In the early part of 2012 (nearly a year ago) I reported that Procter and Gamble had an advertising budget of around $10 billion for the year (that actual spend was $9,345 million – see the report here).
So the question is was it worth it and what the heck has it got to do with small struggling businesses trying to stay afloat?
The answer to the first part of the question is yes. Nearly $84 billion in sales is not bad. And since advertising as a way of marketing is P&G’s forte, then it has obviously worked.
And just to complete the story, their earnings margin was 11.1%. Not too shabby eh!
If you look at this as a model, and bearing in mind it is a very well oiled model, then as a small business owner you have some metrics to work with.
In short, budget to spend at least 10% of your turnover on advertising. From here you can look at your business model in more detail.
As an extreme case, if your profit margin is 10%, then you are going to have almost no budget for marketing let alone advertising. This is part of the reason retailers try to get a 100% markup on what they sell.
You must ensure you have the money to tell the world about what you do.
If we strip out the ‘billions’ from P&G’s figures, it looks like this.
- Sales: 84
- Cost of goods: 41
- Advertising: 10
Something we sold for 84 dollars, cost us 41 dollars to buy and 10 dollars to advertise. This leaves us with 33 dollars per sale. You can choose to use that for your office, salary, business trips, whatever.
So the only question is how many do you need to sell to achieve the lifestyle or business success you want?
This may seem a little simplistic, but that’s what the best businesses do – keep it simple.