Baumols sales maximization model is can be appraised based on the fact that it boosts production levels, maintains relatively low costs, and aims to use advertising spend to drive even higher revenue.
On the flip-side, Baumol’s assumption that a sales-maximiser will almost constantly produce and advertise more than a profit-maximiser, is widely recognized as being flawed.
In reality, very few firms apply Baumol's theory as it was strictly intended, however there are plenty of principles that firms should take heed of.
Here are a few that will help you truly see Baumol's sales theory as a true alternative:
1. Declining sales are of great concern to any firm.
2. Once a firm's sales figures weaken, they will struggle to find funding in the forming of capital injection, banks, or loans.
3. Firms often have to deal with suppliers pulling out.
4. Unpopular products don't fly off the shelves, they will struggle to make revenue.
5. Firms tend to cut cost in human resources when sales figures fall.
6. According to the principles of economies of scale, a firm stands to earn the most profit through expansion.
7. The salaries that employees and management recieve are usually related to earnings.
