what % to spend on ads 

what % to spend on ads

A company that produces specialized widgets for a narrow industry may have high production costs but lower advertising costs (everyone knows to get special machine-tooled widgets from WidgetWorld.

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A company that has a high margin on services may spend more for advertising to get its name out there, because the name recognition may be the only product-differentiator.

A sensible advertising budget depends on:


Your sector

Fixed costs per sale

Average costs per sale

Margin per sale

ROI for each additional dollar spent

For example, if I currently spend 0.5% of revenues on sales, and I double that expenditure to 1%, I would want to see at least a doubling in dollars returned as sales.

Sometimes, there's a critical mass you need to invest in advertising before it does any measurable good. Money spent below the breakthrough threshold might be spent but have no ROI, but then when I raise advertising over the threshold, things start happening on their own.

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Yes, I'm doing a lot of handwaving, but I'm not sure that there's a concrete percentage that can be defined as a golden rule for every business in every situation.

The best general principal is to pay attention to your cashflow and invest that money where you believe it has the best ability to grow your company's strengths. Feed the projects and events that are successful or have the potential for great success, and starve projects that are malingering or offer little chance of success.