Most people, even marketers, accountants and management view advertising as an expense. This is exactly what we have been taught in marketing, management and accounting courses. Many textbooks teach you that a company should budget approximately 10% of its sales for advertising and promotions.
I personally think that this is very stupid advice. Pegging your advertising dollars to your previous months/year’s sales revenue does not make any sense. This means that when your sales are dropping, you will be spending less on advertising, which will draw in less leads, giving you less customers and driving your sales down even further. Whenever my sales are low, I increase my visibility and draw in more people by advertising more heavily!
So, do marketing gurus view advertising and investment or expense?
The answer is…it DEPENDS.
When the advertisement you use does not work, it is an expense. For example, you place a $1,000 advertisement in the newspaper. This draws in 60 more people into your store, of which only 9 buy a garment each, spending an average of $80 on their purchase.
Since each garment costs you $30 to make, you merely make an additional gross profit of ($80-$30) x 9 garments = $450.
Spending that $1,000 on the advertisement gave your business a return of only $450. That’s a loss of $550. In this case, advertising is an EXPENSE!
For most businesses I know, advertising is an expense simply because their ads don’t work. What’s worse is that most businesses don’t even measure the effect of their advertising.
They have no clue as to how many extra customers their ad brought in or the additional gross profit made through the ad(s).
However, when a company uses effective ads and measures its results, advertising becomes an INVESTMENT. When you learn how to write powerful ads and place them in the right media, you will be able to generate much more leads for the same amount spent.
Assume that with the right strategies, your $1,000 ad is now able to pull in 240 people into your store (four times the previous ad). Out of the 240, 36 customers buy an average of $80/- each.
This time, the additional gross profit generated from the ad is ($80-$30) x 36 = $1,800. Spending $1,000 on the ad has brought you extra profits of $800. This is an 80% return on investment (ROI). Advertising is clearly an investment this time.
So, let me ask you this. If investing $1,000 returns you $1,800 each time, how many $1,000 will you put in? Put it another way, if you get $1.80 for every $1 you invest, how many $1 would you invest? You would put in as many ‘$1’ investments as you can!
Source: Ezine Articles