Advertising Budget Details

An advertising budget is a crucial marketing tool that any organization worth its salt must be willing to have. Companies view it as an investment into its growth rather than expenditure, per se. An advertising budget that is considered successful focuses on solving the consumer's needs rather than focusing on solving the company's problems.

The marketing department of a company is usually in charge of any promotional business of the organization, including setting an advertising budget. Before settling on a budget for advertising, there are various factors that the department should keep in mind.

  • Who is the target consumer? Understanding your consumer's demographics helps determine the spending of your advertising campaigns. How old are they? Where do they shop? What is their spending power? The answers to these questions give companies a clear picture of their target consumer's demographics.
  • What media will you use to advertise? Traditional media such as TV, print, and radio may cost a lot more than new-age advertising methods. Using social media may be more affordable, but you have to consider what media your consumers consume more.
  • What type of campaign is the company running? Experiential marketing may require a larger budget than billboard advertising would. Additionally, using influencer marketing versus Facebook posts will push a budget upwards.
  • Campaign duration. Are you looking to run a tactical advertising campaign over a shorter time or a thematic campaign that runs longer? The duration that advertising campaigns will run will directly impact the size of your budget.
  • What impact will the advertising campaign have on sales? The profit likely to be earned from a single advertising campaign will advise the budget set aside for it. The relationship of these two factors must be symbiotic to realize any real benefits from the investment in promotion.

Example of Advertising Budget

Firm A notices that its competitor firm B has gone on an aggressive marketing campaign. If firm B's productroduct competes directly with firm A's product, the marketing team will meet. They will decide to take on an equally aggressive advertising strategy.

Firm A may do qualitative market research on the effect of Firm B's advertising on their own sales. Based on the results of their research, Firm A will set aside a certain amount of money to start its advertising campaign. These funds constitute an advertising budget. It may be for a short burst of advertising or a sustained marketing effort to counter Firm B's advertising efforts.

Significance of Advertising Budget

A company that hopes to make profits will spend on advertising. If ever there was a quote that summed up the importance of advertising, it's this one by Steuart Henderson Britt. "Doing business without advertising is like the dark. You know what you are doing, but nobody else does."

Here are four reasons why having an advertising budget is of great significance to a company.

  • It controls advertising expenditure. Spending without a budget is a recipe for disaster, and you will spend more than you planned to. With an advertising budget in place, your company will avoid wastage of funds. It will also be easy to track the expenditure used in advertising campaigns.
  • Provides advertising direction. A well-executed advertising budget has all the details down to the media to use for the promotional campaigns. It will help the marketing team stick to the plan without shifting their focus mid-campaign with such a guide.
  • Uniform focus. If an organization has a varied selection of goods and services to advertise, an advertising budget will help to focus on each of these products without neglecting any. Should there be a need to push one product more than the other, the funding will capture this and ensure the program is followed to the letter.
  • Assists in setting objectives. Why does your firm need to advertise? Suppose you are introducing a new product into the market or responding to competitor advertising. In that case, your budget will help to set the correct advertising objectives to meet, as well as measurable timelines.

Types of Advertising Budget

Companies have different reasons for setting advertising budgets. To this end, there are different types of budgets to suit the needs that your company may have for a promotional period or financial year. These are three of the most common advertising budgets that companies use regularly.

Competitive parity method

In this type of budget, a company sets its expenditure on marketing against its competitors' perceived spend. If your company sets its funding to the same level as the competitors, the purpose should be to reclaim market share or maintain the company's current stake in the market. If you go higher, then you should forecast your sales to increase more than your competitors.

Objective and task method

Under this type of advertising, the company sets specific advertising goals to determine the amount spent on promotional methods. The marketing department breaks down the advertising campaign into actual tasks, assigns a cost to them, and adds them to an advertising budget. This is one of the most cost-effective strategies to use.

Percentage of sales method

This method is commonly used by small businesses, thanks to its simplicity. It entails taking a percentage of past sales and committing this to the company's current marketing efforts. An organization may also use a forecasted sales amount to get a rate they will use in their marketing campaigns for the financial year. Critics of this method advise small businesses not to use forecasts but instead use past sales to develop their advertising budget.