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How Much Money Do I Need to Spend on Advertising?


Q: I've never really done much advertising for my business; I've always relied on networking and word-of-mouth. Now I'd like to launch a small campaign, but I'm frightened it will cost a lot of money. How can I figure out where to start?

A: The first thing you must do is calculate your minimum and maximum allowable ad budgets:

· Step 1: Take 10 percent and 12 percent of your projected annual, gross sales and multiply each by the markup made on your average transaction. In this first step, it's important to remember that we're talking about gross markup here, not margin. Markup is gross profit above cost, expressed as a percentage of cost. Margin is gross profit expressed as a percentage of the selling price. Sell an item for $150 when it only costs you $100, and your markup is 50 percent. Your margin, however, is only 33.3 percent. This is because the same $50 gross profit represents 50 percent of your cost (markup,) but only 33.3 percent of the selling price (margin.) Most retail stores in America (carpet, jewelry and so on) operate on an average markup of approximately 100 percent, some operate on as little as 50 percent markup and others add as much as 200. More expensive items, such as cars, recreational vehicles and houses, typically carry a markup of only 10 to 15 percent.

· Step 2: Deduct your annual cost of occupancy (rent) from the adjusted 10 percent of sales number and the adjusted 12 percent number.

· Step 3: The remaining balances represent your minimum and maximum allowable ad budgets for the year. At this point in the calculation, you may learn that you've already spent your ad budget on expensive rent, or you might also learn that you should be doing a lot more advertising than you had previously suspected.

Now let's calculate an ad budget. Assume that my business is projected to do $1 million in sales this year, I have a profit margin of 48 percent, and my rent is $36,000 per year. The first thing to do is calculate 10 percent of sales and 12 percent of sales ($100,000 and $120,000, respectively).

Second, we must convert my 48 percent profit margin into markup, because markup is what we've got to have to make this formula work. Most business owners know their margin by heart, but never their markup. To make the conversion from margin to markup, simply divide gross profits by cost. Dividing $480,000 (gross profits) by $520,000 (hard cost) shows us that a 48 percent margin represents a markup of 92.3 percent. Bingo.

Now we multiply $100,000 times 92.3 percent to see that our adjusted low budget for total cost of exposure is $92,300. Likewise, we multiply $120,000 times 92.3 percent to get an adjusted high budget for total cost of exposure of $110,760. From each of these two budgets, we must now deduct our $36,000 rent. This leaves us with a correctly calculated ad budget that ranges from $56,300 on the low side to a maximum of $74,760 on the high side.

Most advertising salespeople will tell you that "5 to 7 percent of gross sales" is the correct amount to budget for advertising, but don't you believe it. It simply isn't possible to designate a percentage of gross sales for advertising without taking into consideration the markup on your average sale and your rent. Yes, expensive rent for a high-visibility location is often the best advertising your money can buy, since a business with a good sign in a high-visibility location will need to advertise significantly less than a similar business in an affordable location.

To prove this, just look at the example above and change the rent to $75,000 per year. In this case, the ad budget would range from $17,300 to $35,760, representing just 1.7 to 3.5 percent of sales. The formula I've given you is the only one that reconciles your ad budget with your rent as well as the profitability of your average sale. Good luck!

Steve Moundzouris, 423-653-2201 BigWater Media Group, Bigwater Media Group is a full service advertising and marketing agency.

http://www.bigwatermg.com


Todays News by officejax free advertising and ad exchange solutionsMORE RESOURCES updated Sat. July / 11 / 2020

Truth in advertising - Fence Post
Truth in advertising  Fence Post

AdTech Roundup: Top Things in Advertising Technology - MarTech Series
AdTech Roundup: Top Things in Advertising Technology  MarTech Series

Facebook Mulls Political-Advertising Blackout In Days Before 2020 Election - CBS San Francisco
Facebook Mulls Political-Advertising Blackout In Days Before 2020 Election  CBS San Francisco

AdsDax, a digital advertising giant crosses 1 billion events - Martechcube
AdsDax, a digital advertising giant crosses 1 billion events  Martechcube

