Is Advertising a Business Cost or Business Investment?

During my time operating an outsource publishing and media service that specialized in developing and selling advertising, I have learned the hard way that too many small business owners don’t really understand advertising. Whether a simple business card, a company brochure or a web banner, they mistakenly think of advertising as a business cost they must endure, rather than what it really is, a business investment they make to increase their profits. hult private capital reviews

Think about it objectively. If a company pays out $1000 for advertising and then earns $1,100 profit on custom brought in from the advertisement, the business has actually ‘made’ 10% on its original advertising investment. The problem is that too many small business owners do not understand this basic fact. They feel that if their advertisement or marketing fails to immediately bring in thousands of dollars, it isn’t working.

The truth is that very few investments provide returns of 1000%, but over time these kinds of returns are possible from advertising. Take one form of advertising that almost all business owners have – a simple business card. For an advertising outlay of a few dollars, a business owner hands out hundreds of the cards to everyone they meet at business functions, bars, airports, etc. Months later, they get a query about their services and make a sale – all from the cost of a business card that someone kept until they needed it.

Any worthwhile investment is one that brings in more than it cost

I have a local client who owns a small, 18-bedroom hotel on a Philippine beach. He made a small investment in advertising that I knew he thought of as a waste of money – and he took quite some persuading as to why this was a false assumption.

For a total outlay of around $250 he had requested we design and print 5,000 single-page brochures and place a web site banner ad on a popular e-zine we operate. After four months I followed up and was not really surprised that he thought the marketing had been a failure (or, as he put it, “a waste of money”). His perception was that by having brochures and a web banner he would immediately have hundreds of new guests. Instead, only three guests had specified that they had found out about his hotel from the brochure or web banner, so he felt he had only sold 28-nights accommodation from the ad.

It transpired that he earned slightly over $9 profit per room, per night, so he felt that there was hardly any return from what he had paid in advertising. What he had not taken into account was less direct profit – namely the daily use of his bar and restaurant by these ‘new’ guests. From these profits a conservative estimate gave an overall profit in excess of $780, or to put it another way, a return of well over 200% on his original investment in advertising – not to mention one of the guests booked to come again.

Can advertising be an expense – of course it can, and it can end up a loss because regardless what some say, no investment guarantees a return. However, any business advertising that gives a return higher that the original advertising cost must be accepted for what it is – a worthwhile investment.

 

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