New Year New Advertising Budget
Setting an advertising budget is one of the hardest calculations that a company can make. In tough economic times guessing at your ad budget is just not a good idea.
The following opinion is a general way to calculate your range of advertising budget. This is not an attempt to get everyone to raise their ad budget but it is a way that some successful businesses find the right amount to invest in advertising.
So how do we find the minimum and maximum ad investment?
The first step is to figure 10 percent of your annual gross sales and write that figure down. Also, take 12 percent of sales and write that number down.
You need to have a track record and understanding of current economic times to make that estimate or projection, but I find that most business folks, that have a head for business know approximately what their gross sales will be. Once you know the number multiply each by the markup made on your average transaction. Keep in mind that we are not talking about margin but the gross markup or profit above cost, expressed as a percent of cost.
In other words if you are selling a $100 widget for $200, it is a 100 percent markup yet your margin is only 50 percent. In retail, as most of you know, a 100 percent mark up is not unusual but some operate as little as 50 percent. Of course there are some businesses that have less. Boats, cars and other expensive items are less.
The second step is to figure in your rent. Location, location, location. It has advertising value. Generally the higher the rent for retail sales the higher the traffic volume and in theory the more you pay in rent the less advertising you need. Subtract your annual rent from the 10 and 12 percent figure.
The remaining amounts are your minimum and maximum allowable advertising budgets for the given year.
These figures are good rules of thumb for advertising. It may be a great idea to take the past few years of known numbers and see if the advertising investment has been correct according to this figure. A lot of business folks have never even looked at their advertising from this perspective. Often the advertising is knee-jerk and on a whim. Businesses book ads when they have extra cash or have been hounded into a buy. Often times advertising without a plan is just a waste of that hard-earned dollar.
If you have any questions regarding your advertising budget or need an advertising plan for this year call Commercial Images & Design Corp. Keith or Russ will assist you with your budget process and plan. They will also assist with creative advertising that will have an impact. They will help turn your advertising budget into an investment.
