# Advertising: Benefit & Cost Ratio

Save

## Purpose

Benefit and cost ratio is an objective way to calculate costs vs. benefits for advertising activities your business is considering as a part of its marketing tactics for a given period. It's a widely used decision-making tool based on a mathematical equation.

## Who Uses It

Marketing managers, marketing directors, sales professionals and small business owners use the benefit and cost ratio when they are trying to decide whether they should make a change to their marketing activities.

## Understanding Costs

Costs can range from the cost for equipment, employee training, materials and supplies; to human resources you need to complete a task, and even food and drink, if you’re hosting an event. Cost can be one-time expenses, or in the case of supplies and equipment or having a website built, you may have an ongoing fee for maintenance and updates.

## Understanding Benefits

In benefit and cost ratio, benefits include elements, such as employee productivity, improving customer service and increasing sales volume. Just like costs, benefits are expressed in dollar amounts using present value. Benefits are usually estimates based on research and projections, but are not necessarily absolute.

## Equation

As an example of how to use the benefit and cost ratio, consider you're marketing an anti-aging product and you want to purchase an advertising placement on a blog, host a spa event and create a brochure to market the event. The cost of the blog advertisement is \$700, the spa event costs \$1,500 and the brochure costs \$500 to produce, therefore, you're total costs are \$2,700. In this example, your benefits end up equaling \$10,000. To find the benefit/cost ratio use this equation: Benefit/Cost = \$10,000/\$2,7000 = 3.7. So in this example, the cost benefit ratio of 3.7 means that the tactic suggested for launching the anti-aging product are reasonable to pursue.

## Measurement

When evaluating benefit and cost ratio, note that the higher the benefit cost ratio, the better the tactic is suspected work to benefit your company by maximizing your revenue and keeping your spending at a reasonable level. The goal is to make advertising decisions based on the tactics with ratios > 1.

## References

Promoted By Zergnet

## Related Searches

Check It Out

### Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.