How to Figure Out Your Advertising Budget in 3 Easy Steps

Last time we took a look at how your Cost of Occupancy should be included as part of your marketing and advertising budget.

Are you still wondering exactly how to figure out what your ad budget should be?

Here’s an easy, three-step process for determining your ad budget:


1)  Budget between 10 and 12 percent of your total projected sales for the coming year. This is your Cost of Exposure.

2)  Multiply this figure by your business’ average markup. This is your Adjusted Cost of Exposure. In this example, we’ll use a 92% markup.

3)  Deduct your cost of occupancy (remember: location = advertising) from your adjusted cost of exposure. This will give you your Ad Budget. In this example, we’ll use $36,000 as your cost of occupancy.

Yes, it’s that easy. The perfect ad budget formula for every Main Street business.

We are indebted to Roy H. Williams, the Wizard of Ads, for creating this system. You can find this and many other invaluable tools in his Wall Street Journal #1 bestseller, Secret Formulas of the Wizard of Ads. Click on the photo below for another ad budget example from Roy’s book, so that you can see how markup affects the ad budget.



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One Response to “How to Figure Out Your Advertising Budget in 3 Easy Steps”

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  1. Reminder that Markup is Profit divided by Cost. Many people mistake Markup for Margin which is Profit divided by Revenue (or Retail price).

    Example: Buy an item for $5.50 and sell it for $10.
    Markup is $4.50 / $5.50 = 81.8%
    Margin is $4.50 / $10.00 = 45.0%

    Makes a huge difference is you use the wrong number.

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