Reviewed October 1993
Contents
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Advertising is essential in today's business world. The question is not, "Should I advertise?" It is, "How can I effectively advertise?"
Advertising is an investment in building your sales. The future of your business will be influenced by your ability to plan and execute an effective advertising program.
Before you know how to spend your advertising money, you must know your business, your trade area and your target market.
Ask yourself the following questions to help profile your business:
Determine your trade area by identifying an arbitrary area, by plotting your actual area or by using a combination of these two methods.
Your arbitrary area is determined after considering:
To determine your actual area, find out where your customers live and plot those locations on a map:
Keep a record of names and addresses so that you do not duplicate any. Use the information later for direct mailings.
Determine your target market by using demographic information such as age, income, occupation, education, marital status and ethnic background. You can find information about the population in your market area in several places. In small communities, the county court house and local MU Extension center are good starting points.
In some areas there is an office of the State Department of Commerce, a chamber of commerce, a city hall or a local business association or merchants' association. In larger areas, there may be an office of the Better Business Bureau or the Census Department. In addition, local newspapers and radio stations often have demographic information.
Begin by contacting all available advertising media in the area. Include newspapers, radio stations, television stations, magazines, outdoor billboards, transit systems and direct mail. Get rate sheets and circulation information from every available advertising medium, including demographics when available.
Look at the rate sheets and the number and type of people reached within your market area to determine media that will work for you.
Determine what the cost of advertising will be in each type of medium. Advertising costs are based on the projected audience reached. Television and radio advertisements ran during prime time reach larger audiences and cost more than ads ran at less desirable times. In newspapers, placement within the paper and the day of the week partly determine how many people will see your ad.
Newspapers
Newspaper ads are particularly effective for promoting specific items. Space is sold in column inches -- that is, the standard width of that paper's columns by the length desired. Your advertisement may be any multiple of columns and inches, although some minimums or specific size restraints may apply.
Using color in your ad increases the cost. Most newspapers will assist you without charge in planning and laying out your ad. Sometimes you can run the same ad multiple times for a decreased charge.
Television
Television is particularly effective with young customers. Time is sold in spots of 10, 30 and 60 seconds. Most television spots are 30 seconds. ROS or "Run Of Station" ads are the least expensive. When you purchase ROS advertising, the station airs your ad whenever there is room for it in the station's schedule. They are aware that you expect your ads to be aired at times that will bring you customers and will make an effort to give you good times if they can.
Ads to be aired at specific times are considerably more expensive depending on the programming. Ads aired during the news and during popular prime time shows are the most expensive.
For smaller retailers, local stations may sell advertising packages that allow the station to determine the time that the ad is aired but guarantee you a certain number of airings in the morning, afternoon, evening and night. These packages are called Day-Parted ROS packages and permit good exposure for significantly less money. A 90-spot, day-parted package may average only $22 per 30-second ad.
Radio
Advertising time on radio is sold in slots of 10, 30 and 60 seconds. During slow seasons, there may be a discounted rate if you allow the station to determine when the advertisement will be aired. The key to effective radio advertising is repetition.
Magazines
Space in magazines is usually based on the size of the ad and the number of times it is run. Typical ad sizes are one page, two-thirds page, one-half page and one-fourth page. Typical insertion times are one time, six times or 12 times. Magazine advertising, especially in magazines with a national circulation, tends to be very expensive.
Cost information for advertising on buses and billboards is available from the companies in your area.
Direct mail
Direct mail costs are based on the amount of printing needed, type of mailer used (folder, envelope, etc.), postage and the cost of developing, maintaining or purchasing a mailing list.
The first step is to determine your annual advertising budget.
Decide where you are in your marketing cycle. If your business is well established, you may only need to remind your customers that you are there. However, if you are new or expanding, more money will be needed to get your message to the public.
Include all promotional costs in your budget. In addition to the media, budget for stationary, business cards, promotional brochures, gifts, mailings, entertainment, displays, exhibits and painting your store name on the company car as part of promotion.
Develop your advertising budget to coincide with your sales profile.
