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How much money do businesses spend on advertising each year?

Guest post by: Russell Bowyer

Article Overview: During an economic slow down most businesses take time out to think about their cash flow and their spending budgets, or so they should. I know from talking to other businesses that things are tough out there right now, and you only have to look down your own high street to see the all revealing closing down sales and empty shops of businesses, including some large retail chains, to know that things are very difficult. However, this is not a time to hold back on your advertising though and for one of my businesses we, as a board of directors, have recently decided to up our advertising spend. In this case the business concerned is in the care-sector and we chose to up our marketing budget to 7% of our turnover, so that as turnover begins to increase so will the amount we spend on marketing and advertising and so on.

How much money do businesses spend on advertising each year?

During an economic slow down most businesses take time out to think about their cash flow and their spending budgets, or so they should. I know from talking to other businesses that things are tough out there right now, and you only have to look down your own high street to see the all revealing closing down sales and empty shops of businesses, including some large retail chains, to know that things are very difficult.

However, this is not a time to hold back on your advertising though and for one of my businesses we, as a board of directors, have recently decided to up our advertising spend. In this case the business concerned is in the care-sector and we chose to up our marketing budget to 7% of our turnover, so that as turnover begins to increase so will the amount we spend on marketing and advertising and so on.

I know that newspapers and magazines are having a tough time too right now because businesses are not spending the same on advertising as they did 12-18 months ago, when in fact the opposite should be true! At a time when competition is high and customers are being selective about where they spend their money, you need to keep you business in the "Eye" of your customer and even more so when things are tough.

I noticed that when I looked at search terms on this subject there are some top searches not least some looking to see what other businesses spend, for example: "how much does mcdonalds spend on advertising"; "how much money do advertisers spend on advertising"; "how much do companies spend on advertising"; "how much bose spends on advertising"; "how much do business spend on advertising a year"; "how much sears spends on advertising", were some of the top ones. What I don't know is whether people are actioning after doing their research. If you were the one looking at how much McDonalds spends and you happen to be in a similar trade, then you should consider spending a similar amount as they do in order to keep up.

It would be easy for you to do some of your own research on what amounts other businesses are spending on advertising or companies within certain sectors, to give you an idea of what you should be spending too. I would suggest that the amount you spend be no less than 5% of turnover and possibly up to around 20%. However, one thing you need to take into consideration is your "gross profit margin" you make.

If in your industry your gross margin is let's say 20% - there would be no point in spending 20% on advertising, as this would take up your whole gross profit and you might as well close up shop now. However, if your gross profit margin was say 60-70%, which is what the margins are like in the food trade, then you might wish to consider spending up to these levels of advertising, as you have a large amount of gross profit margin to play with.

In the example of the care business sector mentioned above, the gross margin in this particular business is 32%, so 7% of turnover will leave us with a net of 25% gross profit to go towards the other business overheads and profit for the shareholders.

For those that are not quite sure about what "Gross profit margin" is - it is the percentage you make on your sales over an above what it costs you to make those sales. So for example, if you sell televisions and you sell one for let's say £500 and it cost you £350 to buy the television, then you gross profit in this instance is £150 or 30% (£150 divided by £500).

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Article Tags: advertising, adverts, board of directors, budgets, cash flow, how much money, marketing budget, retail chains, small business, turnover



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Re: Right budget for Advertising - There's no advertising, like free advertising. Use your resources on every avenue and look for ways to get your name out to the general public with little or no money. I have a handful of friends who have tried launching businesses; some with no money and others up spending upwards of a few hundred thousand dollars. When it was all said and done, for the most part, both sides had an equal out come. Use your common sense when advertising anything. It can make or break a company. Good luck, Bill Grieger, Online Research and Development
Re: Do You Use Paid Advertising? Survey says... - Hi GT, Thanks for all the info, there are some surprising stats there. I was surprised at the number of businesses with a Facebook presence (40%). I didn’t think it would be that high. On the mobile use, I wasn't at all surprised at the rise in time that people spend on their mobiles although it would have been interesting to see the age groups on that one. Here in the UK, there seem to be people bumping into each other all the time because they are too engrossed in their smart phones to look where they are going. In answer to your question, no I don't spend money on paid online advertising at the moment, maybe I should. It's just not something that I do at the moment. Maybe someone can give me a good reason !! regards, Mal.
Re: Service Or Product? - IdeasUniversity, I agree. Some people go to all that work of getting everything set up for their business and they think people will just see it and want to patronize it. They don't realize that they have to spend money to make money and they end up quitting before they ever really get started. I think that happens a lot in mid-sized towns. You tend to see start ups and then less than a year later you'll see the building standing there vacant. Advertising it probably the biggest part of starting a business. Then once you have some satisfied customers, you'll start getting referrals and you may actually start seeing a profit, but you still need to keep advertising if you want to start making a good profit and continue to grow. If there's something you're going to skimp on, it shouldn't be this.
Re: Promote Websites You Don't Own! - For most new small businesses jumping into online marketing for the first time I would steer clear of PPC advertising. For a while at least. Without a decent understanding of how search works and the whole PPC thing, including quality score, split testing of ad copy and landing pages, negative keywords, etc., you burn through your money pretty quick while trying to just learn and often end up with a deeply negative return on investment. Instead I would maybe spend that part of the budget on doing more of some of the other things you mentioned. Maybe buy another directory link or two. Another press release. More local offline advertising. Save the PPC for when the budget is not quite so tight and those other marketing efforts are already bringing in business. You can then better afford the learning curve costs and time required to get it right, and most importantly get it profitable.
Re: 100 days to says goodbye to 2009 - But with only Q4 left in the year, why are we so busy (if we're not accountants;)? Aside from the Xmas season, many consumers and businesses have already blown their budgets and won't be looking to spend anymore until the new year. If anything, things should be slowing down, especially since many people will be on vacation during Thanksgiving and Xmas.


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