How to calculate the ad budget. Calculating the Ad Budget.

How to calculate the ad budget

Calculating the Ad Budget


The purpose of advertising is to increase the exposure of a business beyond what is provided by its physical location.

An extremely high Cost of Occupancy (rent) for a prime location is often the least expensive advertising available.

Businesses who save money by investing in weak locations always have to advertise much more heavily.

Formula provided by the Wizard of Ads -- Roy H. WilliamsFormula provided by the Wizard of Ads -- Roy H. Williams

Calculating the Ad BudgetThe difficulty of calculating an ad budget as a

percentage of gross sales is that it doesn’t take into consideration the mark-up on the average sale or the clients rent.

The Wizard’s formula is based on

““Cost of Exposure” = rent + advertisingCost of Exposure” = rent + advertising



The advertising budget is based on a

cost of exposure which falls between

10% and 12%

Rent + Advertising = Cost of Exposure


Calculating the Ad BudgetStep one…. Calculate the Ad Budget on a 10% Cost of Exposure…

Projected Sales $1,000,000x 10% (total cost of exposure –occupancy + advertising) x 10%

= Budget for Total Cost of Exposure $ 100,000

Multiply by Average Markup (92%) x 92%

Adjusted Budget for Total Cost of Exposure $ 92,000

Subtract Cost of Occupancy ($36,000) - $ 36,000

Ad Budget $ 56,000


Calculating the Ad BudgetStep two…. Calculate the Ad Budget on a 12% Cost of Exposure…

Projected Sales$1,000,000x 12% (total cost of exposure –occupancy + advertising) x 12%

= Budget for Total Cost of Exposure $ 120,000

Multiply by Average Markup (92%) x 92%

Adjusted Budget for Total Cost of Exposure $ 110,400

Subtract Cost of Occupancy ($36,000) - $ 36,000

Ad Budget $ 74,400


Based on projected sales of $1,000,000 the ad budget falls between

$56,000 and $74,400

10% Cost of Exposure $1,000,000x 10% $ 100,000x 92% $ 92,000- $ 36,000 $ 56,000

12% Cost of Exposure $ 1,000,000x 12% $ 120,000x 92% $ 110,400- $ 36,000 $ 74,4000



How to use the next slide

• Enter your estimated gross sales for the coming year at the top

• Turn the wheel to to correct % of markup

• Enter in your cost of exposure (Rent or Monthly mortgage payment)

• The bottom check mark will give you the correct ad budget

How to calculate the ad budget. Calculating the Ad Budget.

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