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CHAPTER 5 MULTIPLYING YOUR BUSINESS PROFITS

So, is advertising an investment or is it an expense? Before
reading any further, I want you to answer this question.
Advertising is an ____________.

Advertising: Investment or Expense?

Most people, even marketers, accountants and management
view advertising as an expense. This is exactly what we have
been taught in marketing, management and accounting
courses. Many textbooks teach you that a company should
budget approximately 10% of its sales for advertising and
promotions.

I personally think that this is very stupid advice. Pegging your
advertising dollars to your previous months/year’s sales
revenue does not make any sense. This means that when your
sales are dropping, you will be spending less on advertising,
which will draw in less leads, giving you less customers and
driving your sales down even further. Whenever my sales are
low, I increase my visibility and draw in more people by
advertising more heavily!

The Marketing Gurus’s Belief About Advertising

So, do marketing gurus view advertising and investment or
expense? The answer is…it DEPENDS.

When the advertisement you use does not work, it is an
expense. For example, you place a $1,000 advertisement in
the newspaper. This draws in 60 more people into your store,
of which only 9 buy a garment each, spending an average
of $80 on their purchase. Since each garment costs you $30
to make, you merely make an additional gross profit of ($80-
$30) x 9 garments = $450.

Spending that $1,000 on the advertisement gave your business

SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES 139