How to Create an Advertising Budget
It isn’t Rocket Science!
You can take two different approaches depending upon your risk tolerance.
You can create the budget for business as usual…based on your historical sales. Or, you can create the budget based on what you think sales ought to be.
So, you start with a number…Gross Sales, projected Gross Sales, or a real stretch of what you think Gross Sales should be.
Budget a range of 10-12% of this number for Total Cost of Exposure. Wait, it gets a bit more complicated, but not much.
We now multiply these numbers by your AVERAGE Mark-up above Cost of Goods Sold. (not your average margins, but your mark-up.) For example, if you consistently use a keystone mark-up (100%) it means that you are selling your products at twice your cost. Your mark-up is 100% of the cost. The most difficult part of setting your ad budget may be calculating your average mark-up if you’ve never done it before.
But wait, there’s more! What you have now is a budget that is not adjusted for your location or rent. Yes, rent matters!
If you’re paying high rent, it (hopefully) means you’re in a good location. If you are spending a lot of money on rent you won’t have/need to spend as much on advertising. This is a good thing. The right location can mean you don’t need to spend anything on ads. A poor location, or one you’ve owned so long that you no longer have a payment may mean you have to spend a lot of money on advertising to overcome the fact that you’ve become invisible to the traffic that moves past your store.
Subtract your yearly rent (or other payment) from the numbers.
The remaining balance is your advertising budget!
You’re left with a range that, if spent wisely, with the right message, should provide a good advertising campaign for your business.
Try Our Interactive Ad Budget Calculator:
Instructions for using the Calculator:
- Double-click in the box and replace the text with your projected annual sales.
- Adjust the first slider to match your average markup. (Click the help button to find a definition of markup).
- Adjust the second slider to match your annual cost of occupancy…rent, mortgage, etc.
Need help calculating your budget?
Contact Dave for help planning your budget or strategically spending it.