The method outlined above represents an actual system which is in use by a manufacturer—not of a breakfast food, however. Of course, a question at once arises as to what is to be done when the selling cost reaches the point below which it cannot be reduced, or what would happen if the selling cost were to increase suddenly, due to business con ditions, for example. The only answer is that the manufac turer would use his judgment. No system of figuring appro priations will take the place of common horse-sense. As an aid to good judgment, any system may be valuable, but no man has ever yet succeeded in finding a substitute for it.
13. Basing the appropriation on a certain per cent of gross sales.—Probably the most popular plan of estimating the appropriation is on the basis of a cer tain per cent of gross sales. Some advertisers esti mate on the basis of the sales of the previous year and others estimate on the basis of expected sales. This percentage differs, of course, for each class of busi ness usually for each business house in its class. Many advertising men object to this method because they contend that it costs a larger proportionate amount to build a business up than it does to keep it going. Up to a certain point, it also costs less proportionately to keep a big business going than it does to keep a small business going.
The advantages of the plan rest on the fact that a percentage basis gives every advertiser something definite to work on. From year to year an increasing number of business houses are beginning to know ac curately their costs of doing business and are appor tioning a definite proportion of this cost to each department. The Sherwin-Williams Company of Cleveland bases its advertising appropriation on three and a half per cent of its gross sales of all kinds of paint and other materials which it distributes. The Sherwin-Williams Company may put all of its adver tising efforts on only one or two kinds of paint,, but its appropriation is, nevertheless, based on its gross sales of all its products for the year. When asked why this method was adopted and how the three and a half per cent was arrived at, the advertising man ager said, "We have found that our advertising should be this proportion of our cost of doing busi ness. We find that we cannot make enough progress if we spend less, and that we cannot show enough profit if we spend more."
14. National advertisers' appropriations.—Some advertisers simply follow the leader in making appro priations. In each class of business it is profitable to spend a different proportion of gross sales in adver tising. The advertising manager of a large bond house says that his organization cannot afford to spend more than one-sixteenth of one per cent of its gross sales in advertising. The advertising manager of one of the leading transcontinental railroads says that two and a half per cent of the gross passenger revenue is as little as any railroad can afford to spend.
The following are the percentages of gross sales spent in the advertising of certain users of national publicity : These are all large advertisers; their appropriations all run well over one hundred thousand dollars and some of them over a million dollars annually.
15. Retailers' appropriations.—Retailers, depend ent for the success of their advertising on sales made from day to day, and spending the larger amount of their appropriations in newspapers which are usually read and destroyed every twenty-four hours, are able to gauge the returns from their advertising more defi nitely than national advertisers. The prevailing tom among retailers is to base the appropriation on a certain percentage of gross sales. The retailer's cost of doing business is increasing, and the intelligent dealer knows exactly how much of this cost he can af ford to appropriate for rent, how much for bad debts, how much for clerks and how much for advertising.
It is said that in the early days John Wanamaker was able to keep his advertising appropriation down close to two and one-half per cent of sales. Today his appropriation is said to reach five per cent. Gim bel Brothers, a newer store in New York, called upon to do aggressive advertising in anticipation of busi ness, is said to have spent considerably over six per cent. Leading authorities say that the successful de partment store of today should spend at least three per cent. Yet it is understood that Marshall Field & Company, which does about twenty-eight per cent of all the department store business in the city of Chicago, spends approximately $500,000 annually for advertising, and keeps its appropriation down to only a little over one per cent of its gross sales.