Ad Spending Holds Up
When trimming budgets, advertising expenses may seem like low-hanging fruit. But according to some recent data, many small business owners are preserving their ad campaigns despite the downturn.
According to recent data from research firm Sageworks, which aggregates privately-held company data, many private companies are advertising just as much, if not more, than they did before the recession set in. The Sageworks data lists the industries that have spent the greatest percentage of their sales on advertising in the last 12 months.
According to the data, while private electronic and appliance stores spent 1.69 percent of revenue on advertising in 2006, they spent 2.19 percent on ads in 2008. Similarly, traveler accommodation companies spent 2.15 percent of revenue on ads in 2006 and, last year, that percentage increased to 2.62 percent.
While decreased revenue may mean that the dollar-amount spent on ads may be less than before, many sectors--from beleaguered real estate companies to better-off credit intermediation firms--have maintained or increased the percentage of their sales that they're allocating for ads. "It's surprisingly constant," says Drew White, CFO of Sageworks.
That's because advertising, while technically discretionary, just isn't something many small business owners can afford to cut out entirely. "They are dependent on it because it's the way they drive business in," says White.
Studies have shown that advertising through recessions can pay off. A McGraw-Hill research study that analyzed 600 companies from 1980 to 1985 found that those firms that advertised aggressively during the downturn had sales that were 256 percent higher than those companies that chose to cut back.