Advertising Budget

Advertising Budget Definition

An advertising budget is an amount set aside by a company planned for the promotion of its goods and services. Promotional activities include conducting a market survey, getting advertisement creatives made and printed, promotion by way of print media, digital media and social media, running ad campaigns etc

Advertising Budget Basis

The advertising budget of a company is based on the following factors:

• Type of advertising campaign that it intends to run
• Selection of target audience
• Type of advertising media
• Company’s objective of advertising

Process of Creating Advertising Budget

Following steps are followed to set up this budget –

• Setting advertising goals based on the company’s objectives.
• Determine the activities that are required to be done.
• Preparing the components of the advertising budget;
• Getting the budget approved by management;
• Allocation of funds for activities proposed under the advertisement plan;
• Periodically monitoring the expenses being incurred on the advertising process;

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Advertising Budget Methods

Most common methods are discussed as follows:

• Percentage of Sales: Under this method, the advertising budget is set as a percentage of either the past sale or expected future sales. Small businesses usually use this method.
• Competitive Parity: This method advocates that a company sets an advertising budget similar to the one that is set up by its competitor to yield similar results.
• Objective and Task: This method is based on the advertising objectives under this method. Once the objectives are decided, the cost is estimated to complete those objectives, and accordingly, a marketing budget is set.
• Market Share: In this method, the advertising budget is based on the market share of a company. For a higher market share, less marketing budget is set.
• All available Funds: This is a very aggressive method under which all available profits are allocated towards advertising activities. This method can be used by start-up businesses that need advertisements to attract customers.
• Unit Sales: Under this method, the cost of advertisement per article is calculated and based on the total number of articles, it is set.
• Affordable: As the name suggested, the company sets its budget based on how much it can afford to spend.

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Factors Affecting Advertising Budget

• Existing Market Share: A company having a lower market share will require to spend more on its promotional activities. On the other hand, companies with larger market shares can spend less on their promotional activities.
• Competition level in the industry: If there is a high competition level in the industry in which the company operates, then the advertising budget would be required to be set on a higher side to get noticed by audiences. In case monopoly exits or where there is the least level of competition involved, the company will need to invest less in marketing.
• Stage of the Product Life Cycle: It is a well-known fact that in the initial introduction stage and growth stage of a product or service, more amounts would be required for advertising. While in the later stages of the product life cycle, the need for advertising will decline.
• Decided frequency of Advertisement: Advertising budget will also depend on how frequently a company wants to run its ads. Frequent ads will call for a greater budget.

Strategies

 Let us have a look at some strategies a company can follow.

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• Social Media Marketing: One can start by making profiles of the businesses on social media platforms like Facebook and Instagram, which can help to reach out to larger audiences in a cost-effective manner.
• Referral Benefits: In this strategy, you ask your customers to refer your business pages to their friends and family. You provide referral benefits and points when such referrals are buying the products. This way, your customers do the marketing for you.
• Content Marketing: Start a blog and update interesting content that attracts your audiences. This strategy, combined with other strategies, will draw benefits to the business.
• Email Marketing: This strategy will depend on how strong and relevant your database is.
• Pay per click ad: In this strategy, you pay per ad which you run on social media platforms. Based on your selected target audience, the ad is run and reaches the audience.

Advantages

Let us have a look at some advantages a company can follow.

• It helps to understand the requirements of advertising and allocating budget toward each necessary activity.
• The overall advertisement expense of the company remains monitored, and it ensures that actual expense remains within a prescribed limit.
• When the budget is followed, it is ensured that the advertisement activities are done as per advertisement goals only, and no unnecessary expense is incurred.
• Each advertisement activity is kept under supervision and remains controlled well within budget.

Disadvantages

• An inaccurate budget can attract unnecessary costs since the target of the budget would not be met.
• It may be a costly affair for companies.
• Since advertising costs will also be ultimately recovered from the customers, the prices of the products will increase.

Importance of Advertising Budget

Ever wondered why companies spend so much on running advertisements? Well, the company intends to attract the audiences towards their brand name by way of advertisement. Advertisement helps a company to reach out to larger audiences and introduce them to the company’s products and services. Because of this, the sales increase, which enables the company to earn more profits. It is important that before setting the advertising budget, the company’s objective is understood.

Conclusion

A company should set up its advertising budget after understanding and evaluating its advertising objectives and the need for advertising.