Future Business Leaders of America (FBLA) Advertising Practice test

An advertising budget based on sales is known as?

1. Percentage of sales method

2. Objective and task method

3. Market share method

4. Response model

The correct answer is: Percentage of sales method

An advertising budget based on sales is primarily characterized by the percentage of sales method. This approach involves setting the advertising budget as a fixed percentage of past sales or anticipated future sales. This method is widely used by companies because it ties the budget directly to the company's sales performance, making it easier to justify expenditures based on revenue. The effectiveness of this method is rooted in its simplicity and the rationale that advertising efforts should correspond to the revenue generated—if sales increase, the budget will also increase in proportion, aligning advertising spend with growth opportunities. This can help ensure that advertising investment remains within the means of the company while also allowing for expansion when sales are strong. Other methods, while valuable in their own contexts, do not directly link the advertising budget to sales in the same straightforward manner. For instance, the objective and task method involves setting a budget based on the specific goals and objectives the advertising campaign aims to achieve, which may not have a direct correlation with sales figures. The market share method focuses on achieving a certain market share, while the response model predicts the advertising budget based on the expected response to advertising efforts, such as customer engagement or conversion rates. Each of these methods has its own merits but does not specifically define an advertising budget as being solely based on