Budgeting for advertising is a challenge. It seems that the amount you spend on advertising changes frequently. Sometimes you can control these changes, such as posting more or less ads. Other times it is not possible, as the costs of advertising can simply increase.
With the cost of advertising changing so often, you may be wondering, “Is advertising a variable cost?” Once you know the answer, you can plan your advertising more effectively and look for ways to keep costs down while improving results.
Let’s take a look at variable costs to see if advertising is suitable.
Understanding variable costs
A variable cost is a cost that changes depending on the amount of product or service you produce. For example, if you run a lawn care business, the amount of fertilizer you buy is a variable cost. You buy more if you provide more lawn services and less if you don’t.
Examples of variable costs include raw materials for your products, service supplies, company vehicle fuel, shipping costs, and more. These are costs that are directly related to what you offer to your customers.
When you look at advertising, it’s clear that advertising costs don’t go up when you make more sales and go down when you make less. Consequently, even though advertising costs can vary a lot, they are not considered a variable cost.
Instead, advertising is a fixed expense, something that remains constant regardless of the number of products or services provided to consumers. It seems strange that something that changes so often is a fixed expense, but since it is not related to your production, this is the correct definition.
Budget for advertising
Know the answer to “Is advertising a variable cost?? “can help you budget for this important part of your business. Because you can control how much you advertise, no matter how big your business grows, you can make smart ad choices.
Looking at the ROI
The most important thing to focus on with advertising is the return on investment (ROI). This means you want to earn more from your ads than you spend on them. You can only do this when your ads are highly effective and targeted, regularly bringing in ideal leads and customers.
It might cost a little more to make your advertising more targeted and less general in nature, but it pays off more than itself. It’s better to spend a little more if it improves your overall ROI.
Understanding the value of a customer
The other element of your advertising budget is understanding how much a customer is worth to you when they buy from your business. For example, if the average customer makes a one-time purchase of $ 100, the customer’s lifetime value is $ 100. However, if the average customer gets a one-year contract worth $ 1,000, the lifetime value is of $ 1,000.
The greater the customer’s life value, the more you can afford to spend on acquiring a customer. This means you can have a higher advertising budget without hurting your ROI. For example, you would never spend $ 200 to acquire a $ 100 worth of customer, but you would definitely buy a $ 1,000 worth of customer.
There are two ways to improve advertising ROI: reduce advertising costs and increase customer life value. Many entrepreneurs overlook the second option. What can you do to build customer loyalty and increase the average ticket price? Perhaps bundling your products or services would help, or you could create a membership or subscription.
When customer value is high, advertising costs can be higher while maintaining profitability.
Marketing versus advertising
Many business owners make the mistake of thinking that marketing and advertising are one and the same. They are not, although advertising is a type of marketing.
Other marketing options can help you attract new customers consistently without having to regularly spend on advertising. For example, search engine optimization (SEO) attracts customers who are already searching for your product or service on Google, helping you connect with buyers when they are more ready to make a purchase.
SEO takes some time to establish – you need to earn your way onto the first page of Google search results. However, once you do that, you can spend a lot less on advertising while still getting ideal customers and leads on a regular basis. This can greatly improve your profitability and help you grow faster.
Combination of advertising and other marketing methods
The best approach for any small business is to combine advertising, which can bring quick profits, with long-term marketing methods such as SEO. Over time you will have a strong digital presence and a brand, which will allow you to grow your business.
Best of all, you’ll save money by moving your budget away from advertising. It’s no secret that advertising is expensive and as soon as you stop paying, you lose your exposure. SEO isn’t like that – once you’ve earned your rank, you can keep it without having to pay for ads over and over again.
If you’d like help balancing advertising and SEO, we’re here for you. Local SEO Search has helped thousands of small businesses succeed in building a strong online presence and connecting with ready-to-buy customers. Contact us for a free consultation today!