Percent of Revenue to Advertising

Updated: Jan 30

Walking around Annapolis, Maryland, on a chilly day in November 2009, a watch in the window of a jewelry store caught my eye. It was a Tag Heuer. Supposedly marked down from $5k to $2,500. The watch remained in my thoughts for days. I was due to retire from the Marine Corps the following summer. I eventually decided to make the watch a gift to myself for spending 20 years in the military.


In August 2016 I pawned this watch for $500 so I could make payroll for The Coffee Shelf.



Most recommendations you will read for an advertising budget, for a small business the size of The Coffee Shelf, is around 7 to 8 percent of your gross revenue. I knew this before I opened the doors in April of 2016. I was going to do everything right. By the book. Then, when I began serving customers, I found I had no money for advertising. Mistake number X in the proverbial list of the top 10 by new business owners.


I don’t believe in the “cookie cutter” business model. Especially when it comes to starting up and running a small business. You won’t find me publishing a book titled, “Jerry’s 14 steps to running a successful business.” I mean, if I did, it would probably be more like, “What Worked for Me Might Not Work for You.”


I made plenty of mistakes my first year. One of the few things I did right early on was focus on execution. I still do, but in the first year it was essentially my only focus. Operational excellence. Customer service. Product quality. If my business could not execute on these fronts, then all the advertising in the world would not save me.


I did not sit around and lament my lack of funds for advertising. There was money spent toward this. Perhaps most effective were fliers I purchased from a local graphic arts business. I did what some old timers would call “shoe leather marketing.” After work I drove to local businesses and handed out these fliers.


A lack of an advertising budget is one of the common things found among failing businesses. But it is truly cause and effect? I’m not so sure.


Of course, my experiences are, well, my experiences. Not only have I been well below the standard targets for an advertising budget, the first year of existence of my coffee shop the advertising budget was less than one percent of total revenue. If I had failed in the first year, certainly any analysis performed would have highlighted this as causal effect.


We eventually became "the place to be" when it comes to study groups, book clubs, business meetings, and church groups. But it took effort with a focused advertising campaign to get there.

Fortunately, as we approach four years in business, The Coffee Shelf is performing strong. Not to miss-represent my current struggles. Maintaining growth, much less current revenue, remains a challenge. Just when I think I can relax my focus on advertising I find I need to ramp it back up. The point here; despite my failure to properly allocate the required funds to advertising early on, we are doing okay.


I spoke about bumper stickers in my article Let’s Teamwork This Thing. Here’s a bumper sticker for you:

  • Model your advertising platforms to best reach your target customers, and worry less about your advertising budget as a percentage of total revenue.


You might be thinking, “That’s great. How do I do this?”


...


Once revenue picked up enough to give me the confidence to spend money on advertising, I was faced with a dilemma. Where do I spend my advertising money? Do I go with a billboard? Radio? Magazine? All of those options were scary expensive.


Enter social media.


I had established a presence on Facebook before opening my doors, and maintained a presence, keeping the page updated and relevant. But this strategy alone wasn’t working. I had previously been resistant to Facebook advertising (boosting posts, promoting the page with money). I finally pulled the trigger. The results were almost immediate.


By September of my first year I learned that my target audience was already established. The people following me on Facebook was the demographic I wanted. When you advertise on Facebook, you begin to reach people acquainted with your followers.


I also became active on Instagram. Another important demographic. Teenagers and young adults.

My focus on these social media platforms was straight forward. To provide relevant content with quality photos. I didn’t want to just throw stuff out there. I wanted to post things which looked enticing, with witty comments.


In addition to increasing my presence on social media I did other things. Also in September of my first year I walked the local Labor Day parade and handed out fliers. That first summer I held live music events, and poetry slams. I did anything and everything I could to get a crowd of people into my coffee shop. I did this without discounting my core products (except for my grand opening).


But it was social media where I found my marketing success. Going this route is not easy. It takes patience and consistency to build your audience. Once you get there it is effective. As recently as a week before the publishing of this article I ran an advertising campaign on Facebook. I witnessed results in only two days.


I now have a small budget for print advertising. I have an advertisement in a local quarterly magazine, which distributes free to my demographic, I sponsor the High School Dance Team, and I sponsor program fliers for the local High School Choir.


I opened my business without a specific advertising plan. This might sound dangerous, but I believe most small business owners can go the same route, with the following caution. Be dedicated to figuring it out very early on. Stay focused on advertising, even if initially you have to do it on the cheap like I did. You will eventually figure out what works for you.

#advertising #marketing #revenue #execution



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