Every business would like more customers and clients. Whether you’re after global domination, or would like to maintain your lifestyle business! Advertising is an important area to consider when looking at your business budget and plan.
Here we give a couple of quick things to consider on this topic:
How much do I need to spend?
Advertising and marketing is an almost endless list of possible ways to spend money. Do you do social, PPC (pay per click), Direct Mail etc.
Who do you target, by which channel, and how often? What type of ‘creative’ do you need (i.e. video, blog, advert)? Do you use re-marketing (the amazing ability to show ads to people that have visited your website)?
How long is your sales cycle?
A good marketing expert will be able to guide you through this. It is worth also taking step back and reviewing your customer journey to purchase.
How complex is your product or service?
How long would it take your client to make a decision on your services?
For example, if your business is concerned with selling physical products, an ad seen online may prompt your customers to buy.
If you offer a complex service such as consulting or undertake large projects with many moving parts, your client may need to do a lot of research before coming to a decision. They will want to understand your expertise and experience in the area (through mediums like social media). This means that further marketing will be required while your potential customers are on that decision making path.
From a financial point of view, you need to consider how quickly ad spend will return your money.
Return on Investment
Like anything in business, you want to see your advertising spend as an investment that should return you money.
If you need to spend £2000 a month to get the type of presence you would like, but aren’t likely to see a return on that money for 6 months – do you have the money to fund this?
Will spending some money for just one month actually achieve anything? If your sales cycle is short, maybe, otherwise it’s questionable.
Again, a good marketing consultant can guide you through this. Be very cautious about companies claiming quick wins or guaranteed success.
Spend vs success varies wildly between businesses and you will probably need to test quite a bit before coming across what works. This is especially true with PPC and some Digital Marketing channels.
If you need to make the investment now, you need to plan to build some funds to make the most of your campaigns.
In terms of overall spend, we see clients spending 3 – 9% of turnover quite frequently.
These clients are often the more established businesses, but not always. There are some fantastic ways to grow your business without spending lots on advertising. Networking and referrals are a free route, but experience says if you can afford to, you will see results, more quickly by investing.
Tax points to consider
When spending money on advertising, most of the time it will be a straightforward case of being tax deductible.
Where it can get slightly complex is when doing things like overhauling your website.
When refreshing content and paying for maintenance, these are tax deductible in your Profit and Loss account. Like any other expenditure – referred to in the accounting world as ‘revenue’ expenditure.
If you decide you need a new website that will last for a few years, this expenditure is shown on your Balance Sheet as an asset (AKA ‘capital expenditure’).
There are ‘Capital Allowances’ that are available in most cases, so its still tax deductible, but treated in a different manner.
As a side note, if you’ve never spent money on developing a website, it is worth finding out what this is going to cost you so you can plan appropriately. It’s quite normal to see £1500 – £15,000 costs for website depending on how complex the site.
Remember: if you are VAT registered, you should ignore the VAT element of any supplier costs as these will be recoverable.
This is an important point when budgeting for your spend.
You may also see when using Google or Facebook advertising that they can use a ‘reserve charge’ VAT mechanism.
It is often cheaper for you, or at best cash flow friendly to pay for ad spend directly from your business bank account. Investing through a marketing agency means they will have to charge you VAT.
If you aren’t VAT registered, or otherwise restricted in the VAT you can claim back, then sorry there is no good news here – the VAT will be a cost to your business.
If you are thinking of spending on advertising and would like to discuss anything in more detail, please give the office a call.