Maximizing Profitability with Cost-Benefit Analysis in Advertising Budgeting: A Case Study on Blueberry Designs

Blueberry Designs has been establishing their communications budget by taking the gross margin minus advertising expenditures to identify profits. As they plan for the next fiscal cycle, they will monitor each quarter using this formula continuing to spend advertising/promotional dollars as long as the marginal revenues created by these expenditures exceeded the incremental advertising/promotional costs. They are demonstrating

marginal analysis.

a cost-benefit analysis approach to budgeting.

A cost-benefit analysis is a process used to evaluate the pros and cons of a specific decision or activity by comparing the anticipated costs against the potential benefits. In the case of Blueberry Designs, they are evaluating their communications budget by subtracting their advertising expenditures from their gross margin to calculate their profits. This calculation allows them to determine the effectiveness of their advertising budget by assessing whether the revenue increase they gain from their advertising is higher than the cost of creating and running the advertisements.

Additionally, Blueberry Designs has adopted a quarterly monitoring approach to determine the effectiveness of their advertising budget. This approach allows them to reevaluate their budget regularly and adjust their advertising strategies to ensure they are continuing to generate a profit.

Overall, Blueberry Designs’ approach can be considered a cost-benefit analysis because they are evaluating the benefits of their advertising (marginal revenues) against the costs associated with it (incremental advertising costs). By continuing to spend advertising dollars only if the marginal revenues exceed the incremental advertising costs, the company is prioritizing profitability and effective budget allocation.

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