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How to create an advertising budget


An advertising budget is a big deal. You will get more results with good advertising than you ever will paying the salary of one sales man. So, let's jus say for fun your average sales person makes $60K a year. If you take that $60K and use it for advertising, your results will be higher.

This does not mean you can eliminate sales people, in fact on the contrary. The better your advertising budget the more sales people you will need. Why? Because your advertising will get people ready to buy your product, and you will want those sales people out selling it to the people who want it.

Ok, so how do you determine your advertising budget? Well, first let's look at home most people determine their advertising budget. Usually people decide their advertising budget one of four ways:

  1. By matching the competition. The thinking is that if you spend the same amount on advertising as your competition you won't lose any of your market share. This is very ineffective as how much you spend is not nearly as important as how you spend it, and matching someone else's advertising budget is irresponsible. Do your own research and determine what is best. This method is also flawed in that it assumes absolute marketing parity with the competition, which rarely exists. And it fails to account for fundamental differences such as geography, number of sales reps, dealer relationships, etc.
  2. Because someone says so. Believe it or not, for many companies, the advertising budget is simply decreed. The president of the company evaluates available resources, past advertising budgets, very frequently other spending priorities, etc. then allocates an "appropriate" amount. This amount has nothing to do with research on advertising, or what might be best.
  3. The Percentage of Sales Method: this is a more abstract method which relates the advertising budget to some arbitrary percentage of revenue. So, in other words, if your advertising does well and you sell more, then you will have more money for advertising, and if you sell less, then you get less advertising. Does that even make sense? NO!
  4. The Preferred Outcome Method. This is probably the best method for creating an advertising budget, even if it is not always used. In this method you consider known data and reasonable assumptions tempered by judgment and common sense to reach a realistic budget that will achieve the desired marketing results.

When creating an advertising there are a few things you should do:

  • You should never create a budget that the company cannot implement. That would be what we call a monumental waste of time.
  • Determining a reasonable level of expenditure. Do this by reviewing previous years and making adjustments, or if you do not have previous years by using other methods.
  • If you have no past to go from, try the percent of sales technique as a starting place.
  • Use sales data to help in creating an advertising budget. For example: Current year sales. Forecast sales. Moving average of sales (averaging the current year's sales results with forecast sales). Or, desired sales.
  • When you create your advertising budget, look at reality and the way products and services are pre-sold by advertising.
  • When you create your advertising budget, be sure to always look at your competition. What's their market share. Most importantly, what share of the prospects' perception do they own?

If you want to create your advertising budget based on actual costs first define your marketing objectives, then list the best marketing communication options to meet those objectives, whether that is in print, song, picture, etc. Then decide and list the possible delivery media for each communication option, radio, newspaper, determine! Once you do this it is time to do some simple addition. Just add up the costs, and make that your budget.

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