DV Info Net - pricing help. two 7 minute product promo videos

Quote:

Originally Posted by Steve Kalle (Post 1622776)

Bill,

I have just one little issue with your statement about advertising bringing in more money than it actually costs. Marketing/Advertising has never been a 'profitable' area for businesses where company X spends $100,000 on an advertising campaign and is able to get more than $100,000 in profit (or even revenue most of the time). Nike spends over $1 BILLION on marketing & advertising each year but their revenue doesn't increase as much and the increase in profits is no where near a billion dollars.

SNIP

To Steve: its nice to see others using the $1k per finished minute estimate.

If we're actually talking about BUSINESS videos here - then theres a simple, fundamental, unchangable business rule that's existed since cave people traded sharp sticks for hides: the ONLY reason that you spend resources, is if you can leverage that action to generate MORE resources. In business the primary resource is money. So the primary and fundamental rule is that to succeed in business, you judge EVERY expense in how efficient it is generating additional revenue.

If you spend $100 and your generate $99 in return - your business is failing. PERIOD.. If you spend $100 and generate $101 in results from that spending while you're technically succeeding. (albiet PAINFULLY slowly and likely in an unsustainable fashion!) If, however you spend $100 and generate $200 in return, you have a SUSTAINABLE business model and you should keep spending that money as long as it's effective.

THIS is the foundation behind my comment. It's the INFLEXIBLE rule of business. Smart business people JUDGE what they spend based on the RETURN they expect to make. Period. IF there's no potential return, you don't SPEND THE MONEY. (The exceptions are R&D and testing, a hedge against FUTURE profits - and, for ALREADY SUCCESSFUL businesses the kind of BRAND AWARENESS spending you mention.)

Now let's look at the contention that the money Nike and the big guys spend on brand awareness violates this. It does NOT. Spending on brand awareness and brand recognition is a PROVEN way to generate sales. In marketing studies as old as business, it's been determined that top of mind awareness of a products brand will cause people to CHOOSE to buy that brand over others. It's so well established that standard accounting rules allow companies to carry "good will" on their books as a TANGIBLE monetary asset.

McDonalds, Nike, Apple, and every other major brand splits their marketing expenses between image advertising and price/item advertising for precisely this reason. AND they all budget for their ad creations as a PERCENTAGE of what they'll spend on delivering those ads. That's simply how advertising works.

It's an inverted pyramid. The cost of the ad creative, is the tip holding up the much larger AD EXPENSE.

Big companies who generate HUGE revenue streams also have the luxury of being able to break the rules when they have a good reason. For example, I just did a video for a large company that will play at a banquet honoring a guy in the community who helped build a rescue program. The company is paying for the video work. The reason? Goodwill. Community outreach. Partnership. Contacts. The company gets all of this in return for the dollars they're giving me to make the video. For a small company that's silly - but for a huge company it's just more "good will." That's how business works.

I think the BEST mindset that any starting entrepreneur can have is to establish a standard that you simply won't spend money unless you're convinced that that expense has the best possible chance of generating a sales increase. That's because for startups - cash flow is EVERYTHING. Later on, when the profits are established you can set aside some money for building brand loyalty which will eventually LEAD to sales increases - but sorry, for most people, spending for anything else but to generate larger returns than what you spend is, IMO, bad business.

My 2 cents anyway.