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Average ad budget for local retailers?

by joe golfer
28 replies
Trying to get a thumbnail idea of what a local furniture chain spends on advertising. Do you happen to know a rough percentage of sales this type of retailer allocates to advertising? (radio, tv, newspaper, direct mail, etc).

If not furniture, any locally advertised retailer will help. I'm checking with several sources but thought I'd throw it out here as well.
#average #budget #local #retailers
  • Profile picture of the author bob ross
    I would guess that the aggressive ones are spending 10-15% of their gross sales on advertising.
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    • Profile picture of the author Claude Whitacre
      I read 8-15% in books on advertising.

      But that figure is sooooo misleading.

      For years, my advertising cost me about 2% of my gross sales. But so what?

      Advertising shouldn't be budgeted like an expense. It's what drives sales.

      Exerpted from my book Selling Local Advertising
      -------
      The Advertising Budget

      This is going to be the situation that you will face over and over again:"It's not in the budget" will be the reason the client will give you for not buying.

      When I was selling in the home I would hear "We may get laid off" or "I just got laid off" as the reason for not buying. It may have been true a few times, but it felt like I was personally causing half the population to get laid off from their job. Why would I hear this as a reason not to buy? Because it was something that happened to them beyond their control, that they could blame for not buying. It was simply easier and more painless than saying "I don't want to buy this from you".

      If you are talking to the business owner, the ad budget they mention is....just made up. They may have written it down somewhere, but it's just a figure that sounded good to them. There is absolutely no magic figure that is "the right amount". $500 a month? $30,000 a month, 5% of gross sales, 18% of gross sales.....are all figures the they either read in a book, or heard from a friend. You can break them out of the "advertising budget" trap, after they understand the "Return On Investment" idea....which we will discuss shortly.
      "It's not in our budget" is a way to say "I'm not interested in this, but I want to be polite".

      See? The "Budget" won't let them buy from you. They want to buy from you...but that darn budget is keeping them from it. That's the image they are trying to convey.

      But here's an even bigger problem. Many larger businesses really have a budget.

      This is true especially if they have someone in charge of the advertising who is not the owner. That person is given a budget to spend on advertising.
      You job...your mission...is to show the business owner that having an advertising budget is an absolute mistake. This will take five minutes with a few ...and several visits with most clients. But it is worth doing. Here's the concept in a nutshell;
      Ads either produce a net profit...or they produce a loss in profit. They are not an expense to be budgeted. Advertising is an investment that should pay off with a profit before they run the next ad.

      For example; If they buy an ad for $1,000...and that ad pays them back $3,000 within thirty days, what should they do next? Run it again! As often as possible. Would it make any sense to say "Well, Sure...that ad tripled our money, but we have an ad budget of $1,000 every three months. We'll have to wait for two more months."? That would be insane.

      On the other hand, if you buy an ad for $1,000 and it produces no response at all, you wouldn't say "Well, this ad didn't work at all, but doggone it!..we have that budget to spend. Go ahead and run it again". That would be equally as insane.
      -------

      I hope that helps.
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  • Profile picture of the author akazo
    10% to 15% of gross would be very rare. Many successful businesses operate on 20 to 30% margins. No way they are spending 50% of their net on advertsing. I would be surprised if most small local businesses could do more than 5% or so.

    There will always be exceptions, but for an average, it will be low. Also a lot will depend on their business and business model. Many hair salons rent booths, they will spend almost nothing. The ones operating on commission sales will spend, but certainly not 15% of gross because they don't have the margins.

    A Plumbing company I know makes about 20 to 25% margins, etc. etc.

    Now a furniture store will probably spend higher than average, depending on their business model. Are they oferring a "huge blowout" every other week, or are they the type that everyone knows and are sitting on a major intersection and mostly advertises during holidays?

    Point being, everyone is different, but don't have inflated ideas of most local businesses.
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    • Profile picture of the author bob ross
      Originally Posted by akazo View Post

      10% to 15% of gross would be very rare. Many successful businesses operate on 20 to 30% margins. No way they are spending 50% of their net on advertsing. I would be surprised if most small local businesses could do more than 5% or so.
      10% to 15% of gross isn't rare, read what you just wrote again and you'll see where you're being confused. 10-15% of gross, not 10-15% of net.
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      • Profile picture of the author Grey Affiliate
        Originally Posted by bob ross View Post

        10% to 15% of gross isn't rare, read what you just wrote again and you'll see where you're being confused. 10-15% of gross, not 10-15% of net.
        15% of gross is 50% of the nett on a 30% margin - or am I missing something?
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    • Profile picture of the author iAmNameLess
      Originally Posted by akazo View Post

      10% to 15% of gross would be very rare. Many successful businesses operate on 20 to 30% margins.
      I can tell you right now most retailers don't have 20% margins. In the furniture industry they're operating on a 2-3% profit margin. Their real profit comes from warranties, and other items, lamps, rugs, delivery fees, etc.

