84 billion dollar sales on 11% advertising spend image

Do You Think A $10 Billion Advertising Spend Was Worth It?

[UPDATE 2016] P&G are still No 1 in terms of advertising spend, though their budget has gone down to $4.6bn according to Business Insider Рdue in part to moving the majority of their budget to cheaper and more direct digital channels.

If you had an $84bn turnover, would you choose to spend $10bn of it on advertising?

In the early part of 2012 (a few years ago now) I reported that Procter and Gamble had an advertising budget of around $10 billion for the year (that actual spend was $9,345 million – see the report here).

So the question is was it worth it and what the heck has it got to do with small struggling businesses trying to stay afloat?

The answer to the first part of the question is yes. Nearly $84 billion in sales is not bad. And since advertising as a way of marketing is P&G’s forte, then it has obviously worked.

And just to complete the story, their earnings margin was 11.1%. Not too shabby eh!

If you look at this as a model, and bearing in mind it is a very well oiled model, then as a small business owner you have some metrics to work with.

In short, budget to spend at least 10% of your turnover on advertising. From here you can look at your business model in more detail.

As an extreme case, if your profit margin is 10%, then you are going to have almost no budget for marketing let alone advertising. This is part of the reason retailers try to get a 100% markup on what they sell.

You must ensure you have the money to tell the world about what you do.

If we strip out the ‘billions’ from P&G’s figures, it looks like this.

  • Sales: 84
  • Cost of goods: 41
  • Advertising: 10

Something we sold for 84 dollars, cost us 41 dollars to buy and 10 dollars to advertise. This leaves us with 33 dollars per sale. You can choose to use that for your office, salary, business trips, whatever.

So the only question is how many do you need to sell to achieve the lifestyle or business success you want?

This may seem a little simplistic, but that’s what the best businesses do – keep it simple.

Quentin Pain

My earliest ambition was to become a rockstar (my band once backed The Waves who went on to win the Eurovision Song Contest). Unfortunately I decided to start a business to support my rock star dream, and as luck would have it, the business took off big time and the rock star dream died. I was 23. By the time I reached 50, my total business count was 6. The last one was Accountz that went from zero to 36,000 customers in 6 years. I now run ProofMEDIA Ltd and my specialism is copy that wins trust, engagement and long term sales. I'm also a published author (including a Dummies title), have won many awards including the IAB Small Business Mentor of the Year, and am a Fellow of the Chartered Institute of Marketing.

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