How Much Money Should You Spend on Advertising?
How much you should spend on advertising depends on many factors. Advertising consultants might say 8-10 percent of your revenue. Other people would say to match your competitors' ad spending. Another group of people would say spend whatever your business can afford. While some more pragmatic people would say to set your advertising budget according to a financial goal for your business.
Each group has their own logical argument to support their advertising budget claims. The right levels of ad spending can vary by industry and company size. Service businesses with $200,000 to $5 million in annual revenue, for example, do well with 1-5% of revenues spent on advertising.
The larger recommendation of 8-10% might be effective for some. But there are other, more efficient, and more cost effective ways to market your business than advertising. Referral programs, contest promotions and website redesign are just a few ways to incentivize customers. Some sort of recognition or bonus program for the best performing or highest customer-rated employee will drive workers to deliver the best experience for customers. While these will be costs added outside of your advertising budget, money spent on other marketing strategies can lead to greater savings in advertising costs.
But now you need to decide where in the 1-5 percent range your business should be. A large part of your answer depends on the type of growth you're looking for. For slower, steady growth, aim for the lower end. For faster growth, shoot for the upper end. It depends on how aggressive you want to be. Consider how your business will handle the increased business as well.
Spending money on advertising is not a guarantee. Poorly designed, targeted or placed ads do nothing but waste money. Your message, finding the right audience and delivering on your message are more important than how much you spend. If you're going to spend the money, make sure your advertising is effective.
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