This blog was originally published on December 9, 2017
I can't say I have a scientific principle to use in this area, although I suspect we could find some ideas on judging the cost of advertising in some biz textbooks. What I do have are some common sense ideas that worked for me over decades of running my own businesses, as well as a method for break-even points developed over years of planning my ice hockey schools and clinics. First, my way of arriving at that sometimes elusive break-even point...
I won't list all my costs for putting on something like a summer hockey school, but the biggest expenditures would usually go something like this:
- costs to rent a facility (or our ice costs);
- costs to hire a coaching staff;
- costs for brochures and other advertising;
- costs for individual student jerseys; and
- costs for award certificates and trophies.
Of course, a lot more goes into running a hockey school than just those things. In fact, a lot of items we dealt with in another budget, because they'd get used over and over -- like pucks, other training gear, and the fancy warmup suits like I'm showing off above. Still, that list gives us a chance to zero in on the so-called break-even point. For, you see, no matter how many times I plugged my costs into a very simple formula, I always arrived at the same answer:
In my attempts to arrive at a break-even point, I actually played and replayed with numbers. In other words, I'd test the students' cost of a camp to see if the break-even point was fair to my company, and I'd adjust the break-even number of students to see if the cost to them was fair. So, back and forth I'd go, until I arrived at the fairest number for both sides.
Cutting to the chase here, I never ran that formula (over like 45-years) without arriving at the same outcome. Ya, the best situation had me charging a fair amount for a camp (maybe $350 in the early years), and expecting that 22 students would get me to my break-even point. If I got one kid over that amount, my cut after paying out all my expenses was $350. However, as time went along -- and my program's reputation spread, I could often turn people away and pocket over $6000 per week.
That 22 student break-even point never changed over the years, either, whether I was running a much more expensive camp or even a lower priced clinic that included far less overhead.
Did I eventually make that 22 number work for me? Kinda, I guess... After quite a few years, I started trusting it -- just testing to see if my newest expenses worked, and then usually running with the new cost per student.
Now, about my title, or about judging the cost of advertising... You might have noticed that I "gave away" a hockey shirt to every student who attended one of my programs. In total, those shirts were expensive, coming in different colors and with my logo screen printed on the front. In fact, I'd have to always over-order so as to have plenty of the various colors (like red, white and black) plus all the various sizes expected to be needed for a time...
There were tons of benefits to giving out those shirts, though... In this day and age of security concerns, it helped a lot that my staff and I could always immediately recognize our students as opposed to anyone just drifting through the rink. The color coding also helped in the teaching process, because we could easily hold scrimmages or work drills between various colored players. And, maybe best of all, those shirts acted as walking billboards when my students left a program and returned to their home rinks around the country. Ya, I can't tell you how many times I've spotted one of my students -- in one of my jerseys -- hundreds of miles from home.
Now, I can envision some folks wanting to do away with something like those hockey school shirts when it comes to judging the cost of advertising (penny wise and pound foolish?). But, like a big-time brand would suggest, they were "priceless" in my ad campaigns. So were the certificates and awards we gave away at the end of each hockey school, if to a lesser degree. No, they didn't get worn everywhere, but I know that friends and family usually saw them, and I've been told that some former students (or their parents) still have their very old hockey school mementos. My advertising certainly didn't stop there, either. Naw, back in the days when newspaper, magazine and Yellow Pages ads actually mattered, I spent plenty of money on those. And I even bought some costly spots on the major Boston sports radio station.
Truth be told, the latter purchase kinda scared me, because it cost a LOT of money, and I really worried about whether I'd effectively written those ads. Unbelievably, though, my phone rang off the hook almost as soon as those ads started running, and I easily made back the kzillion dollars ( :) ) I'd spent.
Of course, few visitors are looking for hockey school advice. Yet, I think anyone in business could borrow from the way I put things together, the way I arrived at a break-even point, and how I went about judging the cost of advertising. As a matter of fact, I'd like to focus on those radio ad spots briefly, in hopes it makes sense to some of our Local Video Marketing friends...
It was a long time ago, so I'm just going to grasp at those ads costing a little over $1000 to run a few weeks prior to one of my summer hockey schools. Then, from what you know about the way I set prices back then, I'd only need to attract something like three or four students to balance that tab. Better yet, I can tell you that the extra young people I drew to that school -- and even to subsequent ones -- surely increased my profits. (Yes, even though some responders to that ad didn't join us that summer, several of them came over the following years.)
And that's what I'm ALSO getting at when it comes to us judging the cost of our Local Video Marketing services. Actually, I think one has to look at those offerings in two ways: 1) having to do with how your business is affected in the here and now, and then 2) how your advertising efforts might keep sending you more customers -- over the weeks, months and years ahead. Anyway, looking for something we could study together...
Of course, what a client reaps in return for our services or products will have a lot to do with how fast he or she might recoup the cost of advertising.
If you're selling $5 items, I can see it taking awhile to make the $250 back. Still, items like that tend to go out the door a lot quicker than do highly priced yachts -- :) . As for my hockey school example from a little earlier, one might see how only a single sale would put me in the black, and any subsequent sales would look pretty nice on the company books.
For sure, we each have to look at these things differently. However, if I was running a beauty salon, I'd be looking to add more and more help, until we're turning people away. If I was running something like a small construction, automotive repair or painting business, I'd be looking to overload our current schedule until it became possible to add another (and another?) crew, thus freeing me to work even more on growing the business. If I was running a professional service -- maybe like a law practice, a medical or dental or vet service, or some sort of high ticket sales, I'd call this kind of decision a "no-brainer". In the end, I have to refer back to something I've written several times before, in that the typical business owner is usually awesome at working "in" his or her business, and only struggles when it comes time to keep the bottom line growing (and growing and growing).