Reader Question: How Much Should I Spend on Advertising?
Fernanda asks, “How much should I spend on marketing my business?”
How much money do you want to make, Fernanda? I say that because you can have the best product or service in the world, but if nobody knows it’s there, you may find yourself without a business after a very short time.
Even long-lived companies market a lot – think of all the large, established brands you’re familiar with that still advertise and appear in articles and are worn or talked about by celebrities. Surely everyone knows about Nike and Apple by now, so why would they bother to keep advertising?
Schaefer Beer, that’s why. Have you ever even heard of that brand? If so, when’s the last time you saw an ad or noticed a character on your favorite TV show holding a Schaefer?
Never? Exactly. Yet in the 50’s, Schaefer was one of the biggest beer brands. What happened? They decided to rest on their laurels. Everyone knew Schaefer, so why bother buying Superbowl ads like Budweiser, Miller Light, Bud Light, or Coors?
We are living in a world shaped by Schaefer’s decision to save money on advertising. A world, that is, in which nobody you know drinks Schaefer.
But what about your company? You’re tiny, maybe just getting started. When should you start spending money on ads or other types of marketing?
My less-snarky answer for this question is that you ought to start experimenting with different types of marketing from your very first days, and bake in an advertising commitment to your overall budget from the very first weeks you have something to sell.
What I recommend to my students is to set a percentage of profit – at least 20 percent, but if you want to try 50 percent, even better – and take daily small bets on what might work. As long as you’re learning and improving results over time, you’re on the right track. Remember that your job as the founder of a startup is to learn what works for your business – “A startup is a learning machine,” as it says on the wall of our Innovation Lab at Lorenzo.
How might this 20 percent plan work in practice? If you make $200 gross revenue one day, repay yourself for expenses, and have $100 of leftover cash to show for your trouble, then put $20 or $35 or $50 aside and try running some ads.
Wait till the end of the week, when you have $500 instead of $50. Whatever the case. Start investing in finding new customers right away.
You won’t miss the money if you commit a percentage of profits from the very start.
If the very start is a year behind you at this point? Every day is a new day to start fresh. Start taking some of your net profit and invest it in your company’s growth.
Here’s a link to an earlier post in which I discuss a concept called Infinite Gain, in which every dollar you spend on advertising earns you more than a dollar in profits. Once you hit that winning formula, then you’ll see why I answered Fernanda the way I did at the top of this post. https://businessfortherestofus.substack.com/p/infinite-gain.
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Yes, marketing involves many more considerations than just buying ads - in fact, sometimes you can really hit your stride as a business without ever buying a single ad, as Sara Blakely did for the first decade or more with Spanx.
However… marketing is so much more than just advertising. It’s helpful to think about your company as having only three functions: You make stuff, you sell stuff, and you track your finances. Every company does these three things, and - if you look at the business from enough detachment, so more like a philosopher and less like an engineer - then no company does anything other than those three things.
In this simplified worldview, “selling stuff” includes a multitude of activities, including actual sales (real people talking to potential customers), public relations, customer service (real people talking to actual customers), earned media such as articles and blog posts, interviews on TV and podcasts, guerilla marketing, and paid advertising in all its forms, from flyers and billboards to influencer marketing and Google ads.
With that perspective, what we talked about in addressing Fernanda’s question is just paid advertising. Still, there are countless unpaid or nominally-paid ways for you to get the word out. We’ll talk more about them in a future post.