Spending too much (or too little) on Advertising

What is your advertising budget?

The answers I typically hear from business owners include “the same as last year” or “I have no idea – we don’t have a budget”.

The answer I am looking for is “It depends”.

What I mean by “it depends” is that as a small business owner you should not view your advertising costs as an expense. Instead you should view the money spent on advertising as an investment and like any investment you should carefully analyze your return after each program is completed.

Consider the following example:

• You sell high end electronics and the average net profit on your products is 25%.&bsp;
• You decide to place a ½ page advertisement in your local Sunday Newspaper at a cost of $5,000.
• You sell an additional $25,000 worth of products as a direct result of the advertisement.

The net profit on this increase in business was $6,250 ($25,000 x 25%).s a result, the net profit on this advertisement was $1,250. Based upon this analysis, it is clear that this advertisement was a good investment.

• How much money do you spend on advertising each year?
• What is you most profitable advertising strategy?
• How much money are you wasting on unprofitable advertising campaigns?