      Most successful furniture outlets have chains, and when they have chains they're able to work out agency rates for advertising. They don't even spend 1% of their gross sales on advertising, not even close.

      Other industries like roofing, and medical will pay 5-10% of their gross sales on advertising.

      What you'll realize is that if the company is not a leading company in their area, chances are they don't even have a budget. So many companies say it's not in their budget, but that's because they've never created one in the first place lol.
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      • Profile picture of the author Claude Whitacre
        Originally Posted by iAmNameLess View Post

        I can tell you right now most retailers don't have 20% margins. In the furniture industry they're operating on a 2-3% profit margin. Their real profit comes from warranties, and other items, lamps, rugs, delivery fees, etc.
        The 2-3% is net after all expenses, advertising, salaries...and everything is paid. It's what they pay taxes on.

        Most every retail store sells their stuff for twice what they pay for it.
        Then the overhead is figured in (rent, utilities, staff pay).

        Then the money reinvested in the business, the salaries of the owners, the money that goes into their investment funds....after everything is pulled out. They may show a 2% net profit. But that's not what they are living on.

        Nobody is selling a $5,000 leather sofa, and paying $4,500 for it. They may pay $2,225.

        Higher end furniture is marked up 2 1/2 times on average. Cheap furniture is marked up 50%. Only the loss leaders are close to cost. My worst lost leader is a 10% profit when sold.

        My retail store does close to $400,000 in sales a year. Half of that is mine, even after all expenses. My situation is optimal. My employees are part time, and my overhead is low. But most retailers would still pull $100,000 out of there.

        I almost opened a store (attached to the one I have now) to sell Amish solid oak and maple furniture. The markup would have been an average of 100% with 150% on the high end stuff. But I'm too close to retiring to take on a commitment like that. But I saw the "factory", talked to the owners, got the prices, and talked to a finance company.

        The 2-3% stuff? That's what they tell employees and the IRS. Have you ever seen a million dollar a year store owner's home? They aren't living on $30,000 a year. That how much their mortgage is. I know.

        Most of my clients are retailers. Mattresses are a 150% markup. Large appliances are about the lowest I've seen at about 25-30% markup (or 20-25% profit) And there, the warranties, delivery, setup, and service are the real money makers.

        This is my second retail store.
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        • Profile picture of the author DABK
          I recently got to see the tax returns for a business and it's owner for 2012. Gross revenue was a bit over $1,250,000. The owner, according to the returns, walked away with only $6,900!

          But he's about to buy a $450,000 house.

          Must be careful with who gives you the profit percentages.

          My best year in the real estate appraising business my profit was 7.14%. The only marketing I felt I could afford was this: get my assistant during her down times to call upon prospects and find me the ones interested in my package. She used to find a couple a week or so. And I'd send a couple of packages ($3 or 4, I don't remember, included postage, envelope, paper... Did not account for ink, printer usage, the time my assistant had to spend to put packages together.

          I did marketing rarely, because most of the time I had more business than I knew what to do with. And I was not content with my income, I wanted more. But I did not, indeed, have a marketing problem, I had a production problem.

          A lot of small business owners have lousy production processes, so even if they want more, they can't handle, so there's no marketing budget.

          Originally Posted by Claude Whitacre View Post


          The 2-3% stuff? That's what they tell employees and the IRS. Have you ever seen a million dollar a year store owner's home? They aren't living on $30,000 a year. That how much their mortgage is. I know.

          Most of my clients are retailers. Mattresses are a 150% markup. Large appliances are about the lowest I've seen at about 25-30% markup (or 20-25% profit) And there, the warranties, delivery, setup, and service are the real money makers.

          This is my second retail store.
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          • Profile picture of the author ewenmack
            My accountant made it so my company made zero profits,
            therefore has no tax liability.

            Confirmed by the tax department letter I got today.

            The expenses are spread out so as to not show a profit.

            A common Accounting practice here.

            Best,
            Ewen
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          • Profile picture of the author sbishop
            Originally Posted by DABK View Post

            A lot of small business owners have lousy production processes, so even if they want more, they can't handle, so there's no marketing budget.