Advertising, PR experts offer their picks for a new Washington NFL team name - Washington Business Journal
Advertising, PR experts offer their picks for a new Washington NFL team name  Washington Business Journal

ICF, A Digital Advertising firm Wins Multiple awards - Martechcube
ICF, A Digital Advertising firm Wins Multiple awards  Martechcube

MatchCraft Launches Automated Responsive Search Advertising - Martechcube
MatchCraft Launches Automated Responsive Search Advertising  Martechcube

Bayer Freezes Facebook Advertising In July - AdExchanger
Bayer Freezes Facebook Advertising In July  AdExchanger

Will COVID-19 Change Your Marketing and Advertising Plans Forever? - Autobody News
Will COVID-19 Change Your Marketing and Advertising Plans Forever?  Autobody News

D.C. Council votes to devastate local news and advertising agencies - Washington Times
D.C. Council votes to devastate local news and advertising agencies  Washington Times

Google Makes Swirl Ad Format Available To All Advertisers 07/10/2020 - MediaPost Communications
Google Makes Swirl Ad Format Available To All Advertisers 07/10/2020  MediaPost Communications

Google to restrict advertising of unauthorized tracking technology - WHTC News
Google to restrict advertising of unauthorized tracking technology  WHTC News

Google to restrict advertising of tracking technology, spyware - Middletown Press
Google to restrict advertising of tracking technology, spyware  Middletown Press

Berkshire Hathaway Automates Digital Advertising - Martechcube
Berkshire Hathaway Automates Digital Advertising  Martechcube

Kroger boosts media presence with new advertising partnerships - Supermarket News
Kroger boosts media presence with new advertising partnerships  Supermarket News

National TV Political Advertising Up Sharply, Trump Campaign Spending Dominates 07/13/2020 - MediaPost Communications
National TV Political Advertising Up Sharply, Trump Campaign Spending Dominates 07/13/2020  MediaPost Communications

Facebook Advertising Boycott Has Its Limits, ADL and Color of Change Say - Barron's
Facebook Advertising Boycott Has Its Limits, ADL and Color of Change Say  Barron's

Fact Check: Picture does not show advertising endorsed by TED - Reuters
Fact Check: Picture does not show advertising endorsed by TED  Reuters

Digital Advertising - Operator Strategies and Case Studies - GlobeNewswire
Digital Advertising - Operator Strategies and Case Studies  GlobeNewswire

TikTok's new offering for small advertisers could help it lure them from Facebook - CNBC
TikTok's new offering for small advertisers could help it lure them from Facebook  CNBC

3 Places Advertisers Are Still Increasing Spend Despite COVID-19 - Motley Fool
3 Places Advertisers Are Still Increasing Spend Despite COVID-19  Motley Fool

Advertiser Exodus Snowballs as Facebook Struggles to Ease Concerns - The New York Times
Advertiser Exodus Snowballs as Facebook Struggles to Ease Concerns  The New York Times

Proposed bill would offer tax credits to support local news, advertising - Williston Daily Herald
Proposed bill would offer tax credits to support local news, advertising  Williston Daily Herald

Marketron Announces 'Radio's Digital Transformation' Webinar Series and Digital Advertising E-book - Twice
Marketron Announces 'Radio's Digital Transformation' Webinar Series and Digital Advertising E-book  Twice

Facebook prepares to dig in as advertising boycott continues - NBC News
Facebook prepares to dig in as advertising boycott continues  NBC News

Did Hedge Funds Make The Right Call On Lamar Advertising Company (REIT) (LAMR) ? - Yahoo Finance
Did Hedge Funds Make The Right Call On Lamar Advertising Company (REIT) (LAMR) ?  Yahoo Finance

WordPress security: RCE flaw in Adning Advertising plugin exploited in the wild - The Daily Swig
WordPress security: RCE flaw in Adning Advertising plugin exploited in the wild  The Daily Swig

Think Tank looks at best, worst of 2020 political advertising - KTAR.com
Think Tank looks at best, worst of 2020 political advertising  KTAR.com

Gideon, Republicans trade advertising jabs over allegations against ex-lawmaker - Press Herald
Gideon, Republicans trade advertising jabs over allegations against ex-lawmaker  Press Herald

