The Economics of Online Marketing

Establish an A/S Target

Let’s continue using the advertising-to-sales ratio (A/S) as our profit surrogate. What’s the right A/S efficiency for your online business? Rule of thumb: Catalogers typically spend 80 percent of sales on cost of goods and marketing combined. The profit and loss statement logic here is that if marketing and cost of goods sold consumes 80 percent of sales, and variable selling expense and overhead each consume another 7 percent or 8 percent, then about 5 percent is left as pretax profit.