If you've read the first two parts of this series, you know that advertising works. You also know the advertising options available to most independent agents. Now the final piece of the puzzle: How much should you spend on advertising?
If you've read the first two parts of this series, you know that advertising works. You also know the advertising options available to most independent agents. Now the final piece of the puzzle: How much should you spend on advertising?
Studies show that each year the average independent insurance agency spends between 2% and 5% of its gross commissions on advertising. While this can be a good rule of thumb, it shouldn't be taken as gospel. Your budget will depend on your particular situation. Your marketing objectives, geographic market and competition, for example, will all influence how much you need to invest in advertising.
Getting started
The budgeting process should always start with a question: What are you trying to accomplish? Are you looking to generate leads? Raise awareness of your agency? Sell a specific number of policies? Grow by 20%? How you respond will help you determine how much to spend as well as where to spend it.
Let's say your goal is to sell a particular product or service. Start by considering three factors: the potential amount of business you could write in your marketing area; your profit margin on each piece of business; and the income you'll earn down the road based on the lifetime value of the customer.
This approach offers your best chance of long-term success. It gives you a feel for how much the product or service is worth to your agency, which should help you determine what makes economic sense to invest on the advertising you'll need to kick-start the sales process.
Be faithful to your budget
One thing to keep in mind is that advertising requires patience and persistence. In most cases prospects will need to see your ad many times before they feel compelled to take action. So once you've prepared a budget, stick with it.
Avoid the temptation to scrap or scale back your program if the results are slow at first. Seeing your ads through to the end of your schedule significantly increases your probability of success.
Don't spread yourself too thin
It may be that no single form of media in your market reaches a large portion of your prospects. If that is the case, you may need to use several options to get your message out.
That can be a blessing in disguise, since campaigns that combine several forms of media are generally more effective than those that use just one. But as you add media, you'll also add cost, and you have to be careful not to stretch yourself too thin. For example, don't eliminate half your newspaper ads for the sake of running a handful of radio ads. Ninety-nine times out of 100 the decreased newspaper frequency will hurt your efforts more than the few radio spots will help.
Keeping up with the competition
Whether you are advertising to build visibility for your agency or to promote a particular product or service, you need to consider the competition.
When it comes to preparing an advertising budget, the competition is anyone in your marketing area who offers the same products and services as your agency. This can range from other independent agents to direct writers and banks.
Look closely at how and where they are advertising in your market. Ideally, you want to equal or better them in terms of ad spending and ad quality. If you can't afford to do that, you'll have to out-think them. Really creative advertising, a great offer, or both, can help level the playing field when you're up against a deep-pocketed competitor.
Look for budget stretchers
One way to stretch you budget is by taking advantage of co-op advertising. Many insurers will match your media expenditures dollar-for-dollar. They'll also help with production of your ads or offer pre-produced ads that are far more cost effective than starting from scratch yourself. While it's true that you may have to share the spotlight with the carrier, the ads will direct prospects to your agency and add to your voice in the community.
Another option is to look for opportunities where you can partner with neighboring businesses. If you offer auto insurance, for example, consider creating a joint advertisement with a local bank that's looking to increase its auto loan business. Or maybe there's a Realtor who's willing to put together an ad that touts its ability to find the right home for clients and your ability to find the right homeowners insurance.
The options are out there, and with a little creativity and teamwork, you may be able to reduce your ad spending without jeopardizing your visibility.
Monitor your results
It's important to track the results of your advertising. Not only will it give you a read on the effectiveness of your efforts, it will prove valuable when it's time to budget again, since you'll know which media performed best.
When you're monitoring results, be aware of the number of leads each medium generates. But don't stop there. Also track the number of sales that result from those leads. After all, if an ad in the local paper generates tons of leads but very few sales, you'll want to consider other media the next time you advertise.
Budgeting for your advertising boils down to a few steps. Determine what you want to accomplish, select the media, equal or exceed what your competition is spending, and develop effective ads. Start with that framework and you'll be well on your way to producing advertising that boosts your bottom line results. *
The author
Kimberly Paterson has been providing marketing and communications services for independent agents and insurance companies for more than 20 years. Her Red Bank, New Jersey, marketing communications firm, Creative Insurance Marketing Company, combines marketing and research/analysis with creative advertising services exclusively for the insurance industry.She can be reached at cimco@compuserve.com
©COPYRIGHT: The Rough Notes Magazine, 1999