How to create an advertising budget

Advertising budgets consist of the money that a company is willing to set aside to execute their marketing goals. A company must weigh the trade-off between spending additional advertising dollars with the amount of revenue that the dollars will bring in.

The price to advertise your company can become expensive. There are four methods used for setting an advertising budget:

1. Fixed Percentage of Sales– Start with last year’s total gross sales or average sales for the past few years, then set a specific percentage of that figure for advertising. Most businesses set aside between 2% and 5% of annual revenues for advertising.

2. Comparable to the Competition– Adopt the industry average for ad budgets for your company. Many trade associations and industry publications can provide the average amount or percentage companies spend on advertising. 

3. Objectives and Task-Based– Begin by setting specific marketing objectives and deciding on the tasks required to meet those objectives. (Example: Increase out-of-state clients by 5% using online promotions.) Then determine your budget by estimating the costs of carrying out those tasks. If you can’t afford to fund all your ideas, rank them and focus on the top few.

4. The Maximum Amount– A lot of fast-growing businesses put their faith in this strategy, which advocates setting aside just enough money to sustain the business, then spending the rest on advertising. 

Yet, the biggest decision to make in regards to your advertising plan is to decide on going in-house (working within your own company) or going external and working with an advertising agency.

Advertising internally simply means creating the material within your own company, rather than paying commission to an outside agency. An external agency is independent of the client and can provide an outside point of view. There are advantages and disadvantages of both advertising options that range from banking and experience prospect to time and economic prospects.

Consistent and different elements affect small businesses and huge companies in the same way. Both will ultimately weigh the pros and cons, and decide collectively on how they want to deal with their advertising. Both types of companies need to have ideas of what they want, what they can afford and what will have a better outcome for their businesses.

The essential elements of an advertising budget are simple. You need to have, and develop, a budget, know your audience and how to best market to them, and look at the overall message. By having an effective and creative message that reaches your desired audience, you are more likely to expand your customers and reach out to more people.