If you are starting your foray into advertisement, we have a calculator to help you find out what your ad spend should be.
Advertising budgets are difficult to allocate at first glance. Entrepreneurs with a product to sell often do not know where to start and ask themselves when their ad budget should be high. With social networks and websites Luckily we can estimate this through looking up how much net profit your company is making and deducting the remaining costs to have an idea as to what the remaining minimum and maximum allowable ad budgets you will have for the year.
What does ad spend mean?
Ad spend refers to the amount of money spent on advertising for a product or activity. If it is provisional often expressed as two figures, a minimum and a maximum. Not to be confused with a Marketing Budget, which relates to the entire marketing budget for a specific sector or the whole company.
Your ad spend from a company perspective will vary from year to year. It will depend on your revenue and costs, as we see below.
How do you calculate ad spend?
There are several steps in calculating the ad spend of the year :
- Take your projected annual gross income from sales of your product or service. Usually this is already calculated. It is obtaining the price of a unit of your product and multiplying it by the amount of units you expect to sell.
- take the average markup on each unit or service you sell. The average markup is the average difference in between the cost of obtaining the final product and the price you sell it to the consumer. It is expressed as a percentage of cost rather than of revenue.
- Take 10% and 12% of the projected annual gross income and multiply both by the average markup of putting one of your goods on the market.
- Deduct the rent you spend on your office from the above figures (if applicable).
The two figures that the calculator are what your ad budget can consist of for the next year.This seems like a complicated formula. Luckily all you need to do is complete the fields in our calculator and press the “Calculate” button.
How much should a business spend on advertising?
This depends on the revenue and costs, as indicated from the formula above. Although some business textbooks also use the “5-7% of gross sales” rule. This figure is often not an accurate indicator of the amount available but rather a target. You may have other variations in costs, that mean your ad budget has to be a higher percentage or a lower one.
Finally, the main decision you will have to make is whether to spend nearer to the maximum or the minimum. This will depend on many factors of your enterprise. These include types of product, target audiences, and strategic timing.