Allyson Godwin plans on setting up a small business where she will offer quilting lessons, sell material and quilting kits that she will create, and market her own creations. Last year her quilting skills earned her $2,000

She estimates that quilting as a full-time business will earn $10,000 during her first year. She has budgeted five percent of her sales estimate to be spent on promotion. What promotion method is Godwin using? What are the advantages and disadvantages of this method?

Godwin is using the percentage-of-sales method. The advantage of this method is that it reinforces the idea that spending on promotion is related to profits. Unfortunately, this method can imply that sales caused promotional outlays rather than viewing sales as the outcome of promotional efforts. If sales are not as high as estimated, Godwin may be reluctant to spend more on promotion even though the decrease might be due to some environmental change that could be countered with increased promotion.