How to Set an Advertising Budget by Working Backward From Revenue
Start with the new revenue you want advertising to produce. Divide it by your average sale to get sales needed, divide by your close rate to get leads needed, then multiply by your cost per lead. Check the result against gross margin before you commit. Key takeaways A percentage of revenue shows what other companies spend, not whether your spend will reach your goal. Gross margin, not revenue, decides what you can afford to pay for a new customer. If you're missing numbers, estimate close rate first, then cost per lead. Never approve a budget without a monthly lead target attached. Ask how much you should spend on advertising, and you'll usually hear two answers. Spend a percentage of revenue, or repeat last year. Neither tells you whether the money will bring in the customers you need. This guide shows how to set an advertising budget by working backward from a revenue goal. It works for any channel mix, including search, social, direct mail, radio, and out-of-home. Why is per...