In this case, it is proposed to form a budget, including a percentage for advertising in the cost of each unit of goods. In the future, a share of each sold product or service goes to the advertising budget.
Pros : clear method, allows you not to raise prices in order to scale advertising.
Cons: Not suitable for startups that do not yet have sales, as well as for wholesale businesses and complex products where there is no single stable unit or batch of goods.
Calculation of advertising costs from sales plans
You can form a promotion budget based on the amount that the business wants to earn. In this case, you need to know:
- the average bill of one client,
- how many applications you need to receive on average to get a client,
- how much one application costs.
Based on this data, you can calculate how much money you will need to fulfill the plan.
Pros : one of the most accurate models that allows you to effectively manage your budget and bring the company the desired result.
Cons: It is necessary to take into account the specifics of the business – increasing the budget may not always lead to an increase in sales. For example, in the B2B segment, it will take time to familiarize the audience with the product. Also, this model is not suitable for startups, since it is necessary to rely on the results of the promotion company, which start-ups do not yet have.
How is the advertising campaign budget developed?
First, you need to define the framework: at what costs for an buy lawyer contacts advertising campaign is placement profitable for a business. To do this, you need to understand how much a business earns from a client and what part of this makes sense to direct to attracting. How to do this?
Calculate the average check : divide the total revenue by the number of sales. Take all figures for one period: month, quarter, half-year, year.
Calculate your profit: subtract all product costs from your revenue, such as cost price, logistics, mandatory deductions, and marketing expenses.
Calculate the average profit per sale: divide the result obtained in the previous step by the number of sales for the same period.
Now you can roughly calculate what budget to allocate for advertising.
Establish the business margins.
Multiply the average check by the margin.
Subtract the number obtained in the previous step from the average profit .
You received CPS (Cost Per Sale) – the cost of sale at which it is profitable for a business to advertise.