This one is from the RAB:
Daily Sales Tip: Marketing: An Expense or an Investment?
Every operating business has its share of fixed operating costs (personnel wages, rent, utilities, insurance, etc.) -- expenses that do not fluctuate with sales levels. Each also incurs variable operating costs (cost of goods sold, commissions, etc.) that increase or decrease accordingly in direct relation to sales volume.
Most companies are limited by their line-item expense category called "advertising." It is often set as a percentage of sales and is often based on historical numbers. The problem with this formula is that it can lead to a self-fulfilling deteriorating spiral.
Acting on this theory, an automotive dealer whose sales start declining may slash the dealership advertising budget. As a result, future sales numbers drop further, as the message continually gets diluted, and the downward spiral in sales will continue with each successive advertising budget cut.
Adopting a more growth-oriented philosophy, companies should instead consider allocating a percentage of their anticipated (future) sales to marketing and advertising. Japanese business leaders have traditionally viewed marketing and advertising as an investment rather than an expense. Unfortunately for American companies, Wall Street expectations and short-term profit goals often drive short-term (and short-sighted) decision making, which can lead to the decreasing marketing budgets.
Local companies need to understand the need to invest in their future by marketing. Oftentimes, start-up businesses invest thousands of dollars on their location, their inventory and their operating expenses, leaving few dollars to promote the fact that they are even open for business.
Bo Randall, an agency friend of mine, used an analogy to explain the benefits of advertising to his client, a large automotive group. He drew a parallel between advertising and putting your foot on the gas pedal when driving. It takes a lot of gas to get the car moving forward but less gas to keep the momentum once it is established. If you take your foot off the gas, the car will continue to move forward but the momentum will decrease until the car eventually comes to a stop.
Most business owners will understand this analogy. The first goal, however, is to convince them of the need to get in the car and put their foot on the gas.
Source: Sales author/consultant Michael Guld (The Guld Resource Group, 2006)
Daily Sales Tip: Marketing: An Expense or an Investment?
Every operating business has its share of fixed operating costs (personnel wages, rent, utilities, insurance, etc.) -- expenses that do not fluctuate with sales levels. Each also incurs variable operating costs (cost of goods sold, commissions, etc.) that increase or decrease accordingly in direct relation to sales volume.
Most companies are limited by their line-item expense category called "advertising." It is often set as a percentage of sales and is often based on historical numbers. The problem with this formula is that it can lead to a self-fulfilling deteriorating spiral.
Acting on this theory, an automotive dealer whose sales start declining may slash the dealership advertising budget. As a result, future sales numbers drop further, as the message continually gets diluted, and the downward spiral in sales will continue with each successive advertising budget cut.
Adopting a more growth-oriented philosophy, companies should instead consider allocating a percentage of their anticipated (future) sales to marketing and advertising. Japanese business leaders have traditionally viewed marketing and advertising as an investment rather than an expense. Unfortunately for American companies, Wall Street expectations and short-term profit goals often drive short-term (and short-sighted) decision making, which can lead to the decreasing marketing budgets.
Local companies need to understand the need to invest in their future by marketing. Oftentimes, start-up businesses invest thousands of dollars on their location, their inventory and their operating expenses, leaving few dollars to promote the fact that they are even open for business.
Bo Randall, an agency friend of mine, used an analogy to explain the benefits of advertising to his client, a large automotive group. He drew a parallel between advertising and putting your foot on the gas pedal when driving. It takes a lot of gas to get the car moving forward but less gas to keep the momentum once it is established. If you take your foot off the gas, the car will continue to move forward but the momentum will decrease until the car eventually comes to a stop.
Most business owners will understand this analogy. The first goal, however, is to convince them of the need to get in the car and put their foot on the gas.
Source: Sales author/consultant Michael Guld (The Guld Resource Group, 2006)
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