Pinterest: Pivoting To eCommerce Advertising Will Drive Growth In The Long Run - Seeking Alpha
Pinterest: Pivoting To eCommerce Advertising Will Drive Growth In The Long Run  Seeking Alpha

The Revitalization Of Print Advertising - Forbes
The Revitalization Of Print Advertising  Forbes

1982 Issue 111: BDO Ban Advertising. • Darts World Magazine - Andy Till
1982 Issue 111: BDO Ban Advertising. • Darts World Magazine  Andy Till

Berkshire Hathaway HomeServices Automates Digital Advertising During Pandemic, Enters Multi-Year Relationship with Adwerx - RisMedia.com
Berkshire Hathaway HomeServices Automates Digital Advertising During Pandemic, Enters Multi-Year Relationship with Adwerx  RisMedia.com

Verizon CEO explains why the company paused advertising on Facebook - CNBC
Verizon CEO explains why the company paused advertising on Facebook  CNBC

TikTok Rolls Out Its Self-serve Advertising Platform Globally, and the Company Will Provide $100 Million in Ad Credits - Digital Information World
TikTok Rolls Out Its Self-serve Advertising Platform Globally, and the Company Will Provide $100 Million in Ad Credits  Digital Information World

Advertising Plugin for WordPress Threatens Full Site Takeovers - Threatpost
Advertising Plugin for WordPress Threatens Full Site Takeovers  Threatpost

PR.com - Veteran Advertising Firm, Fisher Design & Advertising Joins Forces with Savvy Outsourcing, Blending Services of Traditional and Digital Marketing - IT News Online
PR.com - Veteran Advertising Firm, Fisher Design & Advertising Joins Forces with Savvy Outsourcing, Blending Services of Traditional and Digital Marketing  IT News Online

Advertisers were cutting their Facebook ad spending well before the boycott began - Digiday
Advertisers were cutting their Facebook ad spending well before the boycott began  Digiday

COVID's Brutal Impact on Advertising - Radio Ink
COVID's Brutal Impact on Advertising  Radio Ink

Ad Boycott of Facebook Keeps Growing - The New York Times
Ad Boycott of Facebook Keeps Growing  The New York Times

Kids most exposed to junk food advertising in France, finds public health agency - FoodNavigator.com
Kids most exposed to junk food advertising in France, finds public health agency  FoodNavigator.com

Texas-based social media advertising firm plans to open office in downtown Cleveland - Crain's Cleveland Business
Texas-based social media advertising firm plans to open office in downtown Cleveland  Crain's Cleveland Business

100+ Black creators in film and advertising launch Change The Lens pledge - Shots
100+ Black creators in film and advertising launch Change The Lens pledge  Shots

What Are the Growing Drivers of Online Advertising Market 2027 with top key players like Google LLC,Adobe Inc.,Amazon.com Inc.,Baidu (Nanjing Marketing Group),Facebook Inc.,IAC - Cole of Duty
What Are the Growing Drivers of Online Advertising Market 2027 with top key players like Google LLC,Adobe Inc.,Amazon.com Inc.,Baidu (Nanjing Marketing Group),Facebook Inc.,IAC  Cole of Duty

As Facebook Boycott Grows, Advertisers Grapple With Race - The New York Times
As Facebook Boycott Grows, Advertisers Grapple With Race  The New York Times

LIC Hotel That Offers COVID-19 Tests Before Entry Sees Raucous Parties - Eater NY
LIC Hotel That Offers COVID-19 Tests Before Entry Sees Raucous Parties  Eater NY

Facebook just lost one of the biggest advertisers in the world for the rest of 2020 - NBC News
Facebook just lost one of the biggest advertisers in the world for the rest of 2020  NBC News

Tobi Matthews joins SCG Advertising + Public Relations - Parsippany Focus
Tobi Matthews joins SCG Advertising + Public Relations  Parsippany Focus

ADVERTISEMENT FOR BIDS | Proposals-RFPs | roanoke.com - Roanoke Times
ADVERTISEMENT FOR BIDS | Proposals-RFPs | roanoke.com  Roanoke Times

