ASK THE EXPERT
“How can I justify paying a higher rent?”
I'm thinking about opening up a location that has amazing traffic, but the rent is much higher than I'm used to. How do I justify this?
I recommend looking at rent differently than most people do. I like to take my advertising expense and my rent expense and combine the two. So if my rent is typically 6% of sales and I spend 5% on local advertising, the combination of those expenses is 11%. If I moved into a higher rent of 10%, I would plan on spending 1% on local advertising.
The reason I would justify reducing local advertising is because my location should be bringing in customers, so it’s like I’m doing local advertising by having a much better location.
Having said that, there are generally minimum local advertising requirements by your franchisor, so you want to make sure you stay in compliance with that or ask for a variance based on what you’re doing with your rent.
It may very well be that your location is so good that your rent as a percentage of sales goes down as sales grow so much. I have found this myself quite often. When that happens, I then invest more in local advertising to see if I can push my sales even higher.
There are a lot of “moving parts” in planning an advertising budget. I encourage people to play around, and see how they can improve business though greater advertising. Many times a higher ad spend will result in greater profitability – and profitability matters a lot more than the percentage of rent or advertising spend. I hope that my answer helps you arrive at the decision that is best for your business. And Ellen, good luck.
Evan Hackel is a 35-year franchising veteran as both a franchisor and franchisee. He is CEO of Tortal Training, a leading training development company in Charlotte, North Carolina, and Principal and Founder of Ingage Consulting in Woburn, Massachusetts. Evan is the host of Training Unleashed and author of Ingaging Leadership. Evan speaks on Seeking Excellence, Better Together, Ingaging Leadership and Attitude is Everything. Evan is an active member of the C-Suite Advisors Network. To hire Evan as a speaker, visit www.evanspeaksfranchising.com. Follow @ehackel.