With 2015 drawing to a close, many businesses are entering the planning stages for their 2016 budgets. Frequently, smaller businesses and agencies struggle with how to come up with theirs. Luckily we’re here to help! Keep reading for a step by step guide on planning your 2016 advertising budget.
1. Determine How Much You Need to Spend
Picking a number for your advertising budget can be daunting if done in a vacuum. Many people look at last years budget and think, “did I really need to spend that much?” without considering their return on investment. Or maybe you really did spend too much on advertising last year, and you should cut back this year. Luckily there are some easy ways to figure it out. I’ll start with an easy, common budgeting technique. First, you must consider your sales cycle and the sales goals for your business. Next, combine that with total revenue figures. It’s common for businesses to spend 8% of their top-line revenue on marketing in general. However, you might want to start at 5% and then adjust your projected spending up or down based on the size of your market, the cost of media, what you can learn about how much your competitors are spending, and the speed at which you’d like to grow. You will need to earmark marketing money for new business, current customer retention, community involvement and employee training and education. Don’t just think of this budget as an advertising budget!
Here is an example: You are an ophthalmologist and the most profitable service you offer is LASIK. Your top-line revenue is $3 million per year, so 5% of this is $150,000. However, you would like to acquire 100 new patients in 2016 on top of keeping current patients. Given the sales cycle for LASIK, will take about 6 months for a new prospect to become a patient, so you will need to assume that the fruits of your labor will start to sprout 4-8 months from the start of your campaign. If each new patient is worth $10,000 to you (lifetime), you may need to spend $2,500 per patient to acquire him or her given the competition in the Houston market. That will cost you $250,000 without considering referrals or organic customer accumulation from insurance, walk-ups or drive-by prospects. Don’t expect 100 new patients to come to your practice after spending $20,000 in advertising! You will either need to lower your expectations of new patients or increase the amount you have budgeted for this effort.
2. Determine Where to Spend Your Budget
The most important part here is to create a strategy for your one, three and five year plan. Too many business owners resort to a mirage of tactics with their advertising and get frustrated when the results don’t pan out. It’s great to use a tactic to shoot sales through the roof with a big sale or coupon offer. However, if there is no overall strategy, you’ll be at the mercy of each sale to meet your objectives.
First of all, let’s look at your target customer and spend some time thinking about this person. A good advertising plan should match your sales funnel – start with big, broad reach and funnel down to make sure you have touch-points along their purchasing path. You almost guide them directly to your business from awareness and research to purchase. Don’t assume you can just walk into a bar and get a date with the first person you see. Business is just like dating: you must flirt and court them before they will agree to a first date.
Utilize radio’s massive reach to achieve name recognition, branding and action from your audience. You’ll see results from some already interested consumers, but you’ve just begun work with those who may only be in the awareness and research phase. Use targeted digital ads to get in front of consumers who might be interested or who fall into your target profile. If you want to increase engagement with your brand- not necessarily for passing information- you’ll want to explore social media. Do you want to tell an emotional story? Consider video ads that will link to your website. Do you want to be the thought-leader in your industry? Think blogs and articles written and distributed within your own digital channels. Couponing and sales are great ways to push someone into buying when they may be on the fence, but it’s not a way to earn long-term business.
3. Utilize Competitive Information
How much you’ll spend and where you’ll spend it should both be decided by your current and projected revenue, historical data, but also competitive data. You can only thrive when you have the information. While competitors differ on so many levels, it’s good business acumen to take in to consideration what your competitors are spending and where they position themselves. This is not so you can compete one-on-one with them, but so you have an idea where there might be opportunities for you take ownership. If they spend $2 million a year in TV and nothing in radio, maybe you should consider jumping into the radio world and owning some of that platform? Consumers are everywhere and there isn’t one platform that is the end-all, be-all. They work together to create lead sources for you!
There you have it! Planning your advertising budget might seem like a daunting task at first, but it’s actually quite simple. As long as you know what you want to achieve, who you need to reach to meet your goals, and a good strategy to make it happen in both the short and long-term, you’ll see the fruits of your labor for years to come!