How much should you spend on advertising?
It is a well known fact that advertising is a must for any business to initially be launched/established, then to grow, and also to be sustainable in the long run.
There are many forms of advertising, and it is important to decide what type of advertising is best for your brand. This decision needs to be taken considering the brands’ audience, the nature of the brand and the expected returns of the campaign.
In any form of advertising, a question that all marketers need to answer is “how much should I/we spend on this advertising campaign?”
Here are some methods of setting advertising budgets.
- Setting aside a fixed percentage of revenue
Many companies resort to this method of budgeting, which involves making a management decision on what percentage of the company’s revenue will be allotted for advertising every year and then use this.
Although this method maybe easy to understand and gives perspective to your spend with respect to the earnings, it is not that successful in a unpredictable situation. It may result in losing opportunities to capitalize on sudden shifts in consumption patterns etc, or could result in an undue spending of funds for not-so-lucrative campaigns simply because they were set aside at the start of the year.
- Mirror against Competition
Another popular method of setting advertising budgets is to look at the industry/competition. A brief audit on the rough spends of competitors on advertising and the returns they are seen to be obtaining is a good method of deciding budgets. This method is also directly linked to returns. However, the returns of advertising also depend on the brand and setting budgets according to competition/industry averages may not guarantee the same results for your organisation.
Another disadvantage of this method is that like in the above method, companies may miss out on opportunities to boost market share by rigidly sticking to a particular figure.
- Focus on Objectives
One of the best methods of setting a budget is to go back to your objectives. How much you should spend depends greatly on where you want to be. For example, if one of your objectives is, “Increase social media presence by having 10,000 likes on the company’s Facebook page”, your budget for advertising should be aligned with getting to that 10,000 figure.
However, this might not be the most cost-effective method for setting budgets since it only focusses on the results, and may cause over spending. Moreover, if the campaign is not successful, the amount of money lost would definitely higher if budgeting is done using this method.
- Setting aside the maximum
Another common method of setting budgets is to set aside the maximum the company needs for the sustenance of the business, and use the balance for advertising and promotions. This method may not be very successful as the value allocated for advertising may be way over or under the appropriate amount, leading to severe over/under spending.
To above budgeting methods can be summarised using the table below.
|Setting aside a fixed percentage of revenue||
|Mirror against Competition||
|Focus on Objectives||
|Setting aside the maximum||
When considering the pros and cons of all the above methods, the most appropriate method seems to be “Focussing on Objectives”, since it is strictly results-oriented. Proper management of the risk factor may reduce the risk associated with the project.
Created: November 18th, 2013