Why you should increase spend on promotional gifts in tough times
The problem with cutting ad spend (including promotional gifts) is that it has an exponential effect on the bottom line. This is because ad spend forms a small percentage of overall spend, and its beneficial effect is far higher than proportion.
Here are some scenarios to illustrate:
Original in good trading
conditions:
Income 1 000 000.00
Salaries 300 000.00
Cars 200 000.00
Advertising 100 000.00
Office 200 000.00
Total spend 800 000.00
Profit 200 000.00 (20% of income)
Affected by the squeeze
Scenario 1
Income 900 000.00
Salaries 270 000.00
Cars 180 000.00
Advertising 90 000.00
Office 180 000.00
Total spend 720 000.00
Profit 180 000.00 (still 20% of income)
But you have earned less than before: -20 000.00
If you cut advertising costs
your income will drop
Affected by the squeeze
Scenario 2
Income 880 000.00
Salaries 270 000.00
Cars 180 000.00
Advertising 50 000.00
Office 180 000.00
Total spend 720 000.00
Profit 160 000.00 (now 18% of income)
Earned even less, even though cut expenses by more : -40 000.00
If you cut advertising costs further
your income will drop further
Affected by the squeeze
Scenario 3 (our recommended scenario)
Income 920 000.00
Salaries 270 000.00
Cars 180 000.00
*Advertising 100 000.00 *
Office 180 000.00
Total spend 720 000.00
Profit 200 000.00 22%
In tough environment manage to maintain profit
Cut other costs, keep advertising the same
Even assume income drops in tough climate
but make sure income does not drop as much as
it would have, because you are advertising more
than competitors
© Copyright Fred Slotow
