Advertising budget:- Well advertising efforts of any brand are adversely affected by the budget that it has to offer to make the advertising means work. The advertising budget is what that determines the maximum number of ways, which a business can deploy for the advertisement of its name and its products. This is what that makes it important for the advertisers to learn each and everything about the factors that affect advertising budget along with the features that characterize a successful advertising campaign and the proper way to set up an effective budget.
Factors Affecting the Advertising Budget
- Company’s Current Situation
The primary factor that affects the budget set by the company for advertising purposes is the current situations that the brand is currently in and the problems that it is facing for the time being. It is obvious that a business which started recently will have to focus a greater part of its advertising budget to promote its products as compared to a company that’s already in the market for a longer period of time.
On the other hand, competitive environments also have a great effect on the budgeting policies and the strategies. Take it this way like a company that is surrounded by competitors all the way round often needs to set its budget higher than those with a lower number of competitors. In this case, advertising gives your promotional means a huge boost and makes them stand apart. But then again, competitiveness of advertisements is the next hurdle for most of the brands out there, so they need to push even harder to achieve what they want to achieve.
- Role of Advertising
In most of the companies, advertising is just meant to be a way to bring in more visitors and drive more sales, but for some companies, it’s just like the primary way of gathering customers for their products. In both cases, advertising is supposed to be a necessary expense. This means that the advertisers are fully aware of the importance of advertising, but this also uncovers that they want to keeps the costs of advertisements at their minimum, while on the other hand optimizing them to gain as much as possible.
In some cases, advertising can be used to get out of the harsh environments until everything cools down and returns to normal, but also in some cases, a company can put more emphasis on advertising, than it does on anything else to keep its progress and reputation up all the time.
- Budgeting Method
Well! Definitely, budgeting method also belongs to the factors that affect advertising budget. Since customers taste change with time and so do the trends. Thus, keeping an eye on those changing trends and putting forward a method that counters those changes by varying the advertising means can pay off later next time. Once, the advertisers get the feel of how to tackle the changes, they will be able to make use of advertising means properly, which will bring down the budget needed for advertisements to bring the same number of buyers or even more with the same budget level.
Among all of the methods, percentage-of-sales method is the most common one and involves setting up a percentage of about 3-5% of the revenue of the current year as the budget for the next year. This means the fluctuations in the number of sales will surely modify the budget.
It is quite natural for a small company that is able to generate 100,000$ on the yearly basis to be able to afford a smaller advertising budget as compared to large multi-national companies with revenue in millions. Large companies may not find it difficult to run international campaigns for the promotion of their products. On the other hand, for smaller businesses, allocating 2000-3000 $ for promotional purpose every year is really huge amount to spend and is a difficult task to manage
Steps to Formulate an Advertising Budget Process
- Determining the Potential of Competitors
If you want to be able to come up with an advertising budget strategy that is able to beat most of your competitors’, you should be aware of what your competitor is doing, how much of their revenue is spending on advertisement and how much potential competitors have to bring the most out of these strategies. Moreover, knowing the means which rival is making use of, will also let you know their strengths and weaknesses.
- Setting up a Budgeting Method
If your business is already established, then going on with fixed price advertising will provide you a stable way to sustain your position and to make further progress, just like a stepping stone. But if your business is new, then objective based method will do better for you, since it lets you focus your current objectives and helping you achieve them one by one. In this way, your brand will be able to set up its feet firmly in the market.
- Determining the Maximum Amount to Spend
In this step, objectives are set depending on how much the advertiser wants to spend, whether their business is an established one or planning to step into the market. This part of the process is somewhat complex one since it involves the hit and trial method and needs the foresight of the advertisers to cross the barrier.
- Exploring the Options
It is quite a wise idea to test the depth of waters before diving in, since in this way if anything bad ever happens, it won’t affect the budget that much. Furthermore, it will only open up the way for you to test the effectiveness of your strategies.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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