In this Ask Hoz session, I got to tackle the question how much does advertising cost if you’re a small business?
The original question was a little more personalised. It was how much do I need to advertise my business? But tweaking it makes it relevant to a broader audience whilst still answering the core question.
Figuring out marketing costs is something that every business owner should deal with at some point because it’s a crucial task if you want to have control over your spending and at least some level of understanding when it comes to your ROI.
It is nonetheless a tricky question because it’s not really possible to come up with average advertising costs for small businesses. Every business is different and the methods they choose to market themselves are many, so we can’t really draw an average.
A one-person web design company who markets the business online using Facebook ads, for example, cannot be compared with a small business that uses traditional media to advertise their services.
So that’s our starting point: there isn’t a viable way to figure out how much small businesses spend on marketing because there are many ways of marketing a business.
You can only hope to come up with a number that makes sense when you narrow down the scope. For example, a narrower scope could be the average cost of advertising online using Facebook ads if you’re a small local business. But even that is tricky because the cash flow of a business, as well as their ROI, are going to determining factors in how much they spend.
Generally speaking, if you spend x amount on Facebook ads and you get x+something times the return on investment, then you’re going to increase your advertising spend as long as you’re profitable until you max out capacity.
That said, you can’t even set out to determine how much does advertising cost on Facebook because the amount you pay per click or impression is not constant. It changes based on many factors, such as the target audience, the industry, the level of competition etc.
So there’s no such thing, in reality, as a typical marketing budget for a business. To pretend that there is is to simplify things down to a level where the data is actually useless.
I think the question is flawed. We need to change it slightly before we can come up with an answer that is actually useful.
So let me give you my take on it, starting with the basic question:
Here's what we're going to be covering...
How Much Does Advertising Cost if I have a Business that I need to Advertise?
The real answer to this question is as little as you can buy an ad for.
If you can buy an ad for pennies and that ad gets 2 impressions, then that ad has enabled you to buy some exposure. That is the essence of advertising.
If that ad costs 2 pennies, then that’s how much it would cost to advertise your business.
But you can see how, although this is a perfect answer, it’s completely useless.
So let’s ask a better question:
How Much do I Need to Advertise my Small Business and Make Money
I don’t think I’m reading between the lines when I make the assumption that this is a more relevant question.
We can still refine it a touch, into something like:
- how much is it going to take to advertise my business to a point where I’m actually making a profit?
- what’s my monthly spend in order to see some ROI?
Those are all variations of the original question that are far more useful to a business owner.
But it’s still not a straightforward thing to answer.
If I give you a concrete number like £100 pounds a month, that would be to ignore all the variables that play a part in the ultimate answer.
Let me give you an example:
Think of the best selling toys. They don’t sell at the same velocity throughout the year. Not usually. Instead, they generally sell the most on the run-up to Christmas, and that’s because the demand is usually higher in that period.
So if you were advertising one such product, you would increase your advertising spend during that period in order to reach more people because you know that that’s when people are buying the most.
So if you were to ask how much does advertising cost for my business in order to make money, my first questions would be:
- what are you selling?
- what’s the offer?
- is there a demand for it?
If there isn’t a demand for what you’re offering, then it doesn’t matter how much you spend on advertising. You’re not going to be profitable.
So that’s one condition or variable that can’t be ignored.
The other condition is: is your offer seasonal?
For example, if you offer garden landscaping as a service then your business is probably going to be slower during the Winter months. So unless you have money to play with you probably wouldn’t spend as much money advertising during the Winter months.
But let’s say that your answer to this was: I have an offer that is good and there is a demand for it.
Let’s say for example that you’re a dentist and people need dentistry. So how much is it going to cost to advertise that business in order to make money?
Well, there are still conditions that have to be met.
Just because you’re a dentist and people need dentistry does not mean that you’re going to be profitable, because you have competition.
You need to consider things like:
- what’s the rest of your competition offering?
- what’s their equivalent offer?
- is it cheaper?
- is your price point competitive?
- is your price point right for your audience?
Your business could be offering something that is in demand but it could be too expensive. You could be pricing the bulk of your audience out of the market or your offer could simply be more expensive than the competition’s offer.
And what about the quality?
Your product could be of less quality than a competing product. In that case, you would have a product that is still in demand, but your chances of turning a profit are compromised by your pricing point.
Let’s say, for example, that you sell a blender. A blender is a popular product, but if your blender is inferior in quality to the competition’s, then you still have a product that is in demand, but it’s not as good as everybody else’s product.
And what about authority?
If you offer a service, then what’s the authority wrapped around that service? In other words, if you’re a dentist and you’re offering dentistry and I land on your website as a result of clicking on an ad, one of my main questions may be: who are you?
If you’re new to the market and you price your service at the same level than other better-established dentists who have better portfolios and reputations, then you might justify pricing your services like-for-like because you’re doing exactly the same as the other dentists in terms of procedures, but the market doesn’t see it that way.
If your competitors have reputation to leverage, that gives them authority.
People don’t just compare prices when it comes to making a purchasing decision. They often want to know who they’re buying from.
If you’re selling a service then your audience is going to compare you with your competitors and if you don’t have the same reputation as your competitors you may need to rethink your pricing point or your offer.
These are just some of the variables that affect the answer we set out to find.
In reality, the cost of advertising your business is quite small. You can run a Facebook ad campaign on a very small budget.
But if you want the bigger picture answer you need to look beyond how much does advertising cost and think in terms of ROI. Figuring out how much it costs to advertise and turn a profit is really the only reasonable question to ask.
The problem, however, is that there are many layers to this answer. It all depends on things such as:
- how much demand there is for your product or service
- the quality of your product or service
- the level of quality you provide
- your authority and reputation
- the current market demand
- the pricing point
How to discover the cost of advertising your offer or your business
At the end of the day, all you can do is test. That’s where it all starts.
You need to gauge the reaction of the market to your offer.
Here’s what I would do:
- decide on a set amount to spend
- decide on a method (e.g. Google Adwords, Facebook Ads etc)
- commit to running a test for a certain amount of time (e.g. 2 weeks or more)
- aim to have enough people see your offer before you start making decisions and changes (e.g. 1,000 people)
That’s the framework for testing your offer and the right path to figuring out how much it’s going to cost to advertise your offer.
I would suggest that you aim to get 1,000 visitors to see your offer. In other words, get 1,000 clicks to an ad – however much that costs.
If you’re not profitable at the end of that campaign then you need to look at your offer and your competition. You need to reverse-engineer the whole thing and figure out what it is that your visitors didn’t like.
Of course, that’s easier said than done, but there are plenty of tools in the market that can help you do that.
The bottom line is that you have to be prepared to tweak your offer and test again. You have to be prepared to lose money to start with.
If you break even, you’re lucky. It’s not the norm to run an advertising campaign and be profitable from the get-go, so you have to be prepared to spend money and lose money in order to gather data.
Now, let’s say that you run some campaigns and eventually you find the sweet spot where you make a profit.
At that point, how much money you spend on advertising monthly is going to change from how much you spend to start with, and as I said earlier on with the toy example, you would normally spend more money during the buying season than you would at any other time.
So there it is. There’s plenty to think about there and plenty to implement. Start testing, start gathering data and start making tweaks until you start seeing a positive ROI.
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