Thinking Physics to increase your ROI
#1 Understanding Sales & Setting Budgets
There are three major ways to set up an ad budget: as a percentage of current (past) sales, as a percentage of projected (future) sales or task based. Lets look at the percentage of projected sales in the chart below:
| Advertising Budget | $ 20,000,000 |
| Advertising as a % of Sales | 10% |
| Sales you have to generate | $ 200,000,000 |
According to this chart you know your revenue goal is $200 million in sales, 10 percent of which is identified at $20 million for an ad budget, which must return 10x the investment dollars to pay off.
Now lets look at some key checkpoints:
1.What internal growth does that goal suppose? If you are a small company, growing at a rate of 20 percent could very well be under-performing; if you are a large company, growing 20 percent might be impossible.
2. What external growth does that goal assume? If your competitors are all growing by 20 percent, a jump of 25 percent might be feasible. If your competitors are growing by 2 percent, the same jump might be unrealistic.
3. What are your SOI/SOM or SOV/SOM indices? If your SOI/SOM or SOV/SOM (whichever you decide to track) are on the high side (say, 3:1) you are on the right track to growth; if the ratio is low (say 0.5:1) you probably will not achieve growth
The second part of this two part series will address The Theory of Everything applied to Marketing: Consumer Clusters.
Other articles by Marcelo:
Two Guys Walk Into A Bar
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?In Advertising, Persistence Wins the Day
50 Ways to Kill Your Lover ?
Brand Growth And The Randomness of It All
BoringIts How We Shop and Market
Brand Loyalty- The Truth About Cats and Dogs
Media Planning is Like Running the Bulls
Marcelo Salups 30-plus-year career in advertising covers a wide range of everything. A wide range of roleshe began his career on the creative side, won two Addies, changed to media, included strategic planning and consumer insight and has been an agency owner several times. A wide range of venues: Spain, Latin America, international and the U.S. A wide range of clients that range from automotive to banking to electronics to fast food to soft drinks and much more. But can be summed up in four words Only Performance is Real. His website can be found at www.marcelosalup.com
