Before discussing the cost of advertising and the factors which influence its cost, and before going on to discuss ways of arriving at a budget of advertising costs, let us face up quite frankly to the perennial question: who pays for advertising? The answer to this question is one of the keys to the determining of expenditure on advertising.

In any business, there are only three people, or groups of people, who can pay for running a business and making a profit. They are the investors, who include both the bank which permits an overdraft and the supplier who provides credit; the business-persons who may use their own capital plus the income they earn; and those who buy their goods or services. If the business fails, the investors fail and in effect pay the bills through their own losses. If the business succeeds everyone profits and everyone is satisfied.

Only if a businessperson sells goods or services at a price higher than his costs, it is possible for him to make a profit. His costs include his selling effort, which may mean renting a shop, hiring a salesman or advertising in the local newspaper and these promotional expenses can be multiplied according to the size of the business. If he is to recover these costs and make a profit they can come from only one source, the customer who pays the price for the goods or services.