Setting Your Budget
It's often said that the true cost of a business location is the cost of rent plus the cost of advertising to get your customers to come to that location. Whether you sell your products and services from a physical shop in your home or a virtual site on the Internet, it can cost you both time and money to let potential customers know where you are. In many cases, you'll be able to keep the expense down by being creative — if you don't have much cash, you can work at gaining free publicity or at generating word of mouth advertising, for example.
Although small business consultants may suggest a figure such as 2 to 4 percent of your gross annual sales for your advertising budget, it's difficult to make sweeping generalizations: Too much depends on the type of business you operate, its location, and how quickly you need to get customers in the door. And, of course, you might be limited by the amount of working capital you could come up with. For a more accurate guideline, contact a trade association that deals with your type of business and ask for some average percentages for a business your size.
Publishers and broadcasters base advertising rates on their costs, but they're also guided by what the market will bear. It's worth trying to negotiate a better rate than what's being offered. Your advertising rep wants to keep your business and will often find a way to help, either with a discount or another benefit such as better placement.
You can also track the competition. Note where your competitors are advertising and how frequently, jotting down ad size, positioning, timing, and color use. Check the phone directories and other media — even bus advertising. You can ballpark costs by asking the advertising reps from each of the media outlets about their rates. Multiply the rates by the ad frequency, and you'll have a reasonable idea how much your competitors are spending.
Although it's fine to try new media and new publications in search of additional customers, beware of buying an ad just because it's cheap. Even an inexpensive ad is wasted money if it doesn't reach your target customers.