            This is the basis of the book the E-myth. most small business owners want to make more money, but could not handle the extra work load. Many of them grew to larger levels and could not handle it, so they dwindled back to minimal levels and gripe about not making enough money, but at the same time are scared to grow again!
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            • Profile picture of the author bob ross
              "hollywood accounting" is an interesting thing to read about. When these giant budget movies are made they purposefully create a separate "studio" entity and use it to bill outlandish amounts of money back to the production company. This creates heavy debts to the production company and reduces the production company's profitability to zero or barely anything. That's how these movies run into costs of tens of millions yet rarely ever show a profit.

              This is also how a lot of people get completely screwed over. Someone who doesn't know better may accept percentage points of profit on movies as compensation. The guy who wrote 'forrest gump' accepted a deal involving 3% of the movies profits and he never saw a dime of that since the film "never made a profit".

              Stan Lee, who created spider-man, also got screwed over when he accepted 10% profits of the movie spider-man which grossed hundreds of millions yet "never made a profit".


              Originally Posted by sbishop View Post

              This is the basis of the book the E-myth. most small business owners want to make more money, but could not handle the extra work load. Many of them grew to larger levels and could not handle it, so they dwindled back to minimal levels and gripe about not making enough money, but at the same time are scared to grow again!
              Best business book EVER. Period.
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              • Profile picture of the author joe golfer
                Originally Posted by bob ross View Post

                "hollywood accounting" is an interesting thing to read about. When these giant budget movies are made they purposefully create a separate "studio" entity and use it to bill outlandish amounts of money back to the production company. This creates heavy debts to the production company and reduces the production company's profitability to zero or barely anything. That's how these movies run into costs of tens of millions yet rarely ever show a profit.

                This is also how a lot of people get completely screwed over. Someone who doesn't know better may accept percentage points of profit on movies as compensation. The guy who wrote 'forrest gump' accepted a deal involving 3% of the movies profits and he never saw a dime of that since the film "never made a profit".

                Stan Lee, who created spider-man, also got screwed over when he accepted 10% profits of the movie spider-man which grossed hundreds of millions yet "never made a profit".




                Best business book EVER. Period.
                First thing you learn in Hollywood: Always get gross points. Like the high-wire daredevil, there is no net.
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      • Profile picture of the author kenmichaels
        Originally Posted by iAmNameLess View Post

        I can tell you right now most retailers don't have 20% margins. In the furniture industry they're operating on a 2-3% profit margin. Their real profit comes from warranties, and other items, lamps, rugs, delivery fees, etc.

        Most successful furniture outlets have chains, and when they have chains they're able to work out agency rates for advertising. They don't even spend 1% of their gross sales on advertising, not even close.

        Other industries like roofing, and medical will pay 5-10% of their gross sales on advertising.

        What you'll realize is that if the company is not a leading company in their area, chances are they don't even have a budget. So many companies say it's not in their budget, but that's because they've never created one in the first place lol.
        Now that you have upped your sales game it is time for you to learn
        a cold hard fact.

        50% of the people you talk to are lying through there teeth.

        40 ish % don't have a clue what they or you are talking about.
        ... margins is a word they heard in context and now apply it
        everywhere inappropriately.

        The rest ... the ones on the ball.

        Those are usually the ones dodging everyone's calls
        and usually don't require much if any help.

        They are also usually the goose that repeatedly lays the golden egg.
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        • Profile picture of the author ewenmack
          This site has the data on all the retail numbers each sector
          produces...Furniture Stores Benchmarks

          Best,
          Ewen
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          • Profile picture of the author Claude Whitacre
            Originally Posted by ewenmack View Post

            This site has the data on all the retail numbers each sector
            produces...Furniture Stores Benchmarks

            Best,
            Ewen

            Ewen; I read the report. It pretty much says what I've said...and what Iamnameless said.

            If you are looking for ROI, it's a few percent. The margins are far higher.
            But that 3% is what's left after everyone is paid, and it's what they report to the IRS. The businesses don't pay for advertising out of that 3%. And that 3% is after the owner takes out his compensation.

            One thing I should mention for retailers. The suppliers that the retailers buy from often will pay for 50% of the advertising cost to advertise their products.