The CEO of a major advertising trade group says the Facebook boycott is a turning point - CNBC
The CEO of a major advertising trade group says the Facebook boycott is a turning point  CNBC

3 reasons why you should advertise your business with DOOH - Digital Signage Today
3 reasons why you should advertise your business with DOOH  Digital Signage Today

Huh? Advertisers Boycott Social Media Now, Plan On Raising 2021 Investment By 78% 07/10/2020 - MediaPost Communications
Huh? Advertisers Boycott Social Media Now, Plan On Raising 2021 Investment By 78% 07/10/2020  MediaPost Communications

Tag: Telco Digital Advertising Market - Sports Skylark
Tag: Telco Digital Advertising Market  Sports Skylark

The state of advertising has still never been better - Campaign US
The state of advertising has still never been better  Campaign US

2020 Prediction for Digital Advertising market: Key Players and Driving Factors Analysis - Cole of Duty
2020 Prediction for Digital Advertising market: Key Players and Driving Factors Analysis  Cole of Duty

Microsoft And Sony Are Suspending Facebook Advertising, But It’s Less Noble Than It Sounds - Forbes
Microsoft And Sony Are Suspending Facebook Advertising, But It’s Less Noble Than It Sounds  Forbes

Corona Impact on Tv Advertising Market – By Current Industry Status, Growth Opportunities, Top Key Players, Target Audience and Forecast | CBS, Comcast, News, Viacom - 3rd Watch News
Corona Impact on Tv Advertising Market – By Current Industry Status, Growth Opportunities, Top Key Players, Target Audience and Forecast | CBS, Comcast, News, Viacom  3rd Watch News

Digital Advertising Platforms Market 2020| Sizmek • InMobi Technologies • Choozle • Rubicon Project • Kenshoo • Google (Alphabet) • LinkedIn - Cole of Duty
Digital Advertising Platforms Market 2020| Sizmek • InMobi Technologies • Choozle • Rubicon Project • Kenshoo • Google (Alphabet) • LinkedIn  Cole of Duty

Latest News 2020: Outdoor Advertising Machines Market analysis by COVID19 Impact Analysis With Top Manufacturers Analysis | Top Players: Company, JCDecaux Group, Clear Channel Outdoor, Lamar Advertising, More - 3rd Watch News
Latest News 2020: Outdoor Advertising Machines Market analysis by COVID19 Impact Analysis With Top Manufacturers Analysis | Top Players: Company, JCDecaux Group, Clear Channel Outdoor, Lamar Advertising, More  3rd Watch News

Global Programmatic Advertising Platform Market is accounted for xx USD million in 2019 and is expected to reach xx USD million by 2025 growing at a CAGR of xx%: AppNexus Inc., AOL Inc. (Verizon Communications Inc.), Yahoo! Inc., DataXu Inc., Adroll.com, etc. - Cole of Duty
Global Programmatic Advertising Platform Market is accounted for xx USD million in 2019 and is expected to reach xx USD million by 2025 growing at a CAGR of xx%: AppNexus Inc., AOL Inc. (Verizon Communications Inc.), Yahoo! Inc., DataXu Inc., Adroll.com, etc.  Cole of Duty

A Chat With: The Perception’s Brian Anderson On How Advertisers Are Dealing With Black Lives Matter Movement - CBS Philly
A Chat With: The Perception’s Brian Anderson On How Advertisers Are Dealing With Black Lives Matter Movement  CBS Philly

In-Game Advertising Market Growth, Competitive Analysis, Future Prospects and Top Key Players - Cole of Duty
In-Game Advertising Market Growth, Competitive Analysis, Future Prospects and Top Key Players  Cole of Duty

Cloud Advertising Market: Year 2020-2027 By World With Top Key Players Like Adobe, Google, IBM, Marin Software, Oracle, Rackspace, Salesforce, Sprinklr, Viant - Daily Research Chronicles
Cloud Advertising Market: Year 2020-2027 By World With Top Key Players Like Adobe, Google, IBM, Marin Software, Oracle, Rackspace, Salesforce, Sprinklr, Viant  Daily Research Chronicles

