Calculating Your Advertising Budget 

If you come from an accounting background, advertising is a necessary evil. If you think you can rest on the merits of your physical location alone to grow business think again. Over the many years of working with businesses I find it fascinating how many people calculate their ad spend or don't even think of requiring advertising until it is too late. Here's what I discovered. There are businesses who may not understand the value and residual value of advertising.

Opening a brand new business . So you have a dream and you've invested your blood sweat and tears or someone else's money to open up the most amazing shop in town. Your money has been tied up into rent, inventory, employees....the basic stuff to get you going but haven't put the money aside to let people know what an amazing business you have. I'm not kidding when I say that 7 out 10 new business people I meet with haven't mapped out and set aside an ad budget for their business. These businesses need to extrapolate their annual sales and calculate what they need to spend to build awareness.

The Old 3-5% Rule. This 3-5% rule of gross annual sales is a number financial analysts threw around in the 60's and 70's and it stuck with businesses and corporations as the norm. Here's the kicker. A ton has changed since the 60's with exponentially so many more advertising channels/outlets/streams which are available. It's harder for businesses to make noise in the market place with all the ongoing influx of distractions from news, information, entertainment delivered my digital technology. Businesses need to stand out and should be looking at a minimum of 7%-12% of annual gross sales blended with an intelligent strategy. See below how to calculate your ad budget.

Advertising Only During Certain Times Of The Year. Yes there are a minute group of businesses which don't require consistent advertising all year round(e.g. ski resorts), these account for 1% of the businesses out there. However whether you are a seasonal or year round business you still fall into 99% of businesses who need to be advertising ALL THE TIME. Advertising by branding all year round is essential and is the lifeline to maintain and build your business's presence in the marketplace.

The goal for all businesses whether you want to maintain or grow market share is to stay and remain at the top of the consumers mental shopping list of options. People like to do business with names that they recognize, businesses which fit their needs, and products or services which fulfill an emotional need. It's important to push your businesses presence on a light level all year round and during your seasonal peak periods to increase the frequency of your advertising to win more market share by call to action. Watch How To Advertise - 7 Factors and Formula.

Advertising Your Business Based On A Physical Location. Watch How To Calculate Your Ad Budget. If you are looking to maintain business then consider the lower end of the budget scale because you will always have attrition. Attrition is part of every business and you need to maintain a flow of new customers to offset customers who drop off, repatriate the old ones and maintain touch points and connectivity with existing ones. Other factors in play determining aggressiveness of budget are product/service margins and hard fixed expenses including wages and other operating expenses. If staff wages account for 50% of your gross sales and margins are 50% then your business may not be in a position for a higher ad budget of 9-12% of gross sales. Of course there are plenty of other factors determining sales including supply, demand, competition, services, existing brand loyalty/goodwill, location and more.

Use this spreadsheet: Ad Budget Calculator Adjust fields B2 (gross sales) B8 (Annual Lease or Cost Of Occupancy) to come up with a recommended range budget to work with.

Non-Physical Locations. Let's say you work out of your home and you want to grow your business. You now have less overhead and more margin to build business.

Selling Products / Services On-Line: There is a totally different approach and formula to selling products on-line. You should not use the above calculator to determine your budget for e-commerce or on-line conversions from your google campaign. There is a whole other formula of metric based selling and it is determined by ROAS (Return on ad spend) and CPA (Cost Per Acquisition). In many cases it's not as simple as the above calculator as there are many more variables for driving on-line sales conversions whether it's forms, sales or phone calls. Your going to be looking at Conversion Rates, Average Order Of Value and CPC. You can utilize the following formula for calculating your on-line goals/conversions and budget which is incorporated into your overall ad budget from the Ad Budget Calculator Spreadsheet. Check out View Google's Metric Based Selling Formula Here .

Advertising - An Exciting Investment. That's right. It's an investment and it needs to approached in a way that you know it's one of your most important tools in your business's journey of growth. To not advertise is like winking at a beautiful woman in a pitch dark room.

Rob Balla