My business earns 90 per cent of its revenue from advertising sales. Yet, I hesitate and almost never purchase advertising — and if a small business owner asks for advice on where to spend a modest marketing budget, generally, the advice is not to spend money on conventional paid advertisements.
Yet, some of our clients spend tens of thousands of dollars per year with ads in our publications, and their expenses are a tiny part of their budget. They certainly are intelligent and skillful business people.
So what is happening? Is there a “gap” which you need to cross before you can be successful with conventional paid advertising, and, if so, where is it?
I wish I had a clear answer — but don’t. Certainly, conventional advertising is a challenging expense for most non-residential contractors, and for architects and engineers. You don’t want to waste money on mass media when your potential client audience is relatively small. Specialized trade publishers (such as our business) provide a different model/matrix. The ads themselves may have limited effectiveness, but publishers such as us can often provide valuable contacts, networking suggestions, and integrated marketing resources including editorial coverage, website and social media publicity and other tools. This is a situation where the sum is often greater than the parts.
Online advertising in theory reduces the risks and allows for faster testing. You can evaluate things quickly, and pull the plug if they aren’t working. but online costs are rising, and the “olden days” where marketers discovered untapped inexpensive leads are less easy to capture as competition has increased.
The overall picture remains that you need to have the scale, size and retained earnings to blow a fair bit of cash on ineffective advertising until (a) you discover a baseline point where you know your ads will work (and then you can test and adjust them to improve their effectiveness and (b) the cumulative effectiveness of the advertising, coupled with other business practices, helps you to develop and defend your brand and make it much harder for competitors.
What is that stage? Well,if you have an annual business volume of $5 million, and you allocate three per cent of your gross sales revenues to marketing, that would give you a marketing budget of about $150,000. (If you want to live more aggressively, you could spend 5 per cent on marketing, or $250,000.)
Should these funds be spent on advertising, or on public relations campaigns, enhanced websites, conferences and trade shows, association memberships and other things? My answer would be to allocate reasonable funds for activities that enhance/improve communication and connection with your current clients, build out from there for referrals and community service initiatives, and then make a choice: Do you have enough money for serious advertising, or should you return the surplus to your profitability/bottom line? Yes, the answer may likely be the latter.
This advice may appear to be counterintuitive for someone whose business is based on advertising sales, but we would never want our clients to throw their money away. Our business is like yours in this regard; if we do things right, we earn repeat and referral sales. In our case, advertising costs often are covered through trade-out arrangements, as places where we might advertise (such as trade shows) will often trade space for advertising, and we obviously won’t rush to spend money with directly competing media, just as you won’t rush to spend money except in exceptional circumstances with your direct competitors.
The conclusion: spend your advertising dollars wisely and cautiously — and only go “whole hog” when you can safely afford to lose most of your advertising investment on the trial-and-error at the start-up. However, if you are in the fortunate place to be able to take and carry that sort of risk, you may become one of the small group of unassailable contractors or industry professionals who can stymie the competition because of the incredibly high barriers to entry, where after you pass through the initial risky stage, successful advertising then becomes sustainable and effective.