of thumb as to what percentage of gross sales is spent on marketing and promotions. The next step is to take that budgeted amount, create an effective plan and then, most importantly, stick with that plan and track the results.
SETTING A BUDGET
Unfortunately, there’s no magic number for how much every business should spend on advertising and marketing. Spending on promotion, advertising and marketing varies by industry, from less than 1 percent of sales for industrial business-to-business operations to 10 percent or more for companies marketing consumer packaged goods.
To get a new product off the ground, consumer packaged goods companies may spend 50 percent of sales in the first year, and then lower the percentage spent to a stable 8 to 10 percent once the product has been successfully introduced in the marketplace. Retail stores spend, on average, 4 to 6 percent of sales for marketing; most service businesses spend between 2 and 5 percent of the previous year’s gross sales on advertising.
Many small businesses use an informal — and often ineffective — method of calculating how much to spend on marketing. It goes something like this: estimate sales revenue, subtract cost of goods, overhead, salaries and desired profit, then spend whatever is left on marketing.
What you should be spending on advertising, or what you need to spend to be competitive, depends a lot on your market. The size and location of your service territory makes a difference, as does the amount of competition out there and how hard that competition is working to promote itself.
It makes sense to try and match — or slightly surpass — the amount your direct competitors are spending as a percentage of sales. Of course, they probably won’t come right out and tell you that figure, but you can make an educated guess based on what you see them doing in the marketplace.
It might also help to ask successful non-competitors what percentage of sales they allocate to advertising. You could pose the question on industry Internet forums like the PRO Online Discussion Forum, accessed at www.promonthly.com; or personally at trade events like the Pumper & Cleaner Environmental Expo.
HAVING A PLAN
Your advertising budget should answer the following questions:
1. How much will I spend?
2. When should I spend it?
3. Where should I spend it?
4. What media should I use?
Let’s look at how to answer these questions:
HOW MUCH
Because your advertising budget will be based on expected sales, you first have to set sales goals. How many restrooms do you expect to rent out each month, season or year?
It can be a guessing game, but looking at past sales should help you make a fairly accurate estimate of future sales. By multiplying the projected volume for the year by the percentage allocated for advertising, you will arrive at the dollar amount of the advertising budget for the year. For example, if you decide you should spend 3 percent of an estimated $100,000 in annual sales volume, the result will be an advertising budget of $3,000.
WHEN TO ADVERTISE
While marketing is most effective when it is continuous rather than done in fits and starts, you probably won’t want to divide your advertising dollars evenly by month.
Consider how far out your customers make decisions. Those who plan large summer events like art fairs and music festivals can work as much as eight months to a year out. Builders are making decisions throughout the construction season as they go from project to project. And those who plan smaller events, like weddings or graduation parties, often make decisions only weeks before. When you advertise should be based on the type of business you are trying to attract.
WHAT MEDIA TO USE
You probably already have some fixed advertising costs like phone book listings and Web site maintenance, so subtract those from the budget first. Also decide if any permanent advertising elements need replacing: signage on your building or trucks or decals on restrooms. The cost of those items should also be subtracted from the budget. Now you are ready to allocate what’s left in the budget. Do this by considering how you’ve spent these discretionary advertising dollars in the past and what you’d like to try in the future.
That last step is crucial. For your advertising program to be successful, you must track your efforts and invest more in what works and less in what doesn’t. This can be as simple as asking every new customer how they heard of your company and keeping track of the answers. Of course any advertising program benefits from being kept fresh and fluid. Continue to experiment with some new marketing ideas each year and you may be surprised at the results.
TELL YOUR STORY
If you’d be willing to divulge your “magic number,” i.e. the percentage of sales you allocate toward advertising, with other PROs, or just share advertising ideas that have worked (or not worked) for your portable restroom company, send me an e-mail and I’ll work them into a future column.
