Rule Of Advertising Thumb

How much is too much of an advertising budget for your business, and how much is too little?

QUESTION: Tom asks if there is a rule of thumb for the budget to allocate to advertising. He runs an electrical contracting business.

ANSWER: It’s industry specific, and in the electrical contracting business, it’s all over the map. There is residential, commercial, wholesale and retail. I would test some things. When we spend 5% of our gross revenues on advertising and marketing, we saw growth. At 7% we didn’t see growth and the cost benefit wasn’t worth it, so you can learn from that. With a little trial and error and adjusting back and forth, I can establish a good rule of thumb.

Start the advertising and marketing on a budget that doesn’t kill your profits, then crank it up until you start seeing diminishing returns, then pull it back down and crank it up again by testing it a different way, then do it again and again until you find the right spot. Develop the sweet spot by tracking your results very carefully.