If your a small business owner offering services such as lawn care, landscaping, pest control, tree service, electrical services, etc., I have a feeling your are constantly bombarded by marketing and advertising companies wanting you to buy their products. With all the different options like TV, radio, social media, print, flyers, etc., it can be hard to make a decision which one works best or how much to spend.
There is a very easy test to see if you can afford to advertise and produce the results within your budget. The first step is to know what percentage of your gross revenue you spend on marketing and advertising. Is it 5%, 10%, 15% or maybe even 20%? There is no magic percentage. Each business model is different. However, you need to know what you’ve set for your business.
Here is why. This has happened to me multiple times over the course of 10 years. A sales person walks into my office wanting me to buy their advertising. For example they have a great magazine with lots of viewers. It’s well known in town. People are fighting for space in the magazine. The list goes on. When asked what return their customers are seeing they tell me 3X my investment! Man that sounds like a great deal. For every $1,000 I spend I bring in $3,000 in gross revenue. Unfortunately your likely losing money with that return.
If your advertising budget is 10% of your gross revenue and your spending $1,000 to gross $3,000 then the cost of the advertising is 33.33%. That is 23.3% higher than your budget. This means that your gross margin is now 23.3% lower on the services sold because of this advertising. In order for you to stay in line with your budget you would need to gross $10,000 on $1,000 in advertising for this to fit within your budget.
The next time someone asks you to spend money advertising run the quick math and you can make a quick decision whether or not it is truly a good deal and RETURN ON YOUR INVESTMENT.
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By Corey Sedrel