What Is an Advertising Expenditure?
Like many fledgling small-business owners, you were probably warned about the advertising expenses you would incur, particularly during your first year in business. Creating awareness is a tall order that carries a big price tag. You may be relieved to learn that many small businesses rely heavily on digital marketing, and social media in particular, to advertise. The reason? Because it's affordable.
Any time you spend money on promoting your business, that's an advertising expenditure. Expenses range from media buys and pay-per-click to the cost of graphic designers, copywriters and direct mail.
You don't need an accountant to tell you that an advertising expenditure refers to any cost related to promoting your small business.
However, you may need a marketing pro to set you straight on a common but honest faux pas that many people make when they refer to "free advertising."
In reality, there is no such thing because advertising always comes with a cost. Always. If it doesn't, it's technically not advertising. Instead, it's a form of promotion, such as public relations.
In case your accountant quizzes you about the stack of advertising receipts on your desk, remind him that there are no shortage of advertising expenses in the early days of a business.
Spending on advertising varies significantly from one business to another, of course, but typical expenditures that pop up on many balance sheets include:
- Direct mail
- Graphic design fees
- Newspaper and magazine ads
- Online ads
- Promotional products imprinted with your logo
- Radio and TV ads
- Social outreach expenses
- Storefront signs
- Vehicle signs or decals - perhaps eligible for a promotional vehicle tax deduction
- Website creation, maintenance and optimization (SEO)
- Yellow Page ads
As many accountants know, whether to spend on advertising is a moot point for most small business owners. Nearly 90 percent of small businesses advertise to create that all-important awareness before the company can go on to engender interest, desire and action and carry customers through the marketing funnel. Furthermore, these businesses:
- Prefer social media (64 percent) and online methods in general (49 percent) over print (36 percent) and TV (22 percent).
- Put their money behind the big five social media platforms: Facebook (86 percent), YouTube (51 percent), Instagram (47 percent), Twitter (41 percent) and LinkedIn (32 percent).
As a consumer, you've probably clicked on plenty of online ads. Now, as a small-business owner, you'll see how the system works on the other side, beginning with having to pay for each click.
This is why the method is called pay-per-click advertising, or PPC for short. In all probability, it will become your biggest advertising expense, but also one you can manage after you get beyond some of the particulars.
For example, the price you pay per click is predicated on many factors, including the season, your targeted demographics and your industry. As of mid-2019, the average apparel ad costs 45 cents per click. A beauty ad costs $1.81 and finance and insurance ads cost $3.77. All this results in an average click cost of $1.72.
The median cost per click on small-business owners' favorite social media platforms are:
- Facebook: 51 cents
- YouTube (where you pay for each video viewing): Between 10 and 30 cents
- Instagram: $1.28
- Twitter: 53 cents
- LinkedIn: $5.61
The best pIn time and with experimentation, you'll be able to tell where to spend your hard-earned money. This is one of the other advantages of online advertising: The results are fast and relatively simple to monitor – just like your heart rate.