When should a company increase spending on advertising?

A company should increase spending on advertising when the increased cost is less than the incremental return. This principle emphasizes a cost-benefit analysis in marketing investments. If a company can demonstrate that the new advertising expenditures will generate more revenue than the costs incurred, it makes sound financial sense to invest in advertising. This approach ensures that the company is optimizing its marketing budget to yield greater sales and profitability.

When the incremental return from advertising exceeds the additional costs, it indicates a favorable return on investment. This scenario fosters growth and market presence, allowing the company to capitalize on increased visibility and brand awareness, which can lead to higher sales volume over time.

While sales figures being high or marketing channels being saturated can inform strategic decisions, they do not necessarily provide a direct rationale for increasing advertising expenditure in terms of profitability. Similarly, equating advertising costs with total profits does not present an actionable financial strategy since it overlooks potential returns from increased spending.