Show me the money
There are two primary methods of determining your advertising budget more specifically. First is the cost method, which theorizes that an advertiser can’t afford to spend more than he has. In my experience, this seems to be the most popular method used in associations.
The second method, the task method, is used when associations base their advertising budgets on the amount of money needed to attract the customer or sell the product. An association using the task method typically determines how much money is needed based on past expenses to produce results.
Start small
Unless you are launching a national campaign, build your advertising budget based on local and regional pricing and opportunities. Consider advertising opportunities with other professional organizations. For example, a local charity sponsors a chamber of commerce event. Chambers have business people who are more than willing to share their time, talents, and checkbooks. Sometimes the results can be two-fold: a donation and a new volunteer for your cause. Word-of-mouth advertising could be the best dollar you ever spent.
What will this cost?
Your budget will determine when and where you can advertise. There are four basic ways to determine what your budget should be. And don’t forget, your budget doesn’t just include media costs, but production costs as well.
Task Objective Method – This is just a way of saying, how much you have to spend to reach your objective. For example, you want to reach 50 percent of your audience. How many people do you have to reach? How many times do you have to run an ad? How much does each ad cost?
It identifies how much and what kind of media can be purchased at various budget levels. It selects a level that buys what is desired for the brand. Tracking past results and replicating past successes represents another way of pricing the brand’s ad budget.
Historical Method – This method uses a base budget and then increases the budget each year by a certain percentage. For example you have $10,000 to spend this year, then next year you increase it 5% to be $10,500.
Percent-of-Sales Method – For this, you can take a percentage of your sales as your advertising budget. The tricky thing is that you have to forecast your sales. Here is the formula to help you along:
Step 1: Past Advertising Rupees = % of Sales
Past Sales
Step 2: % of Sales X Next Year’s Sales Forecast = New Advertising Budget
(Average advertising budget will run about 20% of your sales.)
Combination Method – You are never stuck with one method. Many companies chose multiple methods and pick a plan that is right for them. You need to evaluate your situation. How much can you afford and what will it take to reach your objectives?
Affordable Method –
•Funds remaining after budgeting for everything else are dedicated to communications
Problems:
•No strategic orientation
•Can lead to under- or over-investment in advertising
When most of us try to determine how much to invest in the future we go through the same drill. Based on how much we make, we deduct our monthly and special expenses, put a little emergency money aside and the rest gets invested (if anything is left over). We invest sometimes for a quick return, but for the most part we are looking assure our future with equity. Marketers do much the same thing to arrive at advertising budgets, since they represent an investment in both the short and long-term future of their brand.
Among the many methods employed is the Share of voice method to determine the budget allocation, wherein the budget is set by spending to a share of media money spent in the marketplace among all competitors in the brand’s category. And there is the good old A/S ratio where the marketer examines the amount other competitors in the category spend in relation to sales and then approximates that level for his own brand. Sometimes, in a fit of even-handedness, all of these methods are used and a compromise is struck.
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