Understanding Advertising Budget
Understanding advertising budget as a business, whether selling a product or providing service(s), creating a marketing plan helps outline how you will inform, persuade or remind the customers about what your business offers. An essential part of this plan includes coming up with a budget for advertising expenditures.
At Greentrail Media we understand that an advertising budget is an estimate of a company’s promotional expenditures over a certain time period. It is the money a company is willing to set aside to accomplish its marketing objectives. Therefore, it’s important to understand that the best budget (and/or campaigns) focuses on customers’ needs and solving their problems, not company problems.
Factors that affect a Company’s’ Advertising Budget
Every company’s budget differs. Hence, we bring you certain factors that have an effect on the ads budget. No matter how small.
Marketing objectives vary across organizations and can greatly affect what appears on a company’s advertising budget.
The target market you’re trying to reach has an impact on your advertising budget. Once you define your target market, you gain adequate insight that highly impacts your budget.
Knowing the consumer and having their demographic can help guide your spend.
Time of Advert/Campaign
Advertising pricing may change during different times of the year, such as a new season or during popular holidays. While some advertisers may offer discounts, others will increase their prices if they feel their readership or viewership may peak during specific times or events.
Type of Media employed
Determine what type of media best suits your advert project/campaign, and this will directly affect your budget. Whether, it be mobile or internet advertising, social media advertising, email ads, paid search, or maybe traditional media, such as print, television, and radio, etc., find the best fit.
Projected Sales profit from Advertisement
Of vital importance, is the calculated Return-Of-Investment (ROI) that will accrue from investment. Hence, a direct impact on the budget.
Methods of Setting an Advertising Budget
Here we highlight some adopted methods. They include
1. Percentage of Sales Method
Most commonly used method. Here, the amount for advertising is decided on the basis of sales. The budget is a specific percent of sales, current or anticipated. So, therefore, if I got sales of $1000, hence the budget is thus 10%, i.e. $100.
2. Objectives and Task Method:
It considers the company’s own environment and requirements. As a result, the manager develops his promotional budget by firstly, defining specific objectives, secondly, determining the task that must be performed to achieve them, and thirdly, estimating the costs of performing the task. The sum of these costs is the proposed amount for the advertising budget. This is the most appropriate ad budget method for any company.
3. Competitive Parity Method:
This method considers the competitors’ advertising activities and costs for setting her budget. The budget is fixed on the basis of the advertising strategy adopted by the competitors.
4. Affordable or Fund Available Method:
This method is based on the company’s capacity to spend. It is based on the notion that a company should spend on advertising as per its capacity. The budgetary allocation is made after all expenses have been met. The advertising budget is treated as the residual decision. If the fund is available, the company spends; otherwise, the company has to manage without it.
5. Expert Opinion Method:
Many marketing firms follow this method. Both internal and external experts estimate the amount to be spent for a given period. Internal experts involve the company’s executives, such as the General manager, marketing manager, ads manager, sales manager, distribution manager, etc. Whereas external experts involve marketing consultants, dealers, suppliers, distributors, trade associations, advertising agencies, and other professionals related to the field. Experts, on the basis of the rich experience in the area, can determine objectively the amount to be used.
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