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Help! Markdown Budget

Help! At a recent seminar you used the term "Markdown Budget" and discussed the need for an advertising budget. I am having difficulty determining an advertising budget and I never heard of a markdown budget. Can you explain these and give me an idea of what the budget should be?
You are referring to two items I introduced during a financial planning workshop. Both programs are important to your bottom line.

One program (the markdown budget) helps to keep your merchandise fresh. The second program keeps your name in front of the customer.

I advise budgeting 3% to 5% of your planned gross sales per month for markdowns. Then, at the end of each month, you will go through your inventory and use the budget to markdown shopworn items, slow selling merchandise, and other items that you wish to quickly sell. If you do not use the budget (but you should try to use it), the unused dollars return to your bottom line. Frequent markdowns of this sort help to keep your shop fresh and provide surprise discounts for your customers. In addition, selling the merchandise quickly increases your stock turn and converts problem items into cash to be used for new goods that can generate profitable sales.

Planning an advertising budget requires a bit more analysis. For an established business I suggest an annual budget of 3% to 7% of your planned annual sales. If you are planning a special event, the number may reach 10% to 12% of your planned sales. Once you have determined the budget amount, you need to create a 12-month plan of events that you would like address. You may have to trim some events if your plan is too aggressive or, you may have to expand your program because your plan requires it and your budget will allow it.

Advertising programs can be deceiving and initially discouraging. The normal reaction is to expect an immediate return on the advertising dollar investment. If an instant positive response is not realized, the gut reaction is to kill the program and cut the budget. This is the worst thing you could do. Many times, customers visit the shop and purchase something other than the advertised items. These sales are difficult to track because they do not come from the promoted goods.

In addition, it is difficult to determine success "short-term." Advertising campaigns generate interest that may continue for weeks after the initial ad breaks in the trading area. For that reason, you need a long-term vision for evaluating the effects of any advertising/marketing campaign.

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