|
How much should I budget for advertising? |
|
Written by Marketing in the Valley?
|
|
Friday, 02 February 2007 |
It's not an easy question to answer but here are some thoughts on the subject.
When it comes to determining budgets for advertising and marketing there are many schools of thought. Roy Williams, author of The Wizard of Ad s, devised a unique formula that I highly recommend. What made his formula so compelling was his inclusion of your monthly rent into the equation.
Rent is in large part an expense that you incur to market your business. When starting your business and determining location, the cost of one storefront over another is in large part a factor of visibility to potential customers and how many of those customers might cross your path. That’s why rent in Vail Village is so much higher than more remote locations like Eagle where foot traffic is significantly less. That’s probably not news to you.
However, do you consider your monthly lease payment as part of your ad budget? Consider this, the more remote your location is from the standard traffic patterns of a community, the more you will have to spend on traditional advertising to reach your prospects.
Roy Williams doesn’t call it an advertising budget. He refers to it as "Cost of Exposure." William’s suggests you start by taking 10% of your gross annual sales. This total is your budget for Cost of Exposure. However you must discount that figure by your average mark up on merchandise. (markup is defined as % of profit based on cost. If something cost you $100 and you sell for $180. You’re your $80 profit reflects a 80% markup of original cost.) After you multiply your Cost of Exposure by your Average Markup, you subtract what you already plan on spending on rent and what is left is your advertising budget.
Keep a few other factors in mind. If you are in an extremely competitive industry (i.e. restaurants ) you may need to allocate more than 10% of your gross to Cost of exposure calculation. If you business is just starting you may also clearly need to spend a higher percentage to raise awareness of your presence.
Here’s a sample:
Total Sales $800,000
X 10% = $80,000 is Cost of Exposure budget
Multiply by average mark up of 85%
That’s $68,000
Now if your monthly rent is $2000 you subtract $24,000
And you remaining ad budget is $44,000.
Happy Exposures!
|
|
Last Updated ( Tuesday, 24 June 2008 )
|