Little or no advertising money should be spent during slow retail times. For example, in January and February, as a result of bad weather, holiday sales and a short month, people usually do not make many purchases.
Advertising money spent during this time should do one of two things:
During strong retail times such as back-to-school and the holiday season, strong ads should urge people to spend their money at your store.
Form 1
Figuring your advertising budget
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
|---|---|---|---|---|---|---|---|---|
| Gross sales last year | percent of year's gross sales | Ad money spent last year | percent of last year's ad $ | Estimate of next year's sales | percent of est. gross sales | Ad money budgeted | percent of ad budget | |
| January | ||||||||
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| April | ||||||||
| May | ||||||||
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| Totals | $ | 100 percent | $ | 100 percent | $ | 100 percent | $ | 100 percent |
Percent of past sales plus growth
In the first column of Form 1, enter last year's sales figures by month and the yearly total. Determine the percent of sales each month by dividing the sales for the month by the total gross sales for the year. Record these percentages in column two.
In column three, enter last year's advertising expense figures by month and the yearly total. Determine the percent spent on advertising last year by dividing the amount spent each month by the total amount spent for the year. Record these percentages in column four.
If you have a new store or do not have these figures available, national averages for businesses similar to yours are available from trade associations and publications or the U.S. Department of Commerce.
Table 1, at the end of the document, lists some national averages for advertising. Another helpful estimate is to use 3 percent of retail sales as a starting figure.
At the bottom of column five, record your estimate of your total gross sales for this year. Now distribute that total over the 12 months. Use the percentages in column two to help you estimate. It is customary to estimate a percent increase in this amount.
Record the percent of estimated sales for each month in column six.
Now you have the information you need to determine your advertising budget and its distribution for the coming year.
Look at the percentages in columns two and four. If you have spent a larger percent on advertising than the percent of sales in a given month, you may want to adjust this amount. You can spend less during that slow time and save your advertising dollars for when people are buying; you can also change your approach to advertising for that time and try to increase your percent of sales for that month.
Use this information to determine the percent of your advertising budget you will spend for each month. Remember to adjust for high and low selling seasons and for special promotions. Record these figures in column seven. The total of the percents in column seven should equal 100 minus a small amount held back for emergencies and surprises.
At the bottom of column eight, record the amount in dollars that you will spend for the year on advertising. Determine the amount for each month by multiplying the total budget figure by the percent in column seven.
Use the percents in column seven to determine the monthly allocation and record these figures in column eight. This is the amount that you have to work with each month. You may want to make adjustments as the year progresses and you determine how well your advertising plan is working.
Competitive spending
This method is used when the competition is heavy in your area. After figuring your monthly percent of sales using the method above, additional money may be put into advertising based on:
Objective task
Use this method when you have a specific goal in mind. For example, you may move your store to a new location or expand your line of merchandise. Look at your objective (to tell the public about the new location and/or merchandise) and decide what role advertising will play.
Subjective budgeting
Cautiously use your intuition and judgment to decide on an advertising budget -- this method is only as good as the judgment of the person making the decisions. This is, of course, the easiest budget to prepare, but it also tends to be the least effective. You may spend too much or too little and won't know it until it's too late.
In addition to your own budget for advertising, some wholesalers have cooperative advertising funds available for you to use. This is money that is available to the retailer to use in advertising on the condition that a particular brand and/or item is featured in the ad. These funds are generally limited, and you will need to pursue this option with your suppliers.
Cooperative advertising funds are based on a percentage of the cost of the advertisement. In the apparel industry, cooperative funds may pay for 50 percent of the cost of the ad. This means that you can double at least part of your advertising money if you use co-op money.
Manufacturers and vendors who offer cooperative dollars always have specific requirements for applying for and receiving payments from these funds and for how they are to be used.
Cooperative funds must be available equally to all customers within the rules established by the vendor. However, vendors are generally more interested in advertising that carries the name of major retailers. Smaller stores usually have to ask whether funds are available and be persistent in order to take advantage of them.
