Marketing Costs for a Retail Startup
So, you're working on the plan for your new retail store. You're a start-up, so you have many difficult questions to answer. One of the main ones is how much should you spend on marketing your retail business?
Evaluating startup costs can be difficult for new retailers. An effective, well thought out business pan is paramount. It's required if you need investors or a loan to get started. There can be a lot of stress and tension when creating the plan, especially around marketing. But the bottom line is many of the figures for the business plan are estimates. But you can never be too conservative.
Each retailer's marketing strategy will depend a great deal on which market segments they ha™ve chosen as target market groups. Location, media strategy, and other factors will determine marketing costs.
To estimate marketing expenses, start with the amount of monthly retail sales you need your store to generate. For this, don't consider what you want to sell, rather what you have to sell to stay in business. In the first year of my retail stores, we always published two numbers for the sales staff each day The first one was our "cash flow" number and the second one was our sales goal. Every employee knew that if we didn't at least hit the cash flow number, the store could not pay its bills - including employees!
This technique really rallied the troops, but it also gave them a sense of trust in the store. They knew jobs were secure if they hit the cash flow number, but they also knew that their ability to keep that job was related to hitting the sales goal. in other words, we needed four salespeople, but they may not be one of the four we needed if you get my drift.
Once you have set you sales budget, then choose a percentage of that amount to budget for marketing and advertising. As you begin your business and measure the productivity and results of your efforts, you can increase or decrease that amount. The range for marketing % of sales is based on your retail segment. For some retailers, it requires a very modest marketing budget. In others, it requires more to get people to notice. Consider things like how crowded your segment is in town? Or what are the costs for advertising in your local paper.
Generally speaking, a successful retail store will spend between 3 and 5% of sales on marketing. Spend more than that and you will be "dependent" on advertising - meaning customers will only respond when they see an ad. Spend less and your traffic will suffer.
Let's say your business needs to generate $100,000 a month in sales in order to make a profit. If you choose to apply 3% of your monthly sales to marketing, then you have $3,000 for marketing. As you build your marketing strategy, you'll learn where to best spend that money for the greatest coverage.
Do not put all of your startup marketing dollars in one place. Too many retail startups make the mistake of putting all of their money in newspaper or a billboard. When you first open, you do not know what medium a customer will respond too. You have to test and explore and try different venues and mediums to see what is the best ROI (return on investment) for your store.
Also consider that there are less expensive ways to market tour store than advertising. Social media, cross promotions with other retailers o business and events in the store all drive traffic but cost much less than a newspaper ad. In one of our shoe stores, we dealt with diabetic feet. So, we made a pad that looked like a prescription pad and placed them in podiatrists offices. The doctors could write a referral to our store on the pad and the customer through it was the same as getting an antibiotic and they followed the instructions to the letter and came to our store.
Twice a year, we would bring lunch in for everyone in the office to say thanks for all of the referrals.