Economic modelling experts and marketing academics are well aligned when it comes to how much brands should spend on advertising.

Malcolm Wright has derived the following formula for calculating the ad spend that will deliver peak return on investment (see his paper published in the Journal of Advertising Research in 2009):
Advertising Elasticity X Contribution Margin X Target Total Brand Revenue

Your brand's historic advertising elasticity can be measured via econometric modelling. Alternatively, you could use the average figure which is 10% for an established brand i.e. a 10% increase in sales for a 100% increase (=doubling) in ad spend. See Dr. Dominique Hanssens's Empirical Generalizations About Marketing Impact handbook for more details.

If your brand has strong creative, your advertising's sales elasticity will be higher so your peak ROI will be achieved at a higher % of turnover.

As a rule of thumb, peak ROIs occur if a brand spends 5-10% of its total revenues on advertising. However, the majority of brands underspend. According to a Nielsen report, brands spend, on average, just 3.8% of their revenues on advertising.

Check out this LinkedIn thread for a useful discussion about this topic.

​What to learn more? Try asking Virtual Dan White.

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