Methods of Advertising Budget
Establishing an advertising budget is a crucial aspect of marketing strategy for businesses. Various methods can be employed to determine the appropriate budget allocation for advertising activities.
Key Facts
- Percentage of Sales Method: This method involves setting the advertising budget as a percentage of past or projected sales. The budget amount is calculated by multiplying the value of past year sales for the budget period with a predetermined percentage.
- Objective and Task Method: This method is based on the company’s advertising objectives. It involves identifying specific tasks that need to be accomplished to achieve those objectives and estimating the cost associated with each task. The marketing budget is then set based on these estimated costs.
- Affordable Method: In this method, the advertising budget is determined based on what the company believes it can afford. After considering all fixed and unavoidable expenses, the remaining funds are allocated to advertising. This method is commonly used by small businesses.
- Unit of Sale Method: The unit of sale method determines the advertising budget based on the number of units of product to be sold. A fixed sum is set aside for each unit of product, based on the company’s experience and knowledge of how much advertising is needed to sell each unit.
- Return on Investment Method: This method correlates sales and profits with advertising expenditure. The advertiser continues to spend on advertising until the return on investment reaches a normal rate of return. Advertising and promotions are considered investments that are expected to generate certain returns.
Percentage of Sales Method
This method calculates the advertising budget as a percentage of past or projected sales. The budget amount is determined by multiplying the value of past year sales for the budget period with a predetermined percentage. This method is commonly used by businesses with stable sales patterns and a history of advertising success.
Objective and Task Method
The objective and task method is based on the company’s advertising objectives. Specific tasks are identified that need to be accomplished to achieve these objectives, and the cost associated with each task is estimated. The marketing budget is then set based on these estimated costs. This method is suitable for businesses with well-defined advertising goals and a clear understanding of the tasks required to achieve them.
Affordable Method
In this method, the advertising budget is determined based on what the company believes it can afford. After considering all fixed and unavoidable expenses, the remaining funds are allocated to advertising. This method is commonly used by small businesses with limited financial resources.
Unit of Sale Method
The unit of sale method determines the advertising budget based on the number of units of product to be sold. A fixed sum is set aside for each unit of product, based on the company’s experience and knowledge of how much advertising is needed to sell each unit. This method is suitable for businesses with a consistent unit sales volume and a clear understanding of the advertising required to drive sales.
Return on Investment Method
This method correlates sales and profits with advertising expenditure. The advertiser continues to spend on advertising until the return on investment reaches a normal rate of return. Advertising and promotions are considered investments that are expected to generate certain returns. This method is suitable for businesses with a long-term perspective and a focus on measuring the effectiveness of advertising investments.
References:
- How to Set an Advertising Budget
- Top 5 methods of selecting advertising budgets for a cost-efficient media strategy
- Advertising Budget (Definition, Methods) | Process | Importance
FAQs
1. What is the percentage of sales method for advertising budgeting?
The percentage of sales method involves setting the advertising budget as a percentage of past or projected sales. This method is commonly used by businesses with stable sales patterns and a history of advertising success.
2. How does the objective and task method determine the advertising budget?
The objective and task method is based on the company’s advertising objectives. Specific tasks are identified that need to be accomplished to achieve these objectives, and the cost associated with each task is estimated. The marketing budget is then set based on these estimated costs.
3. What is the affordable method for advertising budgeting?
The affordable method determines the advertising budget based on what the company believes it can afford. After considering all fixed and unavoidable expenses, the remaining funds are allocated to advertising. This method is commonly used by small businesses with limited financial resources.
4. How does the unit of sale method calculate the advertising budget?
The unit of sale method determines the advertising budget based on the number of units of product to be sold. A fixed sum is set aside for each unit of product, based on the company’s experience and knowledge of how much advertising is needed to sell each unit.
5. What is the return on investment method for advertising budgeting?
The return on investment method correlates sales and profits with advertising expenditure. The advertiser continues to spend on advertising until the return on investment reaches a normal rate of return. Advertising and promotions are considered investments that are expected to generate certain returns.
6. Which advertising budget method is suitable for businesses with stable sales patterns?
The percentage of sales method is suitable for businesses with stable sales patterns and a history of advertising success.
7. What method is appropriate for businesses with limited financial resources?
The affordable method is appropriate for businesses with limited financial resources.
8. Which advertising budget method is suitable for businesses with a long-term perspective and a focus on measuring the effectiveness of advertising investments?
The return on investment method is suitable for businesses with a long-term perspective and a focus on measuring the effectiveness of advertising investments.