You'll need to devote a percentage of projected gross sales
to your annual advertising budget. A good rule of thumb is to
devote 2 percent to 5 percent of anticipated gross sales to this
need.
There are two primary methods of determining your advertising
budget more specifically. First is the cost method, which theorizes
that an advertiser can't afford to spend more than he or she
has. For instance, using the cost method to determine the
advertising budget, and devoting 5 percent of gross sales, a
business projecting $300,000 in gross sales in a given year would
have $15,000 for that year, or about $1,250 per month, to spend on
advertising. (Since businesses typically advertise more heavily
when they first open, the same business could allocate more-about
$2,500-for its grand opening.)
This may not seem like much money, and for some companies it
won't be enough. These companies base their advertising budgets
on the amount of money they need to attract the customer or sell
the product. This is called the task method. A company using the
task method typically determines how much money is needed based on
past experience. Of course, as a start-up you won't have
experience to go on. In this case, you'll have to base the
figures on your business plan and market survey, which should
estimate the costs you'll incur.
Content Continues Below
Excerpted from Start Your Own Business: The Only Start-Up
Book You'll Ever Need, by Rieva Lesonsky and the Staff of
Entrepreneur Magazine, © 1998 Entrepreneur Press