Radio lends itself to many different formats
Print has the advantage of being somewhat permanent
In a newspaper advertisement you can give specific information and readers can come back to it if they wish to check details.
These guidelines will help you develop effective print ads.
Customers may buy other items if you have them properly priced and displayed.
Direct mail can target customers
This method is an efficient and effective way to reach people who already know about your store and have shopped there at least once. You can use your mailing list, developed from checks used to pay for merchandise and other techniques discussed above, to speak directly to your "preferred customers."
You can send these customers notices of special sales, preview opportunities or new merchandise. You can tell them how special they are by sending them thank-you letters for purchases and holiday greetings (in October or November when they are likely to be shopping). You can even send them special discounts or offer private sales.
If your mailing list is large, consider getting a bulk mail permit. Consult your local post office for regulations.
Proofs and invoices are required for cooperative arrangements; ask for duplicate or triplicate copies.
Radio
Newspapers
There are a number of small, inexpensive things you can do to help you judge your advertising effectiveness:
You must be aware of the regulations placed on advertising by federal, state and local governments intended to protect the consumer from fraudulent advertising.
It is your responsibility to be sure that your advertising does not mislead the consumer.
The Better Business Bureau, the Federal Trade Commission and the Missouri Attorney General's Office all have excellent publications that can give you general guidelines and answer questions you have about advertising.
Most newspapers and radio and television stations have professional staff to help you develop your idea and produce your final advertisement. Usually these services are free.
Creative help may also be available from local vocational/technical high schools and colleges, junior colleges and trade schools.
If you plan to run a major, expensive advertising campaign, the cost of professionals from an advertising agency may be worth the investment. If there is a local American Advertising Federation Ad Club in your area, consider joining. They may provide many ideas that you can use.
The authors wish to express their appreciation to the many people who contributed their time and expertise to the development of this publication. Among them are John Blakemore, Department of Communications, Stephens College; Jim Drexler, MidAmerica Trade Adjustment Assistance Center; Michelle Granger-Wilson and Scott Wilson, Department of Fashion, Stephens College; Pamela Norum, Department of Textile and Apparel Management; Edie Pigg, Missouri Artisans Business Development Association; Mark Van Dorn, Yogurt Cafe; Mary Waters, Columbia Tribune; and Melchor Zelenak, Department of Family Economics and Management.
| Example of ad budget figured on percent of sales | |
|---|---|
| Advertising dollars spent last year | $4,000 |
| Gross sales last year | $100,000 |
| Percent spent on advertising last year | 04=4 percent |
| This year's projected sales: | $110,000 |
| Percent for advertising | 04 |
| Dollars allocated for advertising | $4,400 |
Table 1
Average percentage of sales invested in advertising1 (net funds -- before co-op advertising funds)
| Percent | |
|---|---|
| Appliance, Radio, TV Dealers | 2.3 |
| Auto Accessory and Parts Stores ($50,000 to $200,000) |
0.9 |
| Bakeries | 0.7 |
| Beauty Shops | 2.0 |
| Book Stores | 1.7 |
| Camera Stores | 0.8 |
| Children's and Infants' Wear Stores ($25,000 to $50,000) |
1.4 |
| Independent Drug Stores (Under $70,000) ($70,000 to $100,000) ($100,000 to $300,000) |
1.3 1.1 1.0 1.3 |
| Dry Cleaning Stores | 1.7 |
| Florists | 2.1 |
| Gift and Novelty Stores | 1.4 |
| Hardware Stores | 1.6 |
| Jewelry Stores | 4.4 |
| Men's Wear Stores (Under $300,000) ($300,000 to $500,000) ($500,000 to $1,000,000) |
2.4 2.6 2.8 |
| Music Stores | 1.8 |
| Paint, Glass and Wallpaper Stores | 1.3 |
| Photographic Studios and Supply Shops | 2.4 |
| Sporting Goods Stores | 3.5 |
| Shoe Stores | 1.9 |
| Specialty Stores | 3.0 |
| Variety Stores | 1.5 |
MP660, reviewed October 1993