It can be easy to overlook certain factors when determining how much money your company can spend on advertising. You must remember that you can draw only from your profit, not your total sales. You must also factor in the cost of the location of your business, since this can determine both how much you need to advertise and how much money you will have to spend. Make a sound promotional budget using an equation that takes all these things into account.
Instructions
1. Add up the prices of your products or services. The price is how much you charge customers for an item, not how much you paid for it (which is the cost). Divide the total by the number of products or services to determine your average price. For example, if you sell three items with prices of $60, $30 and $22.50, the total of their prices is $112.50. Divide by three to find the average price, $37.50.
2. Add up the costs for all your products or services, and divide the total by the number of products or services. Subtract this average from the average sale price from Step 1 to determine your average markup. Your markup is the amount of money you make over the cost of an item. If you know only your profit margin (the percentage of the price you make over cost), convert it to a decimal and multiply it by the average sale price to determine the markup.
For example, if your average profit margin is 30 percent and the prices of your products average $37.50, you would multiply $37.50 by 0.3 to find that your average markup is $11.25.
3. Multiply your estimated annual sales by .10 to determine how much is 10 percent of it. Multiply this amount by the amount from Step 2. For example, if you expect to make $65,000 in sales this year, $6,500 is 10 percent. Multiplying $6,500 by $11.25 results in $73,125. You will use this number to determine your minimum promotional budget.
4. Multiply your estimated annual sales by 0.12 to determine how much is 12 percent of it. Multiply this amount by the average from Step 2. For example, if you expect to make $65,000 in sales this year, $7,800 is 12 percent. Multiplying $7,800 by $11.25 results in $87,750. You will use this number to determine your maximum promotional budget.
5. Subtract your annual property rent from the amounts in Steps 3 and 4 to determine the range for your promotional budget. For example, if you pay $30,000 each year to lease your store, subtracting $30,000 from $73,125 and $87,750 will show your promotional budget is between $43,125 and $57,750, respectively.
