Are You Spending Too Much On Advertising?
When analyzing clients advertising spending, it’s really easy to find a lot of wasteful money. Money that can go directly to the profit line.
Are you wasting advertising dollars? Here’s how you can tell.
How Much Should You Be Spending?
This really depends on your business, the industry, the level of competition and your ROI.
Generally speaking, you’ll hear the number 10% a lot. Experts suggest that as a rough rule, and we’d agree that most small businesses should be spending 10% to 12% of your profits on advertising. This number can be as low as 1% or more than 25% depending on your industry.
The Wall Street Journal has a good breakdown of overall industry averages published earlier this year:
Most of you will fall into the Retail / Wholesale category – hence the often quoted 10% number. It hasn’t changed much over the years.
If you’re in the service industry, you can see that the average is 50% higher at 15%.
If you’re spending 35% of your budget on advertising (and you’re not a new business) you could be overspending.
Where Should You Be Spending?
Another common hurdle businesses have is where to spend their budgets. Should you buy radio? What about Adwords?
There’s no easy answer, but we can look at the trends worldwide:
It’s no surprise that television, newspaper, magazines and radio are all down – but maybe not as much as you think. There’s a reason McDonald’s still buys radio and TV, and that’s because it works. The real issue with traditional media isn’t whether or not it works, the issue is the price you have to pay to use it. For each dollar spent on traditional media, how many customers do you get in return? What about digital media?
Generally speaking, digital media has a better ROI than traditional, because it’s cheaper and often closer to the time of purchase than traditional. For example, you can advertise your window cleaning service on the radio to thousands of people who may or may not be interested in your service right now. You’re paying for those ears regardless. So your strategy should be around top-of-mind-marketing. With Adwords, you can directly target someone looking for a window cleaner at the exact moment they’re looking for one. Your strategy should revolve around that last mile if you’re using adwords.
Ultimately where you spend your money should have a purpose in your marketing plan. If you’re just buying it because you think it works, or want to give it a try, you may be wasting your money. Which brings us to our next point:
Not Planning Your Marketing
This is easily the biggest waste we see. If you’re buying radio or newspaper ads based on sales packages that are presented, or if you’re spending gobs on social media because you think it’s where you need to be, you could be wasting thousands of dollars.
What’s the strategy behind the spend? What are you trying to achieve? Who are you looking to reach? Why?
You need to plan all this out in advance. If you’re lured in by the latest sales packages by the local newspaper because they’re cheap, remember that they have “sales” for the same reason you do: to move their product or service. It’s not out of the goodness of their heart. It’s to make money. They’ve also offered this package to almost every other client they have. Is your business the same as a car dealer or coffee shop? Probably not, so why buy the same ad package as them?
You can waste a lot of money by buying things on a whim. If you don’t have a strategy, or don’t know how to make one, hire someone. It’ll pay for itself ten times over. You’ll either save money overall, or the results of your advertising will be better. Of course, this all depends on our last point:
Measure the Results
This is not always easy. However, if you’re spending money on advertising, you need a way to measure the results. Digital is really easy to measure as everything is tracked. Traditional media is harder, but doable with a little effort.
DO NOT ask your customer how they heard about you. This is an extremely unreliable way to find out what works – and can actually lead to you spending in the wrong places costing you more money. Here’s why:
“As Michael tells the story, he was working for a business that was having a big sale one Saturday. Prior to the sale they did a lot of advertising in the local market and wanted to determine which marketing project paid off. To do that Mike and his boss stood at the door all day and asked every customer where they heard about the sale. 30% said TV, 20% said Newspaper, and 50% said Radio – Good to know, right? Except they never had a TV ad. When they asked people if they were sure they heard about it on TV everyone assured them that they had.”
It’s totally unreliable. The hard truth is “Your prospects don’t know and don’t care where they heard about you.”
If you want to increase your ROI, this is not a good way of measuring results. That article mentions a few better ways you can track results, including coupons and unique offers.
Why doesn’t it work? For the same reason eye witness testimony is totally unreliable.
“In two follow-up interviews, 25 percent still claimed that they remembered the untrue story, a figure consistent with the findings of similar studies.”
The mind is a complicated thing. If it can’t accurately recall crime, how do you expect it to accurately recall advertising?
If you’re unsure of how to measure results, talk to some consultants or agencies that can help. You can’t manage what you can’t measure. Anyone that tells you they can’t measure the results, or fails to provide a way to measure the results, might as well be selling snake oil.
Spend your money wisely, and measure the results, and you’ll find that your ad budget will thank you for it!