How to calculate the ad budget

Calculating
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. Williams

 Calculating the Ad Budget
The 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 + advertising

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

 Calculating the Ad Budget

The advertising budget is based on a

cost of exposure which falls between
10% and 12%

Rent + Advertising = Cost of Exposure

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

 Calculating the Ad Budget
Step one….
Calculate the Ad Budget on a 10% Cost of Exposure…
Projected Sales $1,000,000
x 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

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

 Calculating the Ad Budget
Step two….
Calculate the Ad Budget on a 12% Cost of Exposure…
Projected Sales $1,000,000
x 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

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

 Calculating the Ad Budget
10% Cost of Exposure 12% Cost of Exposure
$1,000,000 $ 1,000,000
x 10% x 12%
$ 100,000 $ 120,000
x 92% x 92%
$ 92,000 $ 110,400
- $ 36,000 - $ 36,000
$ 56,000 $ 74,4000

Based on projected sales of $1,000,000

the ad budget falls between
$56,000 and $74,400
Formula provided by the Wizard of Ads -- Roy H. Williams
 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