IAB US 2020 Digital Video Advertising Spend Report: Putting COVID in Context - IAB
IAB US 2020 Digital Video Advertising Spend Report: Putting COVID in Context  IAB

Why digital OOH advertising is especially effective right now - Marketing Dive
Why digital OOH advertising is especially effective right now  Marketing Dive

The advertising business is becoming less cyclical—and more concentrated - The Economist
The advertising business is becoming less cyclical—and more concentrated  The Economist

Coca-Cola pauses advertising on all social media platforms globally - CNBC
Coca-Cola pauses advertising on all social media platforms globally  CNBC

Bicycle Company’s TV Ad Pulled By French Advertising Regulator For ‘Discrediting Automobile Sector’ - Forbes
Bicycle Company’s TV Ad Pulled By French Advertising Regulator For ‘Discrediting Automobile Sector’  Forbes

Verizon is pulling advertising from Facebook and Instagram - CNBC
Verizon is pulling advertising from Facebook and Instagram  CNBC

What’s Digital Commerce Advertising and what tools can help? - MarTech Today
What’s Digital Commerce Advertising and what tools can help?  MarTech Today

Inflight Advertising Market By Covid-19 Outbreak, Global Industry Growth and Key Manufacturers Analysis Report – 2020-2027 - 3rd Watch News
Inflight Advertising Market By Covid-19 Outbreak, Global Industry Growth and Key Manufacturers Analysis Report – 2020-2027  3rd Watch News

How Corona Pandemic will impact Programmatic Display Advertising market and what change Development Strategy 2020-26 - 3rd Watch News
How Corona Pandemic will impact Programmatic Display Advertising market and what change Development Strategy 2020-26  3rd Watch News

Good-Loop, An Ethical Advertising Platform That Allows Brands To Spend Media Dollars And Do Good At The Same Time Launches In The United States - Forbes
Good-Loop, An Ethical Advertising Platform That Allows Brands To Spend Media Dollars And Do Good At The Same Time Launches In The United States  Forbes

Global Programmatic Advertising Platform Market Expected to Grow with a Significant Rate by 2024 Top Players : DataXu Inc., MediaMath Inc., AOL Inc. (Verizon Communications Inc.), AppNexus Inc., Adroll.com, Yahoo! Inc. etc. - Cole of Duty
Global Programmatic Advertising Platform Market Expected to Grow with a Significant Rate by 2024 Top Players : DataXu Inc., MediaMath Inc., AOL Inc. (Verizon Communications Inc.), AppNexus Inc., Adroll.com, Yahoo! Inc. etc.  Cole of Duty

Booker and McGrath Intensify Advertising Blitz in Kentucky - The New York Times
Booker and McGrath Intensify Advertising Blitz in Kentucky  The New York Times

Advertising Services Market To Witness excellent growth scenario during Forecast Period 2021 – 2025 | WPP, Omnicom Group, Dentsu - Cole of Duty
Advertising Services Market To Witness excellent growth scenario during Forecast Period 2021 – 2025 | WPP, Omnicom Group, Dentsu  Cole of Duty

SIU is offering online advertising and graphics camps next month - SIU News
SIU is offering online advertising and graphics camps next month  SIU News

NAACP and others call for advertisers to boycott Facebook - Vox.com
NAACP and others call for advertisers to boycott Facebook  Vox.com

Health Canada to ban advertising on vape products after noting high 'frequency of use' in youths - National Post
Health Canada to ban advertising on vape products after noting high 'frequency of use' in youths  National Post

Advertising - - Brock Press
Advertising -  Brock Press

Choice Hotels Won June on U.S. TV Among All Travel Advertisers - Skift
Choice Hotels Won June on U.S. TV Among All Travel Advertisers  Skift

Here are the major brands that have pulled ads from Facebook - MarketWatch
Here are the major brands that have pulled ads from Facebook  MarketWatch

ADVERTISEMENT PUNXSUTAWNEY AIRPORT AUTHORITY | Public Notices - The Courier-Express
ADVERTISEMENT PUNXSUTAWNEY AIRPORT AUTHORITY | Public Notices  The Courier-Express

