HOW MUCH FOR THE ADVERTISEMENT?
by M. A. Changezi
Here's how you can figure out how much. Since you do not own a business at the moment, you must do sales projection in order to be able to have an advertisement budget.
1. Take 10 percent and 12 percent of your projected annual gross sales and multiply each by the markup made on your average transaction. Please bare in mind that we are talking about gross markup not margin. Margin is your gross profit expressed as %age of the selling price. If you sell an item for B 200 when it only costs you B 100 - your markup is 100 percent.
by M. A. Changezi
Here's how you can figure out how much. Since you do not own a business at the moment, you must do sales projection in order to be able to have an advertisement budget.
1. Take 10 percent and 12 percent of your projected annual gross sales and multiply each by the markup made on your average transaction. Please bare in mind that we are talking about gross markup not margin. Margin is your gross profit expressed as %age of the selling price. If you sell an item for B 200 when it only costs you B 100 - your markup is 100 percent.
2. Now deduct your annual rent from the adjusted 10 and 12 percent of your projected annual gross sales. The remaining balance represent your minimum and maximum allowable advertisement budget for the whole year.
Let's see how we calculate an advertisement budget. Let's suppose that your annual sales projection is B 1M. Also, let's suppose that your profit margin is 48 percent and you pay B 360,000 rent per year. Now you need to calculate 10 and 12 percent of sales (B 100,000 and B 200,000 respectively).
Now you need to calculate your markup (not margin). Follow the following step to convert your profit margin (48%) into markup.
Markup = Gross profit / cost --------------------- equation 1 [Page2]
Let's see how we calculate an advertisement budget. Let's suppose that your annual sales projection is B 1M. Also, let's suppose that your profit margin is 48 percent and you pay B 360,000 rent per year. Now you need to calculate 10 and 12 percent of sales (B 100,000 and B 200,000 respectively).
Now you need to calculate your markup (not margin). Follow the following step to convert your profit margin (48%) into markup.
Markup = Gross profit / cost --------------------- equation 1 [Page2]