Ding Thinking

On February 20th, the Northern Nevada Business Weekly will run an issued called, “How to Pick an Advertising Agency.”  The editor asked if I would write an article regarding the issue of cost in advertising.  How much does a business have to pay for successful advertising?  My article below gets to the heart of this question.  I’d like to hear your thoughts on what separates cost-effective advertising from costly. Leave us a comment below. Look forward to hearing from you.

“It’s JUST An Ad, for God’s Sake…!” and Other Heartfelt Expletives About the Cost of Advertising

By: Greg Fine

There are but two forms of advertising: There’s the “Worth every damn penny” variety. And there’s the “Expensive and more costly than you could ever imagine” approach.

Both cost money. But only the former accomplishes the intended purpose, which is to deliver some manner of measureable return on that initial outlay. The latter not only hits the bottom line. But what’s even more painful is the unseen damage poor advertising inflicts upon your brand, service, product and its forward business momentum.

The burning issue surrounding every advertising decision is divining that fine line between cost effective and needlessly expensive.

An example of costly advertising with a dubious return is the recent Super Bowl commercial that Chrysler ran with über stud Clint Eastwood, who gave the country a rousing good talking-to. Certainly his halftime locker room soliloquy was heartfelt and well intentioned. But that gap between Dirty Harry and me buying a Hemi remains noticeably enormous and unchanged. The ad didn’t connect brand to buyer motive. That’s advertising which is simply expensive.

An unfussy example of advertising, however, that certainly drives a bottom-line return is the billboard for Summit Mall on US395 South. It’s the board you drive between the Moana and South Virginia exits. It does everything you could expect from outdoor. The advertising serves as a vibrant reminder that Summit is just down road, past the nearby competitor. The high-quality, original photography hits the female target audience between the “I want that outfit…” eyes. And the tagline nails the overall Summit experience: It makes you feel like shopping.

Simple.

Powerful.

Not cheap, but bankably effective.

Anatomy of Advertising

Great advertising requires the experience and mental sweat from a handful of smart people. Like your attorney and CPA, you are investing in a professional service that involves strategic acumen and the intangible called “creative.” Properly paired, strategy and creative will raise your brand, product and service out of the muck and move your audience to action.

Wonderful advertising is the result of at least three key people. Regardless of whether it’s a “free” social network campaign (it’s never free), or a full-blown integrated marketing push, at a minimum the work requires an account person’s brain, a copywriter’s brain, and a graphic designer’s brain. These brains can sometimes hail from the same body, but optimally you want at least three individuals to put their noodle into your advertising. Depending upon the account’s complexity and size, several others will place their thumbprint on your work as well.

The single most important brain in this process, however, is yours.

For your advertising to work as desired and show a return on the investment, you must clearly articulate what it is you want the advertising to accomplish. More hits to a landing page? More loan applications? More new lawn care signups? More leads for your investment planning services? How do you want the advertising to build your business? Defining the objective may sound obvious, but I’m always surprised when the client hasn’t specified the end game. A clearly stated goal will determine your agency’s effectiveness and its ability to develop advertising that returns on the investment.

If you’re unclear about what exactly can be achieved, ask your agency people for guidance. They can assist with defining the objective, and either suggest or directly provide the framework for measuring your campaign’s effectiveness.

Money.

How much to put behind your effort is the ultimate chicken and egg question in marketing. Not enough funding and the effort falls flat, with no discernible return. Too much money and you are simply retracing a path you’ve already paved.

For determining appropriate funding, a variety of ratios, theories and algorithms have been put forth by those much smarter than me. But a general guideline that has successfully served my agency well when budgeting for my clients’ ad work is the 30% Rule. Generally, the work the advertising agency produces costs about a third of the overall media buy. If you media purchases is $50,000, the agency will gross approximately $15,000. (Optimally, this is based upon a media plan that reaches your audience at least three times through three different media channels.) I won’t fall on my sword for this ratio, but that’s how the numbers often shake out after all is said and done.

Another more goal-oriented model involves a return on investment ratio that’s based upon the amount of growth you seek over the course of the upcoming year. For example, if you want to increase your earnings from $1 million to $1.2 million, and you want to earn $4 for every $1 spent – a 4:1 budget – here’s an example of what that would look like:

Revenue over the past 12 months: $950,000
New baseline goal: (Incremental 12-month trend, with no changes to marketing):                                  $1 million
12-month gross revenue goal: $1.2 million
Gap between current collections and collections goal:  $200,000
ROI Goal (varies by situation): 4:1
New Marketing Investment: $50,000
Current Marketing Budget: $10,000
Total Marketing Budget: $60,000
Average Monthly Marketing Budget: $5,000/mo.

That 4:1 ratio can slide depending upon several factors, including type of business or specialty, competition, and so on. But it serves as a good baseline.

I’d like to make a point about quality, too. In this age when everything is online, where damn near every element of our lives has been commoditized in some form or another, please keep this thought in mind: The cheap online route (stock photography, illustration, logo development, creative talent pools, etc.) is in effect commoditizing your brand as well. It will rarely do for your business what a one-on-one relationship with an agency person – and the practitioners they work with – can do for you. Custom work may cost more initially. But if you can put the numbers into your budget, the benefit to your business is important for one critical reason: The work is tailored precisely to your company and its distinct personality. Please don’t discount the fact that your company’s brand is exceptional and should be showcased as such at every opportunity. If your relationship with your ad agency is sincere and honest, you should be able to openly and unequivocally discuss that costs MUST be central to their decision-making and ad creation. Better yet, after you’ve defined your campaign’s goals, define a very specific budget. And hold your agency accountable to that budget.

I’m obviously pro advertising and remain unapologetic for my huzzah beliefs in the power of good advertising that stems from a close working relationship between client and agency. I also know what advertising costs in terms of dollars. When done right, though, when there is true partnership between you and your agency, great advertising remains the single most influential, far-reaching and cost-effective business builder available.