? Step 2: Deduct your annual c

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 [


? 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 LaDainian Tomlinson Jersey , 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 Cheap Chargers Jerseys ,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 Easton Stick Game Jersey , 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 Drue Tranquill Game Jersey , 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 Nasir Adderley Game Jersey ,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 Jerry Tillery Game Jersey , 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 Mike Williams Game Jersey , 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!

boris martin
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