November 19, 2015 by Scott Howard
The question that every business owners has to come to grips with, “Is Advertising an Expense or an Investment?”, because it can determine the success or failure of your business.
Let’s jump in and take a look at these two expenditures.
The term investment implies that you are going to earn money back. Even if it is a 5% increase or 1% increase. You give me $100 and I give you $101 dollars in return. You give me 100,000 dollars and I give you all your money back plus an extra thousand bucks. That’s what a 1% return on your investment would look like.
The opposite is an expense. You give me $100 and I give you $95 back. You just lost 5%. The challenge is knowing if your advertising is an expense or an investment and honestly it is impossible to know with absolute certainty the complete answer.
And that’s okay.
We can’t measure the true return on everything we spend money on. You pay the electric bill in your business because you need power to light up your store or office. You need power to operate your computer. Those expenses are really impossible to measure your return on because you need power, right?
But advertising and marketing, those are also important. Those are the tools to invite people to spend money with you. Unless people spend money with you, you are not likely to last very long.
A couple of stories from this year. I just finished helping a 70 year old company organize their $100,000 plus advertising budget for 2016. They are now looking at it strategically, with a method to measure every advertising offer someone tries to sell them to see if it fits. But as we reviewed the past 5 years they had a budget each year too. But instead of spending all of it, they looked at the money they didn’t spend as savings. They were looking at advertising as an expense because they didn’t have a plan. It was just something they knew they were supposed to do like pay the electric bill. 2016 will be different because we are going to track sales and see where their business comes from.
The other story from this year is a small company that was only advertising when he needed new leads. Throw out a bunch of postcards or newspaper ads every once in awhile and then do it again a few months later. He decided to invest the money he would have spend on some of those ads and mailers and use WOWO radio on a consistent basis. When he started, I had no idea if he would be successful. But he was willing to treat that initial commitment as an investment that could produce a return, or lose money.
Initial return on his investment was huge compared to the hit and miss advertising he was doing previously. He decided to increase his investment, and we are watching the growth occur as a result.
Bottom line on this is if you treat your advertising as something you have to do but expect to lose money on it, you are looking at it as an expense and probably not making good choices because you are trying to spend as little as possible without a return.
But if you treat your advertising as an investment and talk to someone with some know-how and marketing smarts, it is possible to get a positive return on your investment and watch your business grow.
Want help? Lets talk.