Henry Ford understood how important advertising is to the ultimate success of a business. “Stopping advertising to save money," he said, "is like stopping your watch to save time.” Sometimes, though, when daily expenses challenge their cash flow, Maine small business owners must prioritize spending. So, it is not unusual that buying commercials on Portland radio will move down the list behind making payroll, maintaining delivery vehicles, and paying insurance premiums.
But radio advertising doesn't need to be sacraficed when cash becomes tight. Many Maine small business owners have access to large pools of "free money" that can be used for the sole purpose of advertising. It is called cooperative advertising or co-op for short.
According to Inc. Magazine, "Cooperative advertising is the sharing of costs for locally placed advertising between a retailer and a manufacturer. Many manufacturers have a set amount of cooperative advertising funds available per year, distributed as opportunities for collaboration arise."
Small businesses love co-op because it can cut advertising expenses significantly. Manufacturers like it because it extends the marketing of their products
Generally, the amount of co-op dollars available to a Maine small business owner is based on the amount of wholesale transactions with a given manufacturer or distributor.
How Co-Op Works
Here's a real-life example, Scott Pet, Inc. manufactures well-known dog treat brands like Pork Chomps and GrillerZ. Let's say, last year, a local Portland area pet store bought $50,000 wholesale worth of these treats for their inventory. Scott would give 2% cash back to the retailer or $1000 to use exclusively for advertising. Free money.
Now suppose, that same pet store also stocks $50,000 worth of pet grooming products made by Wahl Clipper, whose co-op program is similar to Scott Pet's. This would also produce $1000 worth of co-op advertising for the store. So, those two manufacturers alone, could provide the retailer with $2000 to spend to advertise on Portland radio. If the pet store owner takes advantage of all the co-op generated from all of her vendors, then that amount could be significantly higher.
There are six basic types of co-op plans product manufacturers and distributors make available to Maine small business owners:
- 100% Plan: Manufacturer pays the total advertising cost based on the amount the retailer accrues from purchases
- Shared Plan: Manufacturer and retailer each pay part of the advertising cost based on a pre-determined split (e.g., 50/50, 75/25)
- Unlimited Plan: Manufacturer and retailer each pay part of the ad cost, but accruals are not ties do any purchases. Manufacturer may state maximum $$ or maximum number of ads.
- Bonus Plan: Added participation or accruals are based on specific manufacturer promotions or
new product introductions.
- Negotiable Plan: All elements (accrual, participation, term, etc.) are negotiable with manufacturer
sales operations and may include parts of other plan types.
Advertising research company Borrell Associates reports that only 15% of local companies utilizes the co-op plans available to them. That equates to more than $14-billion in free money left unspent.
Maximize Your Co-Op
To ensure Maine small business owners maximize their co-op opportunities the website Practicle Commerce provides the following advice:
1. Get Approval Before You Place Ads
To get the most out of co-op advertising, have each ad approved before you place it. Suppliers frequently have co-op requirements that you must meet in order to receive your co-op reimbursement.
As an example, if you wanted to do a commercial on a popular podcast and promoted a brand like Wrangler, you would need to ensure that Wrangler’s name was mentioned three times in a 30-second spot. Mention it just twice and Wrangler might not reimburse you.
However, if you had sent that same spot to Wrangler in advance and the company approved it, you would be sure to get paid.
Bottom line, get every co-op ad approved before it is placed. It is a little extra work, but it ensures that your co-op claim will not be rejected.
2. Customize Your Ads
It is common for product suppliers to offer stock ads to retailers. These are pre-made web banners, print ads, or even scripts for commercials.
While these can be easier to place, they may not represent your brand or even fit your customers. If there is no difference in the co-op reimbursement rate, consider using these manufacturer-supplied ads to inspire your own custom versions.
Be certain to get your custom ads approved before you place them, as recommended in tip number one above.
3. Create Co-op Advertising Opportunities
One of the best ways to maximize co-op is to have an advertising product you can sell directly to a supplier.
As an example, a multi-channel retailer in the northwest U.S. has a long-running radio program and podcast. The show is focused on gardening, and the retailer has hired a certified master gardener to host it. Each episode includes six, one-minute commercials. All of the commercials are for products the retailer sells.
This retailer charges $625 in co-op per commercial per month, for $3,750 in total monthly co-op reimbursements. The co-op collected more than covers the expense of buying radio time, producing the radio show and podcast, and paying the host a very good wage.
4. Ask for Over-and-above Money
When you have a special project or promotion, you can ask for over-and-above money for business development. Typically, you would need a history of using all available co-op for a particular supplier before you can ask for over and above money. But, that caveat aside, suppliers will often pay for promotions for a good retailer.
As an example, imagine that you’ve grown your business enough that you have a truck to pick up items from suppliers and transport those items to your warehouse. A supplier might pay for a custom graphic on your truck.
Or if you wanted to have a booth at a popular trade show that is not part of your normal advertising, a supplier might pay for it with over-and-above money.
What You Need To Know
Entrepreneur Magazine, adds these additional tips to take full advantage of co-op funds.
- Keep careful records of how much you've purchased from each supplier.
- If you try something unusual, such as a sales video or catalog, get prior approval from each vendor before proceeding.
- If you're preparing your own ads, work with an advertising professional to prepare an ad you think will appeal to the manufacturer. Keep in mind the image the manufacturer presents in its own ads.
- Make sure your company's name stands out in the ad. Your goal is not so much to sell the supplier's product but to get customers into your store.
- If a manufacturer has no established co-op program in place, pitch your ad campaign to the vendor anyway.
- Expect vendors to help out; after all, you're bringing them business. If your vendor doesn't offer co-op advertising money, you should look for another vendor who does.
- Be sure to follow up. Money goes only to those who submit claims.
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