Spend 30% of your revenue on Advertising

Zillow and Trulia are competing to become the major force in the U.S. online real estate industry.

I think they are still in the early stages of large marketshare opportunity as Americans quickly catch up to (and are surpassing) how Australians have used the internet when searching for houses to buy or rent.

These internet based companies have recently announced plans to spend $65 million and $45 million on national advertising in 2014.

These advertising budgets equate to 32% of Zillow’s and 27% of Trulia’s 2013 revenue.

These are online businesses that dominate their industry space and yet they feel the need to increase their advertising budget in order to grow. I would also bet that advertising using “traditional” media will receive its fair share of revenue, in the manner which online dating agency and online gaming/betting advertise using television and print to get their message across.

Surely these figures are only for their advertising budgets and wouldn’t include the salaries of their in-house marketing staff.

Now 20% or 30% of your revenue being spent on advertising seems exceptionally high so I have listed some companies that continue to spend even though they already have large, visual and dominate brands.

Samsung spends $4.3 billion per year on advertising. This is equal to 3% of their current annual gross revenue.

Coca Cola spends $3 billion (6% of 2013 revenue)

Microsoft & Google part with $2.5 billion each (both accounting for 4% of revenue in each company)

McDonalds outlays $1 billion (also 4%)

and Apple’s advertising budget just hit $1 billion which represents 0.6% of their annual sales.

An article written by George Boykin from Demand Media expanded on this topic by writing;

“The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales (and your net margin is 10-12% after expenses), while some marketing experts advise that start-up and small businesses usually allocate between 2 and 3 percent of revenue for marketing and advertising, and up to 20 percent if you’re in a competitive industry.

In 2010 the Chief Marketing Officers, or CMO, Council conducted a survey of its 6,000 chief marketing officer members to assess marketing and advertising spending across a wide range of industries. The survey results revealed that 58 percent of chief marketing officers spent less than 4 percent of gross revenue on marketing, 16 percent spent between 5 and 6 percent, 23 percent spent more than 6 percent, while 2 percent spent more than 20 percent. This survey seems to suggest that if you set your spending level between 0 percent and 6 percent of gross revenue, you will be in good company that includes 74 percent of the CMO Council membership.”

Source: http://smallbusiness.chron.com/percentage-gross-revenue-should-used-marketing-advertising-55928.html

Obviously, many businesses aren’t in the league of Coca Cola in terms of brand recognition nor marketshare or pricing power but it seems for ambitious companies seeking growth such as Zillow & Trulia, spending the suggested “mean” of 3% of their revenue on advertising and marketing will probably result in a mediocre payoff.

 I am wondering three things:

1) If the adage of “spend more and you’ll get more” holds true, then why do people attend seminars on “How To Advertise Successfully For No Money” ?

2) I don’t think many companies (large or small) even spend 3% of their revenue total on advertising yet they are quick to complain about the lack of sales.

3) How much thought does a company actually give to figuring out how to deliver their message in a competitive and crowded world, where others are also seeking attention.

Is placing an ad in your local newspaper, paying for Google Adwords, begging or buying for “Likes” on Facebook effective advertising?

Is this going to provide you with a Return On Investment?

If you answer “no” or “not sure”, then you are wasting your money and time.

Corn on 3 year lows

English: Very First Corn Flakes Package: http:...

Very First Corn Flakes Package

Due to an expected record U.S. harvest, the price of corn has fallen to levels last seen in 2010 and at prices also seen in 2008.

What a contrast when compared to the spike in prices during the 2012 drought.

The price of corn has now fallen (on a weekly basis) at least 2 standard deviations below its mean on a weekly and monthly basis which covers the past 20 years.

When I look at its price on a quarterly basis, corn have reverted to its rolling mean over a 40 year period.

Supply must have increased significantly but our work suggests that demand remains steady, if not slightly higher, especially when accounting for animal feed usage.

The decline in price over the past 12 months has helped the share prices of companies such as Gruma (Mexican tortilla maker), Pepsi and Kellogg, while share prices of other beverage companies, namely Coca Cola have lagged their peers and index considerably.

Did you know that corn is used as a sweetening alternative to sugar in many drinks and many foods in the form of High Fructose Corn Syrup or HFCS.

If we look to buy some actual corn itself, its current price is $4.74 per (generic) contract renders it oversold, whilst support may be found 7-9% lower surrounding the $4.30 level but let’s not split husks over it.

Further reading: Litchfield, Ruth (2008). High Fructose Corn Syrup—How sweet it is. Ames, IA: Iowa State University Extension and Outreach. Retrieved 1 March 2013.

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