Don’t know where to start in setting a reasonable advertising budget? Try the “percentage-of-sales” method. Not only is it a commonly used method by small businesses, there is some data available that can help you benchmark your ad spend against industry averages.
Research from Schonfeld & Associates shows that companies in the “Industrial Equipment” sector had an ad spend to sales ratio of 1.3% in 2019 (with a general range of 0.3% to 2.6%). Start at the lower end and apply that percentage to last year’s gross sales to see what budget this would allow you.
For example, if your company had $5,000,000 in gross revenue last year, and you wish to set your advertising budget at 0.5% of sales, this would give you a budget of $25,000.
Next, you need to determine if this budget aligns with your marketing goals for the year. If you have plans to launch a new business division or rebrand your company, then you should aim for the higher end of your comfortable range.