If you don’t put the bait in the water, you’ll never catch a fish. Likewise, if you don’t tell people about your business you’ll never make a sale – or not very many. Advertising can be an intangible expenditure. It’s necessary, but it’s also difficult to measure how effective it is. How much then, should you spend on it?
Janet Attard wrote an article on SmallBizResources that answers how to calculate your advertising dollars. The math is simple: divide the cost of the ad by your profit margin. If the number is higher than what you’re paying, you need to beef up your advertising budget. If it’s lower, you’re paying too much.
Not spending enough on advertising means that, unknown to you, customers that should be walking through your door are spending their money elsewhere. If you’re paying too much, you are getting a lot of customers that you would have gotten anyway if you had spent less on advertising.
Remember that this is a guide and not a concrete measurement. If you have advertising, you’re sales will go up. If you don’t, you won’t. Nowhere does it say how much it will go up or down.
