What is the advertising-to-sales ratio?
The advertising-to-sales ratio, also known as the “A to S”, is a measure of the effectiveness of a company’s advertising campaign. It can be used to measure the effectiveness of a specific product launch or a broader policy, rebrand or new direction in business.
Key points to remember
- The advertising to sales ratio is a measure of the success of a company’s advertising strategies.
- The ratio is used to assess whether the company’s marketing and advertising resources are being used effectively to generate sales.
- Although it may vary from industry to industry, in general, a low ratio is considered the best, as it suggests that the campaign helped generate strong sales relative to the amount of money and resources used. for advertising.
Understanding the Ad-to-Sales Ratio
The A to S is calculated by dividing total ad spend by revenue. The advertising-to-sales ratio is designed to show whether and to what extent the resources a company devotes to an advertising campaign have contributed to generating new sales. Results can vary widely from industry to industry. So, when calculating the figure, it is necessary to compare it to others within the same sector or industry.
A high ad-to-sales ratio indicates that ad spend was high relative to revenue generated; it could mean that the campaign was not successful. A low ratio indicates that the ad campaign generated high sales relative to ad spend. As always, various factors can affect the success of specific sales.
Use of advertising to sales ratio
Companies often run a variety of marketing campaigns on different mediums (social media, websites, newspapers, radio, etc.) at the same time, which can make it difficult to determine which campaigns, if any, have been successful. source of new sales. Close tracking of promotions can show which mediums are performing the best, and the advertising-to-sales ratio can show the effectiveness of advertising spend.
The average A/S ratio varies widely across industries. The 2020 figures show that for loan brokers it is 27.44%; for perfumes and cosmetics, it is 13.20%; and for commercial banks, the ratio is 1.20%.
Special Considerations
Some businesses don’t need as much publicity, such as utility companies, some banks and financial firms, and other select industries. Meanwhile, loan brokers typically see an A to S ratio of 27.44% on average. As such, comparisons should be made between companies offering similar products. Some ad campaigns are designed to drive long-term support, so a low ad-to-sales ratio may not reflect long-term benefits.
Example of advertising to sales ratio
Suppose a hypothetical fragrance manufacturer, ScentU, has launched a rather expensive Internet and social media marketing campaign to introduce its new line of body sprays for women. The campaign seems to be effective, but the company fears that it has spent too much compared to the resources allocated. Management calculates the advertising-to-sales ratio and determines that the percentage was 10%. Although this may be high compared to some industries, given that the average A/S ratio for fragrance manufacturers is 13.20%, 10% is not only acceptable, it probably suggests that the campaign was very effective.