Record sales year? Send this article to your CPA.
Back in April of 2020, in the midst of our state-ordered Netflix binge session, if you would have told me that Renfroe Outdoor would have record sales throughout the year of 2021, I’d have questioned your sanity. Well, after a couple months of deferred payments for customers and the lowest occupancy we’ve seen, that’s what happened. Reports of the same came from so many of our clients.
This pause in our economy definitely had its share of business casualties, but for those that survived, they found themselves in a goat rodeo economy with massive personal consumption driving record sales in dozens of categories. If you find this story familiar to your experience this year, I have an important question:
What are you going to do with all of that money?
Of course, you knew where this article was heading: buy some billboards from Renfroe Outdoor. I promise, there’s more substance here. To be more specific about what I think you should do, I think you should first recognize what a great job you’ve done in getting to the point that you need to think about this. Next, I’d like to recommend that you invest in your best asset - yourself. What is the best way to do that? Pre-pay for all of your 2022 advertising on December 31st, 2021.
Hopefully, you’re still with me. There are a couple very good reasons for you to consider this. The first is a pretty obvious one - if you’ve had record sales, you possibly have a record tax liability. The good news is that your expenses come right off the top of your income. Why is that important? The top end of income is taxed at a higher rate than the bottom. So, an investment in brand recognition through billboards will subtract from your taxable income right from where it’s most expensive. Before I get into the math behind this, you need to know that I am not a tax professional. I pay one just like you do, hence the title of this article.
I just ran into a realtor friend at a networking event. While catching up she shared with me some new client acquisition strategies she tried for the first time this year. Prior to 2021, her best year of commissions earned her $195,000. As of December 3rd, she has earned a whopping $503,000 this year and still has closings on the books for this month. Whoa. The first thing I told her was, “you need to buy a year of billboards from me and dominate 2022.”
Because she is single, every dollar she makes above $209,425 will be taxed at 35 percent. Yikes. To put that in perspective, before reducing by other deductions, her federal tax bill just for the 35 percent tax bracket would be about $103,000.
I will share that she did have a very quick objection to my initial suggestion of pre-paying for billboards in 2022: “I’m still not sure how much advertising I will do in 2022.” After talking a bit more, she shared concerns about what type of economy we will have in 2022, which brings me to my next reason:
In good economies, you should advertise. In downturns, you need to advertise.
Fortunately, we have lots of data to prove this is the right advice. Several studies have been done on the impact of maintaining or increasing marketing budgets during a recession. The most notable of these was done by McGraw Hill on 600 companies in 16 different industries from 1980 to 1985. The study found that the companies who maintained their advertising through the two year recession in this time saw 256% higher sales than their counterparts post-recession. Companies who did not advertise saw nearly zero increase in market share during the recession and a mere 18% increase in sales when the economy recovered.
Similar studies have been performed on the recessions of the 90’s as well as the great recession starting in 2008. All report similar findings - companies who find other areas to reduce costs and protect the investments in their visibility not only survive, they grow in market share and have far greater sales increases post-recession. The reasoning is simple. If less of your competitors are advertising, you have a larger share of your industry’s voice. So why do so many companies cut advertising first? It’s the least emotional decision to make in comparison to cutting your payroll or canceling your company Christmas party.
Finally, why buy billboards when there are so many advertising choices you could use this very strategy on?
They are the last real thing left in the media world where you know you are hitting your audience.
Technology has given us so many amazing choices to deliver our message. But that’s the very reason that billboards have been experiencing such a renaissance over the last decade. From radio to television to digital, the landscape in virtually every media channel has become over-fragmented and splintered. The average value based satellite TV package comes with nearly 70 channels. To make the decision even more difficult, a TV advertising now has to consider whether they should also be advertising on cord-cutter cable options, such as YouTube, Hulu, etc. Radio has been getting clobbered by streaming options so long that it’s on life support.
With billboards, it’s simple - does your target audience work, shop, or eat out? Do they generally use roads to get there? Then they have no choice but to be exposed to billboard advertising. You can’t fast forward through a billboard impression or press mute to stop listening to it. It’s not permission based advertising. It's always there and always making an impact.
So I implore you, if you’ve had a record sales year or if you’ve even had a modestly good year, send this article to your CPA. If he agrees, call me and let's talk about what it would cost to be a household name in 2022.
-Bob Klausmeier, VP of Sales - Savannah