The following is a continuation of a series of articles covering the essentials for retail advertising written for those just getting to this stage in their business careers and for seasoned pros. The series began with "Advertising By the Numbers" in the August 1998 issue of Draperies & Window Coverings (link to this article).
How Much to Spend?
Asking how much to spend on advertising is a difficult question faced by any retailer, large or small. It's a special challenge for the independent specialty merchant with limited funds. Advertising has many variables, all hard to use and measure accurately. You will always wonder whether you're spending too little or too much.
Various industry groups and successful retailers agree on broad averages for suggested advertising expenditures. The National Retail Merchant's Association (NRMA) proposes an amount of two to three percent of annual sales volume for a small business. Successful merchants in the interior fashions industries recommend spending a higher percentage of sales, from four to seven percent, in order to get and hold market share.
If you're new in the business or pushing for increased volume, experts say you should spend as much as 15 percent of yearly sales. One study by Draperies & Window Coverings magazine noted that almost seven percent of window coverings retailers spend up to 20 percent of sales on ads and related direct mail promotions.
Where To Spend
Here's another formula to help you decide the percentages of your advertising dollars to spend in various media.
• 10 percent for local directories and yellow pages.
• 15 percent for direct mail advertising.
• 70 percent for newspaper ads and radio commercials.
• Five percent for special promotions.
Add to these amounts any cooperative advertising (co-op) moneys available from your suppliers, assuming you will meet their requirements for participation.
Rule of Thumb Formula
Here's a working formula developed by one of the leading small business developers and authorities in interior fashions products.
• Spend five percent of your sales to maintain current volume.
• Add 15 percent of anticipated sales to increase volume.
• If new in business, budget 15 percent of planned sales.
Here's how it works:
• If your present sales are $100,000 per year, budget five percent or $5,000.
• If you want to grow by $10,000 next year to a total of $110,000 annual sales, budget 15 percent of the growth, or an extra $1,500 for a total of $6,500. Another rule of thumb for a small business is the 80-20 percent (sometimes 85-15 percent) method. You use 80 or 85 percent of your budget to buy your "media mix," including direct mail. Use the remaining 20 or 15 percent for production costs.
Stretch Ad Dollars
Before you set an advertising dollar amount, consider other ways to stretch your expenditures. Here are three to check on.
1. Frequency. Repeating ads saves money by saving production costs. Some newspapers also offer discounts for repeating the same ad. The discount varies depending on the number of repeats. Studies show that ads do not lose effectiveness when repeated a number of times. A fourth repeat ad attracts about the same number of readers as the first one.
2. Co-op Advertising. One out of six dollars spent by advertisers in local media comes from an ad allowance provided by the merchant's supplier source. In most cases, this reimbursement is on a dollar-to-dollar basis, or 50 to 50 percent.
Unbelievably, each year millions of dollars of co-op money goes unused. Retailers won't use the free money from their manufacturing or jobber sources because of participation requirements and the hassles of paperwork involved.
Many firms have relaxed some of their participant rules in recent years. So, check with your supplier representative. Co-op money is available from most brand-name sources. The amount you might receive could increase the desired efficiency of your advertising. The concept is certainly worth a follow-up.
3. Radio or Television Packages. Your local broadcast stations may offer an occasional spot rate package. The package may include a series of spots to be aired during different time periods, including prime time and drive times. The offer for a single package price will be considerably less than individual spot rates. If you are planning to evaluate broadcast media, check on a package rate. It could help you get started on TV and radio advertising.
When To Spend
Here's another recommendation for allocating your budget on a monthly basis:
January six percent February eight percent March eight percent April 10 percent May 10 percent June six percent
First six month's total: 48 percent.
July six percent August seven percent September 12 percent October 10 percent November 10 percent December three percent
Second six-month's total: 45 percent. (As noted above, five percent is held in reserve for special promotions.)
How much you finally spend must depend on your income and growth, by what your competition is doing and by media and creative costs.
Planning Advertising Goals
Which comes first, setting aside a basic advertising budget, then planning what to do; or deciding upon advertising and sales objectives, then allocating the money needed?
For the average interior fashions retailer, the answer doesn't really matter. The two steps are so closely related they usually are done together. If you advertise or plan to do so, you should figure out ahead of time what your ads will say and when they will run. According to small business authorities, this lack of preliminary planning is the cause of more than 50 percent of retail failures.
It may not be as difficult as you think to get more business. You don't need to add new products, set up a contract division or expand your market area looking for new customers. You probably can increase your sales substantially in the area you're now serving. How? By telling more prospects about your store, your services and the values you offer compared to your competitors.
Tell Your Story
If people don't know who you are, what you sell or that your special services are worth shopping for, you may never have a chance to increase your sales. Customer and prospect awareness must come first, then appointments and sales will follow.
You create awareness through communications:
3. Personal Contact
You may be a super salesperson; you may be tops in product knowledge and usage, but those alone won't always bring prospects to your store and increase sales. Nor can communications alone always close or increase sales. But, they start the process that can bring in more customers and in-home appointments.
Some of the steps in your planning will duplicate those you studied when you started your business. You will want to review the potential for your products, services and market area. In short, you analyze your business potential. It just makes good sense to know as much as you can about your present and potential customers.
Much of the information you want is available from various agencies, community groups, newspapers, libraries or shoppers. Where do your prospects live? Where and when do they shop? What are their incomes? Are they ready-made or custom in-home prospects? Extra digging may uncover new marketing areas.
Naturally, you will study the advertising and promotions of your competition. You even might find a special niche not already taken. You should end up, too, with an image of how customers see your store.
The standard advice for retailers wanting to expand sales volume is to suggest they "increase advertising expenditures." That might not be the proper advice at all. Certainly, various advertising techniques and more money can be used to position your store better. But, it's just as important to spend correctly the money you have already budgeted. Proper planning can help tremendously.
John J. Lichty is a
consultant and senior editor for Draperies & Window Coverings magazine. He has more than 30 years experience in the planning and administration of
various consumer, trade and retail advertising programs.