Topic: Research/Metrics

Ad To Sales Ratio Data By Industry For Australia

Posted by t.pham on 50 Points
Hi all
I am looking for data on advertising spending on sales ratio for Australian companies (food, wine, education, tourism for example). I could not find them but I did find a few PDF files for US companies.

I would appreciate if someone can help me with this data.

Many thanks

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  • Posted by mgoodman on Accepted
    Information on advertising:sales ratios is totally meaningless, and it can actually mislead you. You would do yourself a favor if you explained this to whomever gave you the assignment.

    First of all, the number is likely different for every industry. For some industries it might be 2%, while in others it could be 50% or more.

    Even within an industry, that ratio will be different from company to company depending on what their business goals are. Companies seeking rapid growth, for example, might have a higher ratio than cash cows trying to maximize profitability. For some start-up companies it might even be greater than 100%.

    And then there's the problem of looking at averages. Even if you knew the average was 12.5%, what would you do with that? The average temperature on earth today might be 62 degrees (F), but that doesn't tell you if you should wear shorts or a heavy parka when you go outside. And the 62-degree temperature might only actually exist in just a few places.
  • Posted by t.pham on Author
    Thanks mgoodman for your info

    I think all data can be useful depending on the skills of the analysts.
    The variation in values of the ratio across industries reflects the nature/relationship of an industry with advertising need, nothing wrong with it. Surprisingly, advertising agencies only spend 0.3% of sales (Source: Jamie Turner) !

    Looking at the average ratio is not that problematic, as it can tell us the norm across a wide range of companies in the corresponding industry. So, the average number is useful for me at least, as I am not working on individual companies. I phrased the question using companies as I am hoping to get the data at the lower level, and derive the industry average at my end so that I know the composition of the number (particularly the concentration of the industry). What I am after is very specific (Australian industries) to what I am working on, it is not the same as you assumed in your example of the world average temperature. By the way, if only a few places are at 62 degree (F) and the rest are different, then the average temperature is NOT 62.

    I found a long list of those ratios published by Schonfeld and Associates, and which is very useful, unfortunately those ratios are for the US industries. I am after similar data for the Australian industries. If anyone can point me to where to obtain it, I would appreciate very much.

    Again, thanks and best regards

  • Posted by mgoodman on Moderator
    I'm not sure I understand. You wrote: "By the way, if only a few places are at 62 degree (F) and the rest are different, then the average temperature is NOT 62."

    So let's assume there are 5 different locations in the world, and their temperatures are:

    42 52 62 72 82

    What would you say the average temperature is? Isn't it the sum of the observations divided by the number of observations?
  • Posted by mgoodman on Moderator
    An additional problem: Not all companies report advertising expenditures the same way. For example, some count co-operative advertising and some don't. Etc.
  • Posted by t.pham on Author
    you probably need to take into account the area that each temperature that was recorded and use that in your weighting scheme.

    the danger of looking at the number alone is that the analyst could mislead you, just like in your the example.
  • Posted by koen.h.pauwels on Accepted
    thanks, Tien, for the interesting point that advertising agencies only spend 0.3% of sales on advertising (Source: Jamie Turner). How far is that from optimal? If we use the formula of Wright (JAR 2009), the optimal ad spending = ad elasticity * % contribution margin * expected sales.

    So, if the contribution margin is 30%, an ad/sales ratio of .3 % would be optimal only if the ad elasticity is 0.01, 5 times less than the typical .05 across industries.
  • Posted by Shelley Ryan on Moderator
    Hi Everyone,

    I am closing this question since there hasn't been much recent activity.

    Thanks for participating!


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