Saturday, February 22, 2014

Changes in Advertising (Tradecraft)

I was looking at my profit and loss statement for last year and noticed my advertising expenses had dropped 25%. Advertising for small business has changed dramatically over the last 10 years. In my first month in business, we filmed a TV commercial. It ran for several years until we updated it, and then it ran another three years or so. I was paying about $300-500 a month, and usually $1000-1500 during the holidays. The Yellow Pages ran $200 a month. Our direct mail campaign to our customer list was $150 a month. We spent money on many advertising mediums in hopes of finding a magic formula. The ones that didn't work included ValPak, movie theater slide ads, radio ads, magazine ads, and direct email marketing (which we still do for some reason).

Now we don't touch traditional advertising mediums. Our advertising is digital, with the bulk going to Facebook, a nice slice to Google and various independent online advertising targeted by zip code to the gaming community. These new mediums are incredibly effective, to the point we can't possibly justify the old mediums. Even stranger, with a recommended budget in the 2-3% of gross sales range for small business advertising, there is more money in the budget than effective advertising to buy. There's probably another $1,000 a month I could spend, if someone could show me the effectiveness of a new medium (many have tried).

What's really surprising is we've maintained a steady stream of growth, tripling sales from back in the day, while our advertising expense has grown only 50% (whereas it might have grown 300% before digital took over). In other words, we went from advertising comprising 3% of our expense to 1.3% of our expenses, without losing effectiveness. So when we talk about a business revolution in social media, a small business like mine, with say, an 8% net profit margin, just increased their margin to around 10%, or a 20% profit increase. That's pretty revolutionary. The next time that's likely to happen will be credit card processing fees.

I have no doubt there are areas where I could stretch, where I could experiment and try a new medium. Feel free to suggest some. But while sales growth continues to rise, there's not a lot of reason to stretch ... and that makes me nervous. How many other areas can I say that about? Thinking about my upcoming ACD Games Day presentation on inventory management (shameless plug), the need to carefully manage inventory isn't really there when you're in a growth phase.

Do game store owners have the skills to manage their inventory? If you've only been in business for a few years, during the boom, you probably haven't had to tighten your belt and work through tough times. We might have more to learn from struggling, leaner small businesses that aren't game stores than each other in this case.

1 comment:

  1. Really enjoy reading your posts. You've probably heard this about a million times by now, but I've been trying to build the courage to start up my own place, and your tradecraft posts are excellent and informative to a business noob such as myself. Thank you for what you do.