THE ADVERTISING APPROPRIATION 1. How much to spend for advertising.—The an swer to the question, "How much will it cost to ad vertise?" is much like the answer to the question, "How much will it cost to build a house?" A house may cost all the way from a few hundred dollars to a few million dollars, depending on what the owner needs or thinks he needs. If it is only shelter he wants he may obtain it very cheaply, but mere shelter is not the only consideration. Before a man starts to build a house, he usually has in mind an approximate price which he hopes will build for him a house repre sentative of his social standing. Even in the same social group, two men may spend widely varying amounts for their homes, depending on their tastes and the size of their families. In advertising, the amount of the investment depends on the purpose to be achieved, on the actual or desired position of the advertiser in his field, and on his individual tastes and preferences.
2. The value of records.—Some mail-order adver tisers have kept records for years, so they feel they can tell within a few hundred dollars the amount of business that may be secured from any given appro priation. In this chapter we shall discuss the differ ent methods employed by leading advertisers in de termining their annual advertising appropriations, and shall leave the reader to choose what he considers the best method to follow in planning an advertising campaign for any product that he might wish to ad vertise.
3. Time required to reduce selling cost per unit.— Advertising requires three things : time, money and intelligence. At the start of a campaign, advertis ing seldom pays; it usually takes time to produce satisfactory results. As the farmer plants his seed and waits, knowing full well that, if the seed is right and the soil is right, the harvest will come; so the ad vertiser invests his money and waits, knowing full well that, if his advertisements are intelligently pre pared and if he has chosen his market and his plan carefully, time will bring the harvest.
When the Russell-Miller Milling Company began to advertise Occident Flour, the officers knew that successful advertising does three things: First, it increases the asset of good-will in a busi ness.
Second, it produces volume of sales, which usually results in decreased manufacturing cost per unit.
Third, by increasing the volume it ultimately de creases the unit selling cost.
As none of these things comes in a minute or a month, the advertising expense was neither imme diately listed as an asset nor charged to selling ex pense. The first appropriation was for $600,000, one third of this to be spent annually for three consecu tive years.
"Our expenditure for advertising," said Mr. H. S. Helm, the general manager, "was undertaken with no thought or expectation of an early harvest on the seed sown. It was considered at the start that ma terial returns should not be conservatively looked for short of three years' continuous advertising.
"The undertaking was looked upon and treated as an investment in and insurance on business already established. It was perfectly plain that the current business, or that of the very near future, could not stand an increase in per barrel selling cost to ab sorb the advertising expense. We therefore made our appropriation covering a period of three years and prepared to charge the advertising out as ex pended from past earnings and surplus until such time as it could be charged to the current selling cost without increasing the per barrel selling cost." Six hundred thousand dollars, on an intangible and new venture, taken right out of past profits, re quires nerve, as every advertising man knows ; but the results have already proved the soundness of the theory; the selling cost per barrel has so far decreased that instead of waiting three years, after the end of the second year the company charged the advertising expense as part of the current selling expense. And still the investment in good-will, because it is Teal good-will, goes on drawing compound interest. Dur ing the first two years of national advertising, the consumption of Occident Flour has increased over five times as fast as the actual selling cost.