What is the Advertising-To-Sales Ratio
The advertising-to-sales ratio is a measurement of the effectiveness of an advertising campaign that is 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 advertising expenses were high relative to sales revenue; this could mean the campaign was not successful. A low ratio indicates that the advertising campaign generated high sales relative to the advertising expense.
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, and the advertising-to-sales ratio can show 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 a low advertising-to-sales ratio might not reflect the long-term benefits.