The magazine publicity of the National Cash Reg ister Company is estimated on such a basis. An ad vertising campaign, using full pages, extending thru 1915, and carrying the message, "Business is Good," could not possibly have accomplished its purpose if the advertiser had confined himself to small space— one column, three-inch copy, for instance. Such small space advertising would, in fact, have made the oppo site impression from that desired; it would have been much better not to advertise at all than to spend so little an amount of money. Advertising men often have in mind a certain amount which it is necessary to spend in a national campaign for a product of gen eral consumption, to accomplish satisfactory results. In planning such a campaign,' one must first decide on the advertising needed and then estimate its cost.
12. Basing the appropriation on the difference be tween selling expense and price plus reasonable profit. —Many advertisers have developed ingenious meth ods of fixing appropriations—methods that relate particularly to their own business and are based for the most part on the desire of the advertisers to make as much progress as possible without running them selves into debt. One of these methods is to deter mine the amount of profit desired, together with the cost of manufacturing and the expense of selling each unit of the product, and then to spend the difference between these two figures, multiplied by the number of units the manufacturer expects to sell. This method is illustrated by the following extract from Printers' Ink (May 6, 1915) : Suppose we have a breakfast food, in the class which can be sold at retail for 15 cents a package. It costs $2 to produce a case of 36 packages, which are sold to the con sumer for $5.40. The jobber pays $4.15 per case, and sells to the dealer at $4.40. Thus out of our gross margin of $3.40, the jobber absorbs 25 cents, and the dealer gets 90 cents, leaving $2.15 for our own selling cost and profit. We set aside a tentative 10 per cent for our profit, which amounts to cents on the jobber's price of $4.15, and we find there is left for selling cost, including the advertising, the magnificent sum of per case.
Now the experienced breakfast food men in the company tell us that it is not safe to allow less than a dollar per case for the direct selling expense, exclusive of the advertising: so that we have left cents which may be spent for ad vertising to sell a case of 36 packages to the consumer. In other words, we have arrived at the 'conclusion that we can afford to spend for advertising during the first year, 2.04
cents per package, or, to put it a bit differently, we can spend 2.04 cents per family in the territory we are to reach. Assuming that there are an even million families in our mar ket, our first year's appropriation will amount to $20,400.
It will be noticed at once that this hypothetical concern is beginning in a small way, covering perhaps a single state the first year. At the end of that year it finds that it has sold 15,000 cases of goods. Its gross sales amount to $62,250, and its expenses have been $62,400 ; a net loss. But when it comes to analyzing its selling cost, instead of finding that the sales force has absorbed a dollar a case as was antici pated, it finds that this item has been reduced to 80 cents. It is only fair, and quite reasonable as well, to credit that saving to the consumer advertising which has made it that much easier to stock the jobber and dealer. So, for the fol lowing year we have a margin for advertising of 931/2 cents per case instead of cents. We can spend 2.59 cents per family instead of 2.04 cents. Our original territory would command an appropriation of $25,000 for next year.
But we have already reached upward of half of our million families in that territory, and they present a nucleus of good will. Many of our jobbers sell to dealers outside of the restricted territory. We have earned no profits yet, but our selling cost is coming down, and we can see daylight ahead. So we take on an adjoining district containing a million fam ilies more, and our appropriation for advertising becomes $51,800 for the second year.
Next year we sell 35,000 cases. Our gross sales are $145,250. Expenses are $148,050. Still the balance sheet shows a net loss, but the selling cost is down to 75 cents. We have a margin per case of 981/2 cents now. We can spend 2.75 cents per family. We spread out still farther, and, on a basis of 3,000,000 families, our third year's appro priation is $81,900.
The third year shows a profit on sales of nearly 100,000 cases, and the selling cost comes down to a fraction above 71 cents. Our advertising margin is now better than a dollar per case, and is approaching three cents per family. There is no need for further illustration, for the system should be perfectly clear. The appropriation is based on a certain expenditure per possible customer, and that expenditure is determined by the actual reduction in the selling cost thru the sales force.