Determining a breakeven point on a specific advertising expense for a specific ad campaign. Is different from calculating an advertising expense as a percentage of annual gross sales revenues. (I.e. advertisers who want their total advertising expense to be 10% of their annual sales revenues).
Calculating a break even point during a specific time on a specific advertising expense, and the gross sales revenue is generated during that time Does not include Fixed and variable expenses, like fuel, utilities, telephone, rent, etc. you would have to prorate all of those expenses during the advertising campaign window, which is not an accurate reflection on a specific, breakeven calculation
- Specific Advertising Expense vs. Specific Sales:
- This approach is useful for evaluating the immediate impact of a specific advertising campaign on a specific set of sales.
- It helps determine whether the advertising expense for that particular campaign is covered by the gross profit generated from those sales.
- It doesn’t take into account fixed and other variable costs, such as rent, utilities, and overhead expenses, which are not directly tied to the specific campaign.
- Annual Advertising Budget as a Percentage of Gross Sales Revenues:
- This approach sets a budget for advertising as a percentage of the total gross sales revenues for the entire year.
- It considers advertising as an ongoing operational expense, allocated to promote the business consistently throughout the year.
- It aims to maintain a balance between marketing investments and overall profitability but does not directly assess individual campaign effectiveness or immediate breakeven points.
You’re correct that when setting an annual advertising budget, you can’t deduct rent, utilities, and other fixed costs from your advertising budget on a daily basis to calculate a true gross profit for each campaign. Instead, you allocate a portion of those fixed costs over the entire year.
