There’s no secret here that our business earns more than 90 per cent of its revenue from advertising. However, a lot of advertising we se doesn’t work, at least in any obvious way. (There can be worthy indirect effects, including brand-building and sustaining relationships, which are hard to measure and which don’t do much good for a business struggling to find some revenue.)
As a result, the just-starting-out business owner provides real challenges for our sales team. In one respect, this client can be easily influenced because he or she doesn’t know better. On the other, we have ethical obligations to treat clients fairly and deliver real value. This requires some care in managing expectations, especially if we are offering an editorial/ongoing advertising strategy. Especially for high ticket items (and compared to consumer products where people might spend just a few dollars at a time, even a small job in our business is generally a high ticket time), it is inconceivable that any advertising will generate huge responses.
Consider, for example, that you are a renovator and your average job size is $50,000 (small, I know). Your profit on the job after both overhead and operating expenses is 10 per cent, or $5,000. You budget two per cent for advertising (business development or sales is a separate cost) and you bake that into your overhead so it shouldn’t interfere with your per-job margin. Assuming you sell two jobs a month (you are a small business) you would have $2,000 to spend on advertising.
We publish a regional renovation magazine which publishes two times a year (ottawarenovates.com). The audience is highly targeted and the distribution is genuinely relevant to your market. You budget $4,000 for two advertisements.
No one calls from the first ad. It seems like a waste. But is it? If after four advertisements you make one sale, you collect one $50,000 order — or a $5,000 net profit. Your advertising has now “cost” just $2,000 ($2,000 x 4 or $8,000, minus your true job profit including overhead of $10,000) — but you know this client will be a repeat client. So, multiplied over the number of jobs that the client provides, you find over years that your advertising has become profitable.
Note as well, that this isn’t suggesting you put all your eggs into one basket. If you have $2,000 a month to spend on advertising, that means you have $24,000 a year for your budget. You can certainly allocate funds to sprucing up your website and turning it into a lean, mean, lead generating machine. You can also pay the costs of attending and exhibiting at a few local renovation shows, or perhaps sponsoring some community groups and organizations.
Clearly, you can piss plenty of money away in advertising. When do you pull your plug on the expense, especially since the sample size is small on high ticket items, and that means statistical testing is rather dubious, at least for conventional print media? (Sure, you could I suppose run your $2,000 advertisement 500 times in Ottawa Renovates — but you’ll be old and grey, or more accurately many years in your grave, because as a bi-annual publication, that would require you to budget for around 250 years of advertising. The testing cycle can be more rapid and meaningful for online advertising, but still will require a fair bit of time, especially for the larger purchases delivered in our industry.)
The answer: Continue if the media passes the relevancy check-box and you ensure you follow best practices for effective advertising. To give you some guidance here, see Patrick King‘s excellent blog posting, Six reasons your advertising doesn’t work.
King concludes with the message I’ve outlined above:
Be persistent. I’ve been preaching this for close to twenty years, but I still see a slew of one-off ads on websites and magazines. Companies that place these one-hit ads have two choices: 1) go ahead and consider it a loss as soon as you send over the artwork, or 2) build some repetition. You’re getting in front of people who have no idea who you are, and no reason to care about who you are. It’s only through repetition that you’re able to become familiar, and only through familiarity that someone will feel the level of comfort in reaching out.
I agree. Yes, it takes some discipline to be satisfied that your advertising is effective. It also takes patience, and it is unwise to put all your eggs into one basket. Yet, despite its sometimes serious challenges, effective advertising can be a truly wise investment.