To Advertise or Not to Advertise
That is the question (with apologies to the Bard).
March 4, 2010
Recently I was at a client’s office that had been manufacturing key items that they supplied primarily to customers who, in turn, used their products in their manufacturing process. Since their business did well by concentrating on their primary customers, they made little effort to broaden their customer base through any significant advertising or by marketing their products. With the current economic conditions, their major customers are going through cutbacks and layoffs and our client’s sales were dropping by 50 percent to 55 percent. While I was there, they were trying to reconfigure several of their products so that they weren’t just for B2B business but consumer friendly as well. What I found interesting, was how they were going to try to “get the word out” after so many years of a somewhat laissez-faire attitude about attracting new business.
Unfortunately, this is a situation we have all seen — becoming comfortable with “business as usual” without any what “ifs” in place. It made me curious as to how a business goes about budgeting for an advertising campaign, how they determine where their advertising money should go and what kind of benchmarks one looks for and if there is any way to determine the rate of return on the advertising investment.
Fortunately, I was able to ask these questions to two people who have several years of experience under their belts: Sara Liebnick and Lane Persky. If the Liebnick sounds familiar, Sara is my daughter and Lane is her fiancé. Sara is a media supervisor for a national advertising agency representing regional clients in the Midwest. Lane is a senior marketing associate for a manufacturer whose products are used worldwide and as a result, does global marketing and advertising. To put this in accounting terminology, Sara is in “public” while Lane is in “corporate” which gives us broader answers to some of my questions.
Their answers are a compilation of both their points of view.
How much does one budget for a marketing campaign? What would it be based upon?
There’s no hard and fast rule as to how much is enough for a marketing campaign, but often clients will determine budgets based on a percentage of projected wholesale numbers. For example, an automotive client may take five percent of all projected units for the year and place that money towards marketing to their target audience.
How do you determine the best bang for the buck-print media, radio, billboards?
The best way is by determining where your target consumer is going to get his information and stay up-to-date on your industry. For example, if you’re an engineer, you’re most likely reading specific trade publications, visiting trade shows or events and using online engineering tools, such as industry specific search engines. In this case, as an advertiser, you’re wasting dollars by advertising to the masses in a medium like radio or TV. While your potential clientele may see that billboard on the side of the highway, the percentage of people affected is very small and thus, is a waste of money. Ultimately, you are trying to reach the largest audience within the constraints of your budget.
To get your biggest bang, it’s best to focus on a few mediums and hit them with frequency of message. Newspaper rates are falling fast and deals can be made to advertise a bundle with both print and their online partners. Radio is best when you focus on those times when people are in their car listening, like the morning and evening commutes. Online search engines are relatively inexpensive and work best in conjunction with other mediums.
The biggest key to advertising is that everything is negotiable. In this economy, the sales departments are hungry for your money and “rate cards” should only be used as a starting point in negotiations. If you don’t ask, you won’t get.
What is a normal turnaround to see the results of an ad campaign?
There’s no simple answer to this question, as it’s virtually impossible to determine a return on investment (ROI) with advertising alone. However, depending on the medium you’re using and the frequency of your advertising campaign, it can take a few months before your consumer becomes familiar with your message. If you’re targeting a specific demographic by utilizing trade publications, you can expect that the turnaround may take longer, as the frequency of your message isn’t that great. However, if you’re expanding your mediums and using, for example, both TV and radio advertising with a high frequency, your consumer is going to begin to become familiar with your messaging.
What benchmarks would you be able to provide to show the campaign is working?
This depends completely on your advertising message. If you’re focusing your messaging on purely branding yourself, there’s no way to determine your ROI by simply advertising for a set amount of time. Prior to advertising, there are several media math methods you can do to determine how many people you are going to reach and how many times. You can also come up with your total number of impressions or how many people are going to see your message. Often, sales departments, especially within Internet advertising, can provide a package rate that includes a set amount of impressions and you pay solely based on your campaign reaching those impressions.
However, the only true way to determine if the campaign is working is to have a specific call to action in your message. For example, if you advertise in newspapers and include a coupon in the ad, you can track how many times that coupon is used. Or perhaps you use a specific Web site or phone number that is only used during your advertising campaign and measure your results by the number of people utilizing those sites or numbers. You can also market using direct mail or e-mail, where you know you are reaching your target audience. The great thing about any type of online advertising is that daily reporting can be done to determine who is opening your e-mails, clicking on your ads and how much time they are spending looking at your Web site. Analytics like this can make online advertising more appealing.
It’s important, though, not to expect that results happen immediately. Advertising is all about building on your brand and your message and keeping your name in your consumer’s mind.
We are having cash-flow problems and have to cut somewhere — why spend it on advertising?
Unfortunately, advertising is often one of the first things cut because it does not directly affect operational expenses. However, when times are tough, competition within a category becomes tougher. This is when it becomes even more important to market yourself and better position yourself and your brand for the future. This is when you must keep your name in front of current customers who have cut back on spending as well as placing yourself in front of new customers who will be spending money as the economic conditions continue to improve.
By becoming too complacent with a “business as usual” attitude, you are not protecting yourself for future unknowns: soft economy, major accounts cutting back and your product only filling a narrow void. Whether you are in public practice or the corporate world, you must never forget the important message here: keeping your name in front of both current and potential customers/clients.
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Allen M. Liebnick, CPA, CFF, is president of Overpaid Payables Recovery, Inc. A former associate professor, Liebnick has been providing accounts payable, sales tax and telecommunications post audit recovery services for over 15 years. He serves clients in the U.S., Canada and Mexico. He is a member of the New York State Society of CPAs as well as Texas State Society of Certified Public Accountants and is currently the Vice Chair of the TSCPA State Tax Conference. Liebnick thanks both Sara Liebnick and Lane Persky for participating in this article. Corporate Finance Insider readers who have questions for Sara or Lane can contact them directly. Tell them Dad sent you.