Growth of Mobile Advertisements Serving Market | Google, EvaDav, Facebook, Vungle, Unity Ads - Cole of Duty
Growth of Mobile Advertisements Serving Market | Google, EvaDav, Facebook, Vungle, Unity Ads  Cole of Duty

Postmedia revenue down more than 25% amid COVID-19 advertising pullback - Times Colonist
Postmedia revenue down more than 25% amid COVID-19 advertising pullback  Times Colonist

Pro-arts centre society spent $22K on advertising campaign before pandemic pulled plug on vote - Kamloops This Week
Pro-arts centre society spent $22K on advertising campaign before pandemic pulled plug on vote  Kamloops This Week

Facebook’s Tensions With Advertisers Predate the Boycott - The Wall Street Journal
Facebook’s Tensions With Advertisers Predate the Boycott  The Wall Street Journal

Visualizing the COVID-19 Impact on Advertising Spend - Visual Capitalist
Visualizing the COVID-19 Impact on Advertising Spend  Visual Capitalist

AI Makes A Splash In Advertising - Forbes
AI Makes A Splash In Advertising  Forbes

Apple's privacy changes represent 'tectonic shift' for digital ad industry - AdAge.com
Apple's privacy changes represent 'tectonic shift' for digital ad industry  AdAge.com

Companies stop advertising on Facebook after poor speech moderation - Business Insider - Business Insider
Companies stop advertising on Facebook after poor speech moderation - Business Insider  Business Insider

New study: Impact of Covid-19 on Native Advertising Software Market forecast to 2025 | StackAdapt, Nativo, Sharethrough, TripleLift, Nominal Technology, plista, PowerInbox, etc - 3rd Watch News
New study: Impact of Covid-19 on Native Advertising Software Market forecast to 2025 | StackAdapt, Nativo, Sharethrough, TripleLift, Nominal Technology, plista, PowerInbox, etc  3rd Watch News

Global TV Advertising Market Size, Analytical Overview, Growth Factors, Demand, Trends and Forecast To 2026 - 3rd Watch News
Global TV Advertising Market Size, Analytical Overview, Growth Factors, Demand, Trends and Forecast To 2026  3rd Watch News

Cloud Advertising Market to Achieve Record Revenue Levels by Foremost Industry Players – Adobe, Amazon, Google, IBM, Marin Software, Oracle, Rackspace, Salesforce, Sprinklr, Viant - 3rd Watch News
Cloud Advertising Market to Achieve Record Revenue Levels by Foremost Industry Players – Adobe, Amazon, Google, IBM, Marin Software, Oracle, Rackspace, Salesforce, Sprinklr, Viant  3rd Watch News

Federal website advertising hundreds of non-existent student-volunteer positions - Agassiz-Harrison Observer
Federal website advertising hundreds of non-existent student-volunteer positions  Agassiz-Harrison Observer

Yardley Borough Council votes to advertise ordinance establishing auxiliary police force - Bucks Local News
Yardley Borough Council votes to advertise ordinance establishing auxiliary police force  Bucks Local News

Search Engine Advertising Services Market 2020 Detailed Global Analysis by Top Key Players – Google Ads (formerly AdWords), Serpstat, Bing Ads, Marin Software, WordStream Advisor - 3rd Watch News
Search Engine Advertising Services Market 2020 Detailed Global Analysis by Top Key Players – Google Ads (formerly AdWords), Serpstat, Bing Ads, Marin Software, WordStream Advisor  3rd Watch News

Fox News Host Tucker Carlson Loses More Advertisers - The New York Times
Fox News Host Tucker Carlson Loses More Advertisers  The New York Times

Coronavirus threat to global Mobile Advertising Software Market 2020 Industry Share, Size, Consumption, Growth, Top Manufacturers, Type and Forecast to 2026 - 3rd Watch News
Coronavirus threat to global Mobile Advertising Software Market 2020 Industry Share, Size, Consumption, Growth, Top Manufacturers, Type and Forecast to 2026  3rd Watch News

Internet Advertising Industry: Segmentation, Emerging Trends, Shares, Size, Future Scope by 2026 - 3rd Watch News
Internet Advertising Industry: Segmentation, Emerging Trends, Shares, Size, Future Scope by 2026  3rd Watch News

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