Last week I wrote about promotion of your business, in general, and cost-effective ways to promote your business. This week, I will talk about one promotion spending guide that helps you determine how much to spend in promoting your business. First, answer the following questions by checking “Yes” or “No” to the questions. If you don’t know, it is a “No”.
|1. Our sales are increasing each year?||Yes||No|
|2. Our profits are increasing each year?|
|3. The number of walk-in customers is growing?|
|4. Everyone in our trade area knows we are here?|
|5. Our location is visible and easy to find?|
|6. Everyone in our trade area knows what we sell?|
|7. Our location has “high drive-by” traffic and lots of parking?|
|8. We have been in the same location for more than three years?|
|9 We have very little competition in our trade area?|
|10. Our competitor’s prices are higher than ours?|
|11. Our advertising costs are reasonable?|
|12. Our salespeople are well trained?|
|13. We use co-op advertising to lower promotion costs?|
|14. Our inventory is very current (no dead stock)?|
|15. We added new lines or items this year?|
|16. We do a lot of add-on selling in our business?|
|17. All our brands are advertised nationally?|
|18. We have a current customer e-mail/mailing list and use it often?|
|19. Our competitors all advertise less than we do?|
|20. We have taken customer surveys to see how they feel about us?|
|21. We get as much walk-in/phone-in traffic we can handle?|
|22. We send our customers a regular newsletter with news they can use?|
|23. We have a website and sell online?|
Next, calculate your current promotion expenses as a percentage of sales. To do this, divide the total amount you currently spend on promotion by the total amount of your sales. As an example, let’s say Jeanette’s Art Supply spent $2,400 last year on promotion and the company had $200,000 in sales. To calculate the percentage of sales, divide $2,400 by $200,000. You get .012 or 1.2 percent of sales being spent on promotion.
Next, count the number of “No” answers to the questions above. Last, using the guidelines below, compute the recommended amount to spend on promotion.
|Number of “No’s”||Your Target to Spend on Promotion|
|Less than 6||1 to 2 percent of sales|
|6 to 11||2 to 3 percent of sales|
|12 to 17||3 to 4 percent of sales|
|More than 17||5 to 6 percent of sales|
Going back to our example, let’s say Jeanette’s Art Supply answered 7 questions “No”. The new target to spend on promotion would be 2-3 percent of sales, instead of the 1.2 percent of sales spent last year, or $4,000-6000.
This is just one way to help you determine how much to spend on promoting your business. Something to think about.