By Steve McKee

It's time to begin budgeting for 2005. But what is the most advantageous use of an advertising budget for a small business? Whether the amount available is $5,000, $500,000, or $5 million, it's a question that bedevils execs at every outfit, large or small.

In terms of media mix, there is no one-size-fits-all answer. All forms of media can be effective and/or ineffective, depending on what a business is trying to achieve. Saying "radio doesn't work" or "direct mail doesn't produce," as those who may have tried those strategies and found them lacking might say, describes an individual experience but has no truth across the board.

QUALITY COUNTS.  Simply put, an option may not have worked in a specific situation for a given company, but the same methods produced a home run for others in different circumstances. Every situation is unique.

An answer to this question exists, although it may initially appear counterintuitive. The most advantageous use of an ad budget may be to not spend it on advertising at all, at least not right away.

Here's a simple question. Would a company be better off running one great ad for three years, or three mediocre ads for one year each? To a pro, the answer is obvious. Not only is the great ad the right choice, those mediocre ones should never be seen at all. Yet, that latter strategy is the one followed by many advertisers. Advertising is meant to attract customers, yet so much of it does the opposite. One reason: Too much time and money goes into running advertising, not enough into developing it.

PLANNING PAYS.  An old rule of thumb says that 85% of an ad budget should be spent on media, with the other 15% going to planning and production. Like any rule of thumb, the logic is rooted in reality, but it remains wisdom that should not be followed blindly. After all, a big difference exists between 15% of $1 million and 15% of $10 million. A business owner or advertising manager may feel better running as much media time as possible. But if the ad doesn't improve the outfits's prospects and sales, it can only hurt the business.

A reason for this constricted thinking is that executives tend to do their planning in 12-month cycles. We have annual budgets, annual reports, annual reviews -- everything hangs on the calendar. But brand equity isn't cyclical. It lives in a continuum, growing deeper and richer (or shallower and weaker if the wrong choices are made) without respect to the month or year. While many small businesses have an annual fixed sum to spend on advertising, the way that cash is spent can vary from year to year.

Small companies are likely to be outspent by bigger rivals, but they don't have to be outsmarted. In fact, they can leverage their natural advantages of speed, decisiveness, and flexibility by making conscious decisions to spend more time and money in the planning stages. Brand equity is like home equity -- the bigger the down payment, the faster the equity grows.

THE LONG VIEW.  That means smaller outfits should spend the time and money to really understand how they plan to position themselves. They shouldn't be afraid to fund well-designed market research or hire talented people to craft their campaigns. And they should get help in directing their valuable media dollars to the most productive venues. Executives who aren't media specialists tend not to appreciate the nuances of the business and are unlikely to negotiate the most advantageous deals -- the reason they need an expert in their corner.

By being unafraid to spend 20%, 30% or even 50% of an annual budget on planning, a business can create a campaign that will deliver both short-term punch and long-term results. And by making the initial investment in a longer-term ad strategy, it will be able to spend upwards of 90% of its budget on media in subsequent years.

Any business that doesn't know the most advantageous use of its advertising budget has just answered its own question: It should spend as much of that budget as necessary to find out. It will make the amount invested work harder and produce more in the months and years to come.

McKee is president of McKee Wallwork Henderson, an ad agency specializing in working with fast-growth companies and businesses whose ad budgets are under $10 million.