Why Advertising Is Important For Business (A Formula To Make It Work)

You started a business to make money. Otherwise, you started a non-profit organization, and even they need money. But unfortunately, you can’t just set up shop, create an LLC, and expect customers to line up for your business. 

It never works that way. That’s why advertising is important.

There’s a solid chance that you’ve heard, “Build it and they will come”, it’s a pretty famous quote from the movie Field of Dreams, by Phil Alden Robinson. Unfortunately, that’s only true for dreams and movies. In business, if you build it, probably no one is ever going to come. 

If you’re not advertising at all, chances are that you’ve been in business for years, and somehow had a network deep enough to start and keep referrals coming in year after year. 

Or, of course, your business just failed miserably. 

Look, there are just no two ways around this. You need to have a way to bring in new customers, otherwise, your business is going to collapse. It doesn’t matter how good you are at what you do, if no one knows about it, then no one is going to hire you. 

Advertising is the lifeblood of any successful business. Since I work primarily with contractors, I’m going to frame this article from the perspective of service contractors, but all of this information applies to every business- ever. 

Go and find any successful contractor company, and just analyze what they do. I guarantee with 100% certainty, they are advertising. 

A lot of blogs give generic information on advertising, but I’m going to get into the weeds and explain what advertising is, how it’s different from marketing, the different types of advertising, and what I recommend that you do for your business.  

What Is Advertising?

Marketing and advertising are commonly misunderstood. When professionals talk about advertising, we’re talking about the actual ads and channels used to distribute a message to prospective customers.

If you’re buying ads on Google, Facebook, newspapers, television, billboard, influencer shoutout, etc, then you’re advertising. 

When you’re talking about marketing, you’re talking about the overarching strategy behind how a business plans on acquiring customers. Marketing is much more comprehensive than advertising. 

For example, if you buy an ad in the newspaper for your local market, that’s advertising

If you sat down and planned where and how you were going to get more customers, that’s marketing. 

If that isn’t clear enough, here’s a fantastic graphic from The Balance Small Business

why is advertising important

With that being said, this article is going to cover the advertising side of the process, but if you’re interested in learning more about how to build a marketing plan, check out this other article I wrote. 

Why Advertising Is Important

If you read the introduction, then you have a general understanding of why advertising is important. It’s the best way to do outreach, connect with your target audience, and generate more business. 

But, that’s not compelling enough. So here’s some data that shows just exactly how important advertising really is. 

According to Investopedia, one of the top 4 reasons small businesses fail is that they don’t have a strong enough grasp on marketing. 

“ Because marketing is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.” 

The fact is that you need new customers. Unfortunately, many small businesses, and it’s especially true in the construction industry, believe that their business can survive entirely on referrals. It’s just not true. 

Constantly playing catch-up with sales and lead generation is a great way to get frustrated, lose money, and eventually go out of business. 

You need to invest in advertising to continuously generate leads for your business, and that involves building job pipelines. Some companies, especially smaller companies, are of the mentality that just because you have work right now- there is no reason to invest in any more advertising. 

That couldn’t be any further from the truth. 

That’s like going to the gym for 2 months, building a habit, and then stopping because all you wanted to do was build the habit. Back to square one. 

If something is working, especially in advertising, don’t stop it and try something new. So if you have work, and some advertising is working out great for you- don’t stop. Keep going. Build your pipeline, give estimates, sign jobs, and schedule start dates. 

How To Make Advertising Work

If I haven’t made myself clear yet- advertising is extremely important for businesses. 

Got it. 

But that doesn’t tell the whole story, because most people feel like marketing of any kind is a huge risk. How do you navigate something you’ve never done before? Well, I could go on for days on that, but let’s take a look at the finances behind advertising to see how to approach advertising as mathematically as possible. 

Everything I’m about to talk about, I already covered on my youtube channel, here’s that video: 

In case you don’t have the time to watch that video, here’s the formula that I use to explain advertising. 

[Investment/CPA] x (Average Client Size) = Revenue Generated From Campaign

Investment= Total amount spent on advertising (cost of ads, website, mail, etc)

CPA= Cost Per Acquisition (How much it costs to acquire a customer)- (Total Amount Spent) ÷  (# Of New Jobs)

Average Client Size= Average Revenue From Jobs

This formula is great at pointing at two things:

  1. Your business’ weakness
  2. Your Financial Awareness

You’d be surprised how many contractors I’ve worked with that end up changing their businesses processes dramatically just because I exposed them to this formula. 

Why?

Well, it points out any weaknesses your marketing strategy has. Let me explain each variable:

Investment 

This is pretty straightforward, but there are two different ways that you can do it.

  1. Calculate using marketing cost totals for the years

If you take the total costs over a year, you’re evaluating the performance of your marketing as a whole. 

  1. Calculate using specific campaign costs

If you take the costs of a specific campaign, for example, you ran a direct mail campaign to high-income neighborhoods. You can take the total cost, CPA, and average job size, and you’ll calculate how much revenue was generated from that specific campaign. 

You can do this for any campaign to determine how much revenue you generated. However, the formula is much more useful from a theoretical perspective, than it is for actually calculating revenue. That’s because usually, total revenue is pretty easy to calculate. 

With that being said, the investment portion just involves all marketing costs associated with a campaign or with marketing as a whole. 

CPA

Your average cost per acquisition- or in plain English, how much you have to pay to get a new customer.

This is a critical metric in business and marketing. You can easily calculate this by finding your total investment and dividing it by how many jobs you got from it. 

For example, let’s say you spent $10,000 last month on Google Ads. You set up some pretty solid conversion tracking, and you know how many leads you got. 

After spending your entire budget, you generated 100 leads. Which means that you were paying $100 per lead. That’s also another important metric in advertising, your average cost per lead. 

