Advertisement Budget

ADVERTISEMENT BUDGET
Definition
An advertising budget is an amount set aside by a company
planned for the promotion of its goods and services for a
specific time period. Promotional activities include
conducting a market survey, getting advertisement creatives
made and printed, promotion by way of print media, digital
media, and social media, running ad campaigns, etc. This can
be viewed as an investment in a company's growth. An
advertising budget is important for a successful marketing
plan. Your ad budget is the amount you plan to spend on paid
promotion of your brand and/or products over a set time
period, such as a year or a quarter. The best advertising
budgets—and campaigns—focus on customers' needs and
problems and on providing solutions to these issues.
Before deciding on a specific amount, companies should

make certain determinations to ensure that the advertising
budget is in line with their promotional and marketing goals:
1. The target consumer — Knowing the consumer and
having their demographic profile can help guide
advertising spend.
2. Best media type for the target consumer — Mobile or
internet advertising, via social media, may be the
answer, although traditional media, such as print,
television, and radio may be best for a given product,
market, or target consumer.
3. Right approach for the target consumer — Depending
on the product or service, consider if appealing to the
consumer's emotions or intelligence is a suitable
strategy.
4. Expected profit from each penny of advertising
spending — This may be the most important question to
answer, as well as the most difficult. How much you
spent and how much earned is a difficult process to
calcite.
The Three Pillars of the Advertising Budget

1. Situational Analysis
A situational analysis identifies the challenges and
opportunities facing a company both internally and externally.
The structured analysis breaks down the company, the
customers it serves, and the competition in the market. It
relates socio-cultural, technological, economic, and political-
regulatory trends to a company’s operations. Ultimately, the
situational analysis sets the framework for the development of
a company’s strategic plan.
2. Segmentation, Targeting, and Positioning (STP)
A segmentation, targeting, and positioning (STP) analysis
identifies potential opportunities for an organization to pursue.
Segmentation is the process where customer