Before we launch into a tirade about advertising budgets (and give you examples thereof), let’s take a step back. What exactly is encapsulated by the term advertising? It differs greatly from marketing. Advertising is far narrower than marketing and should be treated as such. In fact, advertising is just one small part of marketing. If we are looking for a dictionary definition, then advertising is deemed to be the act of drawing the attention of the general public to a company, brand, service or product, by way of paid announcements in online, broadcast or print media. In other words: advertisements.
So, when we give examples of advertising budgets, these relate only to money spent on paid online, broadcast and print advertisements. They do not include other elements of the marketing mix like publicity and public relations or e-marketing and events.
Right, now that we’ve got that sorted, let’s get down to business: examples of advertising budgets. Obviously, advertising budgets need to include the cost of booking banner ads on websites, display ads in newspapers, radio spots and TV commercials. But let’s not forget about the hidden costs: graphic design, copywriting, talent fees and production. Determining how much to spend on all these costs can be difficult, particularly for a start-up business or if you’re investing in new advertising channels. That’s where an advertising budget comes in handy.
There are several ways to calculate your advertising budget. The most important thing to keep in mind is that, as your company matures and revenue increases, your advertising budget should be reviewed to foster continued growth. Here are a few examples of advertising budgets.
Competitor Matching
Carry out a really comprehensive competitor review. Work out where, and how often, your main competitors are advertising. Are they primarily opting for print ads or have they plastered every billboard between here and the moon with their logo? From this, you should be able to work out (around about) what your competitors are spending. To remain competitive in the same market, you may need to make sure that your brand is as visible as your competitors. You may need to match their advertising budget.
Percentage of Sales
Quite a lot of companies simply set a standard advertising budget, usually a proportion of their sales revenue. In general, this is around two to five per cent of all sales revenue. This can cause problems though. If you are a start-up business, without a steady revenue stream, this might not be the most sensible budgeting method.
Objective-Based
As the name suggests, set an objective for your advertising first. Maybe you want to increase online sales by 10%. Work out how much it will cost to meet this objective and then spend that much. Simple! This can work well for start-up businesses.
Total Maximum Amount
Simply decide on an amount that you want to spend on advertising, based on personal experience or intuition or management whims. Pluck a number out of the air, or a hat if you prefer. This is a fairly hit-or-miss budgeting method. It doesn’t take market factors or objectives into account and it isn’t really measurable. We wouldn’t recommend going with this method, but we know lots of companies that do.
Experimental
Try your hand a few different types of advertising. Increase spending if any one method seems to drive more sales than another. This one could be re-named the ‘suck-it-and-see’ example of advertising budgets.
As you may have worked out, none of these examples of advertising budgets really hits the mark. So, instead of making such a cut-and-dry decision, we think a better approach involves asking yourself a series of revealing questions. These questions should help you create a realistic, effective advertising budget that can deliver on your broader marketing objectives. Sounds good, hey?
First up, who exactly are you trying to reach with your advertising? Are they male? Female? Both? Are they old or young? Do they catch public transport? Do they read the newspaper online? Or do they prefer the print version? What radio station do they listen to? Are they avid social media users? It’s only once you’ve answered all these questions that you can answer the most important one of all:
What type of media does your target audience pay attention to?
There are so many media choices out there. You have to choose the right one. Grandma is unlikely to flick through Facebook updates and little Johnny, the 16-year-old skater dude, is just as unlikely to listen to ABC talk-back radio. The right medium is vital.
Answering the rest of the questions should be simpler:
What type of appeal will work best to get your target audience to buy? Emotional? Rational?
Will the profit generated by the advertising outweigh the cost? No point in advertising, just for the sake of advertising.
Is advertising really right for my brand, service or product? Is it really going to increase profit? Sometimes word of mouth or publicity or direct marketing are more appropriate.
How long has your brand, service or product been around? Unknown brands will usually need to spend more on advertising to create awareness first.
Sally has worked in marketing, communications, and PR for over 15 years. She is the Chief Wordsmith at Wordly: a copywriting and content marketing agency that works predominantly with WordPress powered websites.
