Advertising – is it really worth it?

Marketing and advertising is the first cost businesses consider cutting in hard times. In fact, you can tell when there is a recession in the offering when TV companies and Newspapers place ads in their own media telling you how cost effective it is to advertise with them!

The major problem with advertising is that its costs are much higher than the figures suggest. While it may cost £1500 for a full page advert in a local paper, the business will need to have a return which costs this cost and brings in extra revenue.

Here are the figures:

The widget company have a turnover of £100K, and a gross margin of 30%. This means that they make £30K of profit on their turn over.

If they place an advert costing £1000, they need to bring in an extra £3000 of turnover before the advert starts to pay for itself.

Lets assume that they place a £1000 advert every month for a year. Their turnover would need to grow to £136K just to cover the cost of the advert. Normally, you would like to see advertising bringing in some extra income. A sensible figure should be about 10%. That 10% should be of the higher turnover, so £13.6K Added to the total, turnover should hit £150K before the advert could be considered successful.

Do advertising companies ever stress that this is how advertising costs should be analysed? No – that isn’t marketing, but a sales issue, they say! All this is before you even consider the message within the advert – its no wonder that even the admen admit that 50% of adverts don’t work!

This is true, but it just highlights that before you start advertising, make sure that your whole business is able to cope with any extra growth needed to make a healthy return. If you don’t, you are just wasting your money!

For help with your business, feel free to contact Flintshire Business Services – its free for Flintshire based companies!

Don’t agree? Feel free to leave a comment in the box below!

Originally posted 2009-05-27 09:35:54.