With advancements in Internet technology, advertising has become a thing of the past for many businesses. However, there are many consumers who still utilize telephone directories, newspapers, and radio advertisements to find goods and services in their area. To make sure your business information is available to these consumers, you should always place some type of ad in these mediums.
As previously mentioned, advertising can be costly. The good news is, there are ways that you can increase your advertising budget. One such way is co-op advertising.
Co-op is advertising money that is available to you from various product manufacturers. Feature their brand name or logo in your advertisement and you may qualify for co-op reimbursement. For example, if you are a Cooper Tire dealer, Cooper Tire may be willing to reimburse you for a percentage of your advertising costs. In some cases your supplier may be willing to reimburse you for up to 100% of your advertising costs.
How It Works
Co-op funds are accrued based on a retailer’s purchases of a manufacturer’s product. These funds are set aside in a special account to be used towards the cost of advertising in various media (yellow pages, radio, television, newspapers, billboards, direct mail, etc.) Every retailer has their own account based on their individual purchases. Accruals are usually based on net sales and accrual percentages vary depending on the program and on the manufacturer. Co-op accruals belong to the retailer, however, most co-op programs roll over periodically (usually annually), so if the retailer does not use their co-op funds they lose them. The manufacturer reabsorbs the funds and the retailer never sees them.
Types of Co-op Programs
There are four types of co-op programs:
100% Plan- the manufacturer will pay the total ad cost.
Shared Plan- the manufacturer and the retailer each pay part of the ad cost. The ratio is determined by the manufacturer. (50/50, 75/25, etc.)
Fixed Plan- accruals are not tied to purchases. The manufacturer pays a pre-determined flat dollar amount. (Example: $150.00 per retailer per year for Yellow Pages)
Negotiable Plan- no formal program is available, but co-op may be arranged on an individual basis.
Participation & Accrual
Many manufacturers offer a co-op program. As seen in the section above, some will even pay up to 100%! This makes advertising more affordable for you. The amount a manufacturer pays is known as participation. The amount of money that a retailer has earned based upon purchases is known as the accrual.
An example of how to calculate participation and accrual can be found below. (Note- this example is based upon a co-op program that pays 50% based on 2% of a retailer’s net purchases:
Let’s say the retailer has $50,000 in total net purchases.
2% of the total net purchases ($50,000) is $1,000 (accrual amount).
Therefore, the retailer has $1,000 in co-op money to help pay for advertising.
The cost of the ad is $2,000.
The manufacturer will reimburse the retailer for 50% of the cost or $1000.
There is a catch to this formula- the reimbursement amount must not exceed the amount that you have accrued in your co-op fund. For example, say your ad costs $1000. Your manufacturer agrees to reimburse you for 50% of the cost, which is $500. However, you only have $400 accrued in your co-op fund. Therefore, you will only be reimbursed $400. On the same note, if your ad costs $1000 and your manufacturer agrees to reimburse you for 50% of the cost and you have $600 accrued in your co-op account, you will only receive $500 in reimbursement, not $600.
Normally, the manufacturer expects you to pay for your advertising before you are reimbursed. Very rarely, will they give you money from your co-op funds prior to ad placement. It’s rather like a rebate.
For example, if I go to K-Mart and buy a TV and the manufacturer of that TV is offering a $200 rebate, K-Mart expects me to pay them in full for the product. The rebate (or reimbursement) will then come from the manufacturer of the TV afterwards.
Co-op reimbursement is paid by the manufacturer in three different ways:
Credit Memo (To be used towards future purchases)
Most manufacturers require that the advertisement be pre-approved by them before the advertising appears. Many media representatives offer this service when you place advertising with them. If they do not, you must handle the pre-approval yourself.
Getting your ad pre-approved will ensure that the manufacturer’s logo is correct and that the ad adheres to the manufacturer’s individual co-op program guidelines.
Some manufacturers have specific requirements that must be adhered to in order for your advertisement to be eligible for co-op reimbursement. These requirements vary be manufacturer. Some will require only the appearance of a product name or logo, while others demand that a certain percentage of the ad be devoted to their product.
Here is an example of some of the things a manufacturer may demand:
Logo must be prominently displayed. (Sometimes they require that the logo be a certain size- for example, 15% of the ad space- other times it does not matter as long as it appears somewhere in the ad.)
Competitors or non-competitors not allowed. (Some manufacturers will not pay for an ad if the ad features another name brand product.)
Product Illustration must appear in ad. (Some manufacturers may require a picture of their product be featured in the ad along with the logo.)
Many manufacturers will allow competitors or non-competitors in your ad, but they may choose to “prorate” them. For example, let’s say your ad features two brands of. “Brand A” is featured in 50% of the ad and “Brand B” is featured in 50% of the ad. “Brand A” will only pay for the part of the ad they are featured in. So, if the total ad cost was $500 then “Brand A’s” portion is only $250.
Since many retailers offer more than one brand of a particular product, “prorated ads” are a nice thing. It does not limit your advertising to only one brand and it allows you to use co-op money from several different manufacturers.
Claim Documentation/Claim Filing
Before a manufacturer will reimburse you for advertising, they usually require proof that the advertising was actually placed. Just about every manufacturer will want to see a tearsheet (an actual copy of the ad in the print publication) or a video/tape (radio or TV advertising) and an invoice/statement of charges (stating the name of the publication, dates that the ad ran, ad size, and cost.) In addition, some manufacturers may require claim forms or actual copies of the advertising contract.
The required claim documentation must also be sent to the manufacturer so they may issue reimbursement. In most cases claims can be sent directly to the manufacturer by the media representative. However, some manufacturers will only accept claims submitted by the retailer. In these cases the media representative may still be able to prepare claim documentation on your behalf, saving you some work.
Co-op Dollars are made available by manufacturers to encourage retailers to promote products in the local market. Co-op allows you to stretch your advertising budget, making larger ads and expanded ad programs more affordable. Plus, consumers look for trusted brands. By promoting association with well-reputed products you tie into national ad campaigns and create a sense of reliability and confidence in the mind of the consumer.
Begin taking advantage of co-op advertising as soon as possible. Billions of dollars go unclaimed every year. Speak with your product manufacturers and talk to media representatives. You may have unclaimed funds to use towards advertising. Many manufacturers don’t promote their programs to the retailers, so there may be something available for you even though you have never been made aware of it’s existence. If a program is not available through your manufacturer, try to arrange one. You may be surprised at what you get if you ask for it.