Content
- Definition of the Advertising Budget
- Components of the Advertising Budget
- Methods of Forming the Advertising Budget
- How to Calculate the Advertising Budget
- How to Properly Distribute the Advertising Budget
- How to Avoid Wasting the Advertising Budget
Definition of the Advertising Budget
The advertising budget represents the funds that an organization allocates for promoting its products or services over a specific period, whether it be a year, a month, a quarter, or a separate advertising campaign. The size of this budget is determined based on the set goals, the channels used, and various factors affecting the business.
Components of the Advertising Budget
When calculating the advertising budget, it is crucial to take into account all planned advertising expenses. This category includes:
- Cost of Online Advertising Placement: includes contextual, targeted, search, and banner advertising, publications in online media, and native content on partner resources.
- Direct Advertising Costs: includes expenses for outdoor advertising, announcements in print publications, on radio, and on television.
- Cost of Producing Advertising Materials: includes the production of souvenirs, printing brochures and flyers, creating videos, and other advertising content.
- Expenses for Advertising Events: covers the organization of various promotions for potential customers, giveaways, and events, as well as other marketing activities.
- Additional Expenses: includes other costs related to launching advertising campaigns, such as employee and contractor wages, analytics costs, and other expenses.
The composition of the advertising budget and expenses may vary depending on the specifics of each business.
Methods of Forming the Advertising Budget
There are several methods for forming the advertising budget, each suitable for different business situations:
- Fixed Amount: the organization allocates a specific amount for advertising regardless of financial performance. This method does not consider goals and objectives.
- Percentage of Profit: the advertising budget is determined as a certain percentage of profit for the period (usually 5-15%). As profit increases, so does the advertising budget.
- Percentage of Sales: in this case, a fixed percentage of sales volume is allocated, based on average annual revenue.
- Leftover Principle: the remaining funds after covering all expenses are allocated for advertising, making this method less effective.
- Considering Competitor Actions: the budget is formed based on competitors' advertising expenses, if such information is available.
- From Market Share: considers the share held by the company in the market, and allocates a corresponding portion of total industry expenses for advertising.
- From Objective: a specific objective determines the size of the budget for the advertising campaign, which is the most effective method.
Based on the objectives, the company can create a development strategy, determining in which months to focus on attracting new customers, and when to concentrate on increasing LTV and retargeting.
How to Calculate the Advertising Budget
Calculating the advertising budget requires a thorough analysis of many metrics, including average check size, profit margin, and product cost. While this article will not delve into detailed instructions, we recommend reviewing materials on the following topics:
- How to calculate the advertising budget for existing and new businesses — simple formulas.
- How to calculate the advertising budget for an online store.
- How to calculate the advertising budget: rules, methods, and examples.
For a more accurate calculation, it is important to consider additional factors such as the product life cycle, level of competition in the niche, and types of advertising channels.
How to Properly Distribute the Advertising Budget
After determining the total advertising budget, it is important to distribute it wisely across different areas. It is recommended to use the 70-20-10 method:
- 70% — for proven channels with documented effectiveness;
- 20% — for testing new campaigns with high potential;
- 10% — for experiments with unconventional channels for the business.
At the same time, it is useful to focus on the ROMI (Return on Marketing Investment) metric, which will help identify the best channels for investment.
How to Avoid Wasting the Advertising Budget
To minimize the risk of unnecessary advertising expenses, follow several recommendations:
- Determine the maximum amount that can be allocated for marketing.
- Select priority products for promotion, focusing on those that require more advertising.
- Set clear marketing goals for each campaign.
- Launch test campaigns to evaluate the effectiveness of creatives.
- Reallocate funds based on campaign results.
If advertising does not yield results, it is important to analyze the target audience, identify the unique selling proposition, and understand how your product solves customer problems. This will help improve the strategy and achieve success in future campaigns.