In my last post I discussed how big business dominate the Australian advertising arena, and just how much they are prepared to spend on advertising costs. The 45 biggest spending businesses collectively racked up roughly $2.4 to $2.6 billion in advertising costs, during 2008. But if you’re a small business owner, you need not be scared away by these figures, and I’ll explain why.

In this post, I’ll discuss why big business are committed to spending such enormous amounts on advertising. Basically, it all boils down to this: advertising is an investment. The more money you put in, the more money you can get back. Investments can take many shapes and sizes but they usually involve spending money on something now that can make you more money in the future.

Advertising is exactly the same. For small businesses, even a small amount can pay dividends. But all too often advertising is treated as an expense rather than an investment. Let’s take a look at this concept in more detail, and consider what exactly it is that you’re investing in.

As with all investments, there’s a certain level of risk involved, and the returns can vary. Some investments perform better than others, and some leave you wondering where your money went. Advertising is no exception. Some advertising campaigns can produce exceptional results and drive business growth, while other campaigns may have little impact or in some cases, even a negative impact on business.

If you think of advertising as an investment, then you should approach it the same way you would approach any other investment, such as a house, or stock market shares. The first step is research. Researching as much as you can about that investment, and all the factors that affect its value, in order to evaluate the risk and potential profits.

The ideal combination that most people look for is an investment that minimises risk and maximises profits, but some people are prepared to accept higher levels of risk for potentially higher profits. Similarly, before you spend money on advertising, it’s important to do the necessary research in order to minimise the risk and maximise the profits, to get the most out of your investment. I’ll talk more about what sort of research you’ll need, in future posts.

If you’re looking to buy a house, for example, what you’re investing in is clear – a tangible object, but with advertising it isn’t so clear. If advertising is an investment, what is it that we’re actually investing in? To answer that question, first let’s look at what advertising is, in essence.

Advertising can be defined as a form of communication, where the aim is to persuade someone to do business with you. That someone could be a potential new customer, a previous customer, an existing customer, or someone who isn’t a potential customer but knows someone else who is.

Advertising is a way of communicating with customers, either indirectly or directly, impersonally or personally. So this means that an investment in advertising, is really an investment in communication with customers. Why is it so important to invest in communication?

Communication is the backbone of all our relationships. You can’t build a new relationship with someone if you don’t communicate with them, in some way. In our personal lives, communication allows us to form new relationships with other people, whether it’s a friend, an acquaintance or a doctor.

Communication is also what maintains our relationships. Just think if you stopped talking to a friend altogether, how would that affect your relationship with them? So if advertising is a form of communication, and communication is how we build and maintain relationships, then you could say that advertising is ultimately an investment in the relationships with your customers.

Advertising is a way of fostering new customer relationships, and strengthening existing ones. Stop and think for a second about how important customers are to your business.

I suspect you’d agree that your business could not exist without your customers/clients/consumers (whatever you prefer to call them). Whatever your business is, whatever shape your customers take – your business needs them. Customers are the life-blood of any business.

It therefore makes a great deal of sense to invest (both money and time) in the relationships that customers have with your business, by communicating with them regularly through advertising. Whether it’s communicating for the first time about your business, or reminding a past customer about your services, advertising forms a key part of growing vital client relationships.

And that’s where any advertising strategy needs to start – by focusing on your customers. How well do you know your customers?

I’ll talk more about getting to know your customers in coming posts, and take a look at some real-life examples of how a well researched and carefully planned investment in online advertising has produced great returns for other small businesses.

If you’ve found this post helpful, or interesting, or even if you have a problem with it – please feel free to leave a comment or ask any questions below. ‘Til next time!