Years ago, while I was working in radio, a young man came up to me at a public event and asked what he had to do to become a disc jockey. I told him to get a bachelors degree – not in communications, but rather in business. Take all of the history and political science classes available. Volunteer with some local service groups, and join Toastmasters, or some similar organization.
He asked, “Is that what you did?”
I said, “No, but then I didn’t ask anyone for advice on how to become a disc jockey.”
I did it differently. Much differently. I had other resources and additional knowledge, and was applying for a specific job with a specific radio station. All of those factors should have influenced my get the job strategy. That I did it differently didn’t invalidate the good advice I gave the young man.
I remembered that conversation earlier today when I was asked, “How much should I spend on advertising?”
I will gladly explain the calculations. In the process you’ll get solid advice that will be effective ninety-five percent of the time.
The other five percent?
In that case you’ll budget an ineffective amount, because your competitor has other resources and additional knowledge. The services of a marketing consultant, for example, that will apply his knowledge for a specific result with a specific company in a specific market.
You see, the generic advice any consultant would give in order to be useful at all would have to use averages and percentages. But it makes no sense for retailers to have the same guidelines as service companies, for professionals with different goals and different competitive situations and trends to spend the same percentages on marketing.
One size can’t possibly fit all – at least, not an excellent fit. And yet, for ninety-five percent of the businesses who ask this question, the averages will do just fine. And I’m a major supporter of the do-it-yourself ethic.
With that in mind, my partner, Roy H. Williams has already given an excellent step-by-step in his Entrepreneur article, Calculating Your Ad Budget. I doubt that I could explain it any better.
But I will add a few variables to the basic calculations.
Roy’s explanation works excellently for relational businesses. Many transactional businesses are highly seasonal, and should take seasonality into account. (And don’t make the budget curve match the sales curve, have it lead the curve by the length of time a typical customer is in a buying cycle).
New businesses usually need more exposure to achieve the same awareness level in the marketplace that established businesses do. They’ll need to spend more.
If your business has been losing share, you’ll need substantially more to turn the sales curve around.
Any average projection assumes average growth. If you wish greater growth, you’ll need to budget more.