What is an Advertising Allowance?

An advertising allowance refers to money (allowance) that manufacturers of products pay retailers to publicize their products. Advertising allowance comes in diverse forms, while some manufacturers or service providers pay money to retailers, others offer retailers discounts on products or service purchased as a form of compensation. The Advertising allowance method is used by manufacturers who need to get news about their products out there through retailers. The money paid covers expenses incurred by the retailer in the course of marketing products. Retailers are not paid advertising allowance arbitrarily, rather, there are requirements they must meet before they can access the allowance. For instance, a manufacturer can require that retailers present proof that they advertised their products as well as converting some advertisements to sales.

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How is an Advertising Allowance Used?

Payment of advertising allowance to retailers is a mechanism used by manufacturers and service providers to promote sales and increase profit. This allowance serves as an incentive for retailers to push products to clients, thereby popularizing the brand of a manufacturer. Advertising allowances are paid in exchange for advertisements done by retailers, discounts given on products purchased by retailers is also a form of advertisement allowance. Other terms for advertising allowance are "marketing co-op allowance" or "promotional allowance." Payment of this allowance to retailers helps producers boost the recognition of their products which will increase sales and profit margin.

Advertising Allowance in Practice

Usually, the amount of advertising allowance that a manufacturer pays to a retailer is based on the number of purchases made or the extent at which the retailer markets the goods of the manufacturer. Advertising standards and practices differ from one manufacturer to another, certain manufacturers are restricted to specific advertisement practices. But generally, manufacturers pay advertising costs to retailers who help them push their products forward. Before a retailer can be eligible to receive an advertising allowance form a manufacturer, the company must approve the advertisement and the retailer must present evidence of actually carrying out the advertisement.

Advertising Allowance Example

Company A manufactures textbooks and notepads for college students, Retailer A has a book store in some colleges. Company A can have an agreement with Retailer A to help advertise its products across colleges in exchange for advertisement allowance which can either be paid in cash or paid in form of a discount to retailer A when purchasing textbooks and notepads for sale. The advertising allowance method can be used by manufacturers across different industries.