The Advertising & Promotion Budget Process

Contractor 20/20 are the Experts at Helping You with Advertising and Promotion Budget Options

The CENTRAL logic to smart budgeting is that one should:

1. "Buy" as many new customers as needed to achieve sales and profit goals.
2. Adjust pricing needs to reflect the actual new customer acquisition costs.

A. The advertising budget process starts with customer retention; most good companies retain about 75% off of their prior customers.
Example: $1,000,000 in 2011 starts you off with $750,000 in 2012

B. When you look at dollar return on yellow page, TV, and radio, the normal range is 1 - 4 and 1 - 6 in new customer sales.
Example: Let’s consider a $1,000,000 company with a 7% advertising budget. Their $70,000 in advertising yields them $280,000 to $420,000 in new customer sales, so with a 7% advertising budget the company can see results that range from:

Company A
$750,000-repeat customers
$280,000-new customers
$1,030,000 total

Company B
$750,000-repeat customers
$420,000-new customers
$1,170,000 total

That’s a 7% advertising budget yielding a 3% to 17% sales increase.
The difference in results is due to market conditions and advertising fulfillment skills.
Reminder: Advertising is what you do to Brand your company. It is designed to get people to think of your company when they have a future need.
VS.
Promotions are designed to create the need and get sales immediately.

Example:
Let’s say Company B, can do more work with their existing staff AND has a 50% overhead. That 50% is killing their profits, dragging them down from 18% to 8%. So, Company B’s overhead is 50% ($585,000). To get their overhead down to 40%, their sales will need to increase to $1,462,500. He is $292,500 short of justifying his overhead. They need promotion to solve their problem.

Example:
If new customers cost them 20% of the sale (typical), they need to invest $292,500 x 20% = $58,500 to solve their problem. They have 4 alternatives to fund the project:

1. Raise prices 4% to all customers. ($1,462,500 x 4%= $58,500)
2. Charge new customers 20% more than repeat customers.
3. Eat it; drop profit expectation from 18% to 13%.
4. Suffer.

GOOD NEWS
I have developed secret techniques that allow you to raise prices to new customers 20% with no reduction in closing rates (conversion).
And I have developed secret techniques that allow you to retain the new customers you overcharge.

BAD NEWS
Only my clients get the good news and only then with a confidentiality agreement.

CONCLUSIONS
1. Your fixed overhead tells you what your sales goal should be.
2. Your customer's retention rates, in combination with your new customer advertising cost, will determine your advertising results.
3. The gap between sales goals and advertising results is your promotion sales goal.
4. Your promotion budget becomes what it takes to cover that gap.

RULES OF THE ROAD
1. Customers turn to yellow pages when they need help.
2. Radio & TV are the cheapest way to build a brand name and maximize yellow page results.
3. Direct mail is not cheap, but it is instant.

DAY TO DAY
1. Make sure you have enough techs to achieve your sales goal.
2. Use direct mail to cover the sales shortage, if there is one.

MONTH TO MONTH
1. Maximize customer retention by mailing of prior customers each month, except when you can’t handle the work.

YEAR TO YEAR
1. Have a system to measure new customer cost for yellow pages, TV, and Direct mail.
2. Use ads & spots that have a proven track record.

CAUTION
Bad CSR & TECH conversion rates and low average tickets will ruin the best advertising campaigns in the world. Ask me about our Executive Control Panel form that helps to put out fire before your profit burns up.
You don’t have to guess at budgets and controls; we have the systems that you need by combining 26 years of advertising experience with an intensive market study of over 200 companies in the USA and Canada.

Call Contractor 2020 for all your advertising and marketing needs. We can customize a marketing plan that will fit your budget and needs.

I am proud to be associated with the largest and most respected contractor groups in the nation as a
PHCC/QSC (Quality Service Contractors Industry Partner) and as a Service Roundtable Consult Partner.

A final personal note... The marketing industry has a long dark history of disreputable operators. If you have been in business for a time, no doubt you have your own story to tell. That is why I urge you to check our referrals see for yourself how our counsel has been a blessing to contractors from Coast to Coast. If you do, you will learn how faithful to our clients' interests we are, so different from too many clients' past experiences.