            This is usually at a limit of maybe 5% of purchases. The ads have to be approved, in many cases.
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            • Profile picture of the author mojo1
              You may want to reach out to Chris Rivers here on the WF. He has a product geared towards Furniture companies.
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  • Profile picture of the author NewParadigm
    Most businesses don't even have a budget for it and couldn't even tell you how much they spend. Most do it by gut feel depending on the pitch and perceived benefits. Yellow pages-gee everyone else is in it...... IM has some advantage to actually help the biz owner track some real results for their money spend. Marketers should have a simple worksheet or walk them through the process of discovering what their current spend really is, (they'd prob be surprised) and what results they are getting (they have no real idea beyond qualitative).
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    • Profile picture of the author Claude Whitacre
      Originally Posted by NewParadigm View Post

      Most businesses don't even have a budget for it and couldn't even tell you how much they spend. Most do it by gut feel depending on the pitch and perceived benefits.
      I've found this to be true for the majority of small business owners. They tend to fall into different groups. Worst to best-

      They don't advertise at all...ever...because "advertising doesn't work"

      They advertise in the Yellow Pages out of habit.

      They buy whatever the last ad rep is selling. And whatever it costs...that's their budget.

      They actually have a budget. This is where the owner is slightly educated about marketing and advertising. But they haven't grasped the "advertising creates profit" idea. They tend to do more brand building advertising...or advertising handed to them by their suppliers.

      They track sales, profits, and what ads generated the sales. They will buy any advertising that works. They will also be quick to stop advertising if they see no results. These people are rabid repeat buyers, as long as you show them a profit.



      Do you sell advertising? The single greatest asset you can have is the awareness of how to write profitable ads. If your ads generates a demonstrable profit, you'll never have to make a cold call again. Referrals and past customers will keep you busy.

      I've yet to meet an ad rep that knew anything about how to advertise. What a waste.
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      • Profile picture of the author mojo1
        Originally Posted by Claude Whitacre View Post

        "advertising creates profit" idea.
        Business owners who've been around the block for a minute, would liken this to a
        "I could have had a V8" moment when you flat out put it this way.

        I had a V8 moment myself while reading your post at the thought of asking whether you've distilled this down to a case study that we can give or share with biz owners, but then I remembered you kinda do already have this in place, right? I recall it mentioned in one of your books titled, The Unfair Advantage Small Business Advertising Manual.

        I'm going to buy and study this today and incorporate this as a bonus for businesses that purchase my local coupon book and/or postcard services.

        Claude, when purchasing this for other businesses, should I select the gift option in Amazon?

        Thanks.
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        • Profile picture of the author Claude Whitacre
          Originally Posted by mojo1 View Post

          Business owners who've been around the block for a minute, would liken this to a
          "I could have had a V8" moment when you flat out put it this way.

          I had a V8 moment myself while reading your post at the thought of asking whether you've distilled this down to a case study that we can give or share with biz owners, but then I remembered you kinda do already have this in place, right? I recall it mentioned in one of your books titled, The Unfair Advantage Small Business Advertising Manual.

          I'm going to buy and study this today and incorporate this as a bonus for businesses that purchase my local coupon book and/or postcard services.

          Claude, when purchasing this for other businesses, should I select the gift option in Amazon?

          Thanks.

          Mojo: First, Thank you.

          If you are going to give the book away, you should contact me. My prices are a small fraction of what Amazon would charge. But this is just for the paperback. The Kindle version? I would use the Gift option.
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          • Profile picture of the author mojo1
            I just bought Claude's Kindle ebook using Amazon's gift option which was really cool. Using the gift option allowed several convenient delivery options. I hope this will ultimately help my sales effort in a unique way by adding value among a sea of other people pushing a similarly perceived product.
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  • Profile picture of the author bob ross
    Ahh yes I see what he meant now. Yeah that's true on a 30% gross margin and I don't know what kind of margins furniture stores have but I wouldn't be surprised if some of them have them upwards of 40 to 50% gross margin, where 10-15% going to marketing is completely realistic.
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  • Profile picture of the author NewParadigm
    what really makes me roll my eyes about businesses spending a lot of money to get new customers is they are often horrendously bad w/ their existing handling of incoming prospects.

    I called a known reputable insulation contractor yesterday morning on a referral from a general contractor friend. The person answering says all estimators are out til after 3pm and CALL BACK after that! LOL. I was taken aback and said business must be good eh? And asked if she'd do me a favor (sarc) and take my number and have someone call me. She paused like it was trouble to take down a freakin number. Someone did call me back this afternoon, a day later. And I told them what I was looking for, (prob a $3,000 job) and informed them of my experience and that I have a couple other responsive companies already lined up to give me an estimate. The salesman said ok and hung up. LOL. Now that was the 2nd apathetic employee. Normally as a courtesy i'll inform management or the owner but it must be systemic so i'll just ignore them. Crap rolls down hill, LOL.

