Advertising-To-Sales Ratio

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DEFINITION of 'Advertising-To-Sales Ratio'

A measurement of the effectiveness of an advertising campaign calculated by dividing total advertising expenses by sales revenue. The advertising-to-sales ratio is designed to show whether the resources a firm spends on an advertising campaign helped to generate new sales. A high advertising-to-sales ratio indicates that high advertising expenses resulted in low sales revenue; this could mean the campaign was not successful. A low ratio may indicate that the advertising campaign generated sales.

BREAKING DOWN 'Advertising-To-Sales Ratio'

Businesses often run a variety of marketing campaigns on different mediums (newspaper, websites, radio, etc.) at one time, which can make it difficult to determine which campaigns, if any, were responsible for new sales. Close tracking of promotions can show which mediums perform better with certain ads, and the advertising-to-sales ratio could give insight into the effectiveness of the advertising spending. Some companies do not require as much advertising, such as utility companies, so comparisons should be made between similar companies. Some advertising campaigns are designed to foster long-term support, so looking only at the short-term results might not reflect the long-term benefits of great advertising.

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