There are two primary ways companies can calculate their advertising budgets. The first is through a straight percentage of sales and looks like this:

Total dollar sales: $100,000,000

Straight percentage of sales at 10%: $10,000,000

Advertising budget: $10,000,000

The second way to calculate your advertising budget is through a percentage of unit cost and it looks like this:

Cost per unit to manufacture: $4.00

Unit cost allocated to advertising: $1.00

Forecast sales: 1,000,000 units

Advertising budget: $1,000,000

You can use either of those two methods to calculate your advertising budget. Alternatively, you could base your budget on industry norms, some of which are listed here (all figures given as a percentage of sales):

• Advertising Agencies: 0.3% of sales (oh, the irony!)
• Amusement Parks: 7%
• Apparel and Accessory Stores: 4.5%
• Beverages: 7.3%
• Business Services: 0.4%
• Cigarettes: 2.2%
• Commercial Printing: 7.4%
• Computer and Office Equipment: 0.7%
• Dairy Products: 1.4%
• Distilled Liquor: 15.6%
• Drug Stores: 0.7%
• Department Stores: 4.7%
• Restaurants: 3.1%
• Family Clothing Stores: 2%
• Furniture Stores: 8.5%
• Grocery Stores: 0.9%
• Household Appliances: 2.4%
• Life Insurance: 1.2%
• Motion Picture Theatres: 0.7%
• Perfume: 13.7%
• Retail Stores: 3.7%
• Software: 2.9%
• Shoe Stores: 2.1 %
• Watches: 9.3%
• Wine: 3.6%

(Source: Advertising Ratios and Budgets, Schonfeld & Associates)

Where does your budget come in as compared to your competitors? If you want to grow market share, you’ll need to be above your competition. If you want to maintain market share, you’ll need to match your competitors.

Posted by Jamie Turner, Chief Content Officer of the 60 Second Marketer, the online magazine of BKV Digital and Direct Response. Jamie is also the co-author of How to Make Money with Social Media.