    Another one is companies ignoring email sales inquiries. It could be as high as 80% of my email inquiries to various biz websites (as a consumer) go un-returned, or maybe followed up on days later. I've seen a forum discussion on offering a service that texts/emails someone or several people every time there is an incoming sales inquiry email/sales form. Sounds like a great idea to sell to many businesses once you point out to them how much opportunity they are missing. they are literally that clueless.
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    • Profile picture of the author Huskerdarren
      Originally Posted by NewParadigm View Post

      what really makes me roll my eyes about businesses spending a lot of money to get new customers is they are often horrendously bad w/ their existing handling of incoming prospects.

      I called a known reputable insulation contractor yesterday morning on a referral from a general contractor friend. The person answering says all estimators are out til after 3pm and CALL BACK after that! LOL. I was taken aback and said business must be good eh? And asked if she'd do me a favor (sarc) and take my number and have someone call me. She paused like it was trouble to take down a freakin number. Someone did call me back this afternoon, a day later. And I told them what I was looking for, (prob a $3,000 job) and informed them of my experience and that I have a couple other responsive companies already lined up to give me an estimate. The salesman said ok and hung up. LOL. Now that was the 2nd apathetic employee. Normally as a courtesy i'll inform management or the owner but it must be systemic so i'll just ignore them. Crap rolls down hill, LOL.

      Another one is companies ignoring email sales inquiries. It could be as high as 80% of my email inquiries to various biz websites (as a consumer) go un-returned, or maybe followed up on days later. I've seen a forum discussion on offering a service that texts/emails someone or several people every time there is an incoming sales inquiry email/sales form. Sounds like a great idea to sell to many businesses once you point out to them how much opportunity they are missing. they are literally that clueless.
      Good (and true story) IMO. Businesses like this are all too common. And, it's such an easy problem to acknowledge and fix. I'll share my beef. I get so mad when I am checking out and the cashier takes an outside call in the middle of our transaction. I am here, cash in hand, ready to purchase, and they decide to let a phone caller essentially cut in line and ask a bunch of questions, wasting my time and everyone behind me. Having a busy cashier field calls is really a bad idea IMO.
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      • Profile picture of the author NewParadigm
        Originally Posted by Huskerdarren View Post

        Good (and true story) IMO. Businesses like this are all too common. And, it's such an easy problem to acknowledge and fix. I'll share my beef. I get so mad when I am checking out and the cashier takes an outside call in the middle of our transaction. I am here, cash in hand, ready to purchase, and they decide to let a phone caller essentially cut in line and ask a bunch of questions, wasting my time and everyone behind me. Having a busy cashier field calls is really a bad idea IMO.
        that really ticks me off too. clueless. one time that happened me and i called while i was at the counter in the middle of checkout when she took a call. she answered right in front of me. and i told her I am going to buy my stuff at her competitor and left my stuff there and left. LOL.
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  • Profile picture of the author JamieBeresford
    I really like Claude's approach to explaining ROI, "Return On Investment". What I've seen in the bigger businesses, where someone is given the specific task to look after the budget, they completely miss the point. Irrespective of whether their budget is spent or not, irrespective of whether the advertising made any return, the marketing "manager" doesn't want to (or doesn't know how to) understand the ROI concept. And sometimes it takes a lot of educating to get the idea across.
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  • Profile picture of the author joe golfer
    Thanks for the feedback, folks. Here is some more info I found.

    Peter Primeau is a furniture consultant:
    "The single biggest mistake furniture stores make is they do not advertise enough. They believe that because they are in a high traffic location they will not have to advertise as much or perhaps at all. Traditionally furniture stores were able to contain their advertising costs to 6% of their sales volume. Now if you can keep it under 15% you are lucky. You need to invest at least 10% of your projected sales volume in advertising."
    The 9 Biggest Mistakes that Furniture Stores Make & How to Avoid Them | Pete Primeau


    Here is a copy of the 2013 Schonfeld and Associates report listing ad to sales ratios by industry (links to PDF). It lists furniture stores at 8.1 percent:
    http://www.rab.com/secure/AdtoSales/...alesRatios.pdf

    Consultant Steve McKee points out that ad budgets by industry change depending on whether they want volume over margin or vice versa. High volume businesses spend less as a percentage of sales, while high margin firms spend more.
    Example:
    Wal-mart 0.4 %
    Target 2%
    Best Buy 3%
    Macy's 5%
    He says the same pattern follows in most industries.
    What Should You Spend on Advertising? - Businessweek
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  • Profile picture of the author longrobnc
    I spend up to 15% all the time. I never spend less than 10%. I don't set budgets, it just works out that way. I am in constant motion trying to find people and ways to spend money on creating leads. I'm always looking for another log to throw on the fire. I assumed this was how it's done for most everyone.

    I just hired a new trainee because we are getting booked out too far!
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