Now, out of those 100 leads, you were able to generate 30 solid appointments. You booked each appointment and gave estimates to each of these leads. At the end of the day, you walked away with 10 jobs. 

Now all that we have to do is plug some numbers into the formula, and we get our CPA. 

CPA = (Total Amount Spent) ÷  (# Of New Jobs) 

CPA = (10,000) ÷ (10)

CPA= $1,000

With this example, your average CPA is $1,000- which means that you’re paying $1,000 to acquire a new, paying customer. This number is going to differ from trade to trade, so you also have to do some math to understand how much you’re willing to pay for a new customer. 

For example, paying $1,000 for a new customer isn’t bad if your average project size is $15,000 and you take home around 25% profit. 

In that example, you’re paying $1,000 for a $3750 clean profit. That’s a flat ROI of 3.75x- if you can scale advertising like that, you’re in a fantastic position.  

I’ve gone on for long enough about CPA, but here’s a couple of ways that you can improve your CPA. 

  1. Improve closing rate 
  2. Improve lead quality 
  3. Improve referral rate 

Improving any of those areas is going to bring down CPA, and improve marketing success. 

Average Job Size

To be honest, this is more of a business strategy variable than it is about marketing. For starters, how much you charge, or how good you are at upselling work plays a huge role here. 

But I’m going to talk about how you can manipulate this a bit with your marketing strategy. 

Since I work primarily with contractors, I’m going to give examples of different contractor trades. 

If you’re a painter, chances are that you also offer pressure cleaning services. Now, while the cost to acquire a pressure cleaning client is going to be much lower than it would be to acquire a painting client, it’s also going to be more difficult to justify the math here. 

For example, let’s say you run ads targeting homeowners for driveway pressure cleaning. The average job is probably going to be around $500, and your profit is probably going to be around $300 ish (depending on production costs). That means you have a $300 dollar margin to play with when it comes to acquiring customers. 

The math here leaves much less room for mistakes. You have to be on point when it comes to lead generation and sales. 

On the other hand, let’s say that you’re targeting entire exterior repaints. Depending on your market, you’re looking at a 5-7k average project size. If you’re working with 30% margins, that leaves a $1500-$2100 profit to work with. That’s an infinitely healthier budget for acquiring work. 

At that rate, that means that you only really need 1 job for every $1500 you spend, and that’s not even factoring in potential referrals, repeat business, and upsells. 

What’s my point: 

When it comes to marketing, you have to make decisions to bring in customers for services that have healthy margins. So, you do have some control over the average job size. 

However! Here’s the curveball, and why marketing should never happen as an isolated part of your business. If we were to take the pressure cleaning campaign, acquire customers for those $300 that we had, and then upsell those clients to a full repaint (these services often go hand in hand), then we’re dealing with pretty aggressive growth. $300 dollars to acquire $5,500 worth of work is around $1650 profit at a 30% margin. 

That’s a 5.5x ROI, an absolutely crazy figure. So get creative, work on sales, and go advertise your business to the next level. 

Advertising Strategy Recommendations 

You’ve gotten this far into the post, so I’m gonna reward you with a couple of channels that you should be investing in. 

For starters, unless you’re doing over 10m/year, have massive sales crews, tracking down to a science, and want to start expanding your brand recognition… DON’T THINK ABOUT TV or RADIO! 

They’re expensive, take tons of time to build rapport and brand recognition, and take even longer to finally generate business. You’re better off staying away from these channels entirely, especially when you’re smaller. There are just too many channels that are better for lead generation, and you’re settling for less by spending your limited budget on these platforms. 

What you’re looking for, especially as a smaller company, is called direct response marketing. In short, direct response marketing involves launching campaigns for the goal of directly receiving something in return, usually a lead. 

With that being said, the absolute no brainers for advertising are:

  1. Google Ads 
google ads

Even though launching and updating Google Ads is more complicated than other platforms, the traffic is unbeatable. You’re dealing with inherently warm traffic. Someone is already searching for a window installation company, you’re just making the case why you’re the window company they should work with. 

It’s fishing in a barrel. 

  1. Facebook Ads
facebook ad

Facebook is another no-brainer. It’s not quite as targeted as Google ads, but it’s still a fantastic source of traffic. Much greater room for creativity, branding, and scalability. 

Not to mention, if you run Google ads on a healthy budget, you can run extremely successful remarketing campaigns on Facebook. Basically, you can run Google ads to build highly targeted traffic of people searching specifically for your services, and then retarget them on Facebook. Talk about fishing in a barrel. 

  1. Pinterest Ads
pinterest ad

Depending on your specific trade, Pinterest is another fantastic source of traffic. What makes Pinterest so great? Well, you’re targeting one of the biggest spending demographics in history, women age 34-65. That’s exactly who’s on Pinterest. 

Pinterest is super good for any remodeling/home improvement niche. Believe it or not, tons of women use Pinterest to find creative ideas for how to remodel their homes. Making it a great place to capture their attention right as they’re thinking about their remodeling goals. 

You can also use the Facebook ads strategy using Pinterest because Pinterest is a massive search engine- so it’s possible to generate a big audience of warm traffic. After you feed your Facebook pixel with data of all these potential customers, the targeting and results from Facebook ads will get much better. 

Putting It All Together

If you haven’t gotten the point yet- advertising is a critical component of any successful business. If you’re not spending any attention or money on advertising, then it’s a pretty good time to get started. 

Take the time, plan your marketing strategy, choose your advertising channels, and track your metrics within your business to get the best possible results. 

Now, if you’re a contractor, feel free to schedule a totally free consultation call with me to talk a little bit more about the best route for your business. 

I do offer a marketing program that’s been proven to work for contractors all around the US, but I do give totally free strategy calls. 

Click here to book a free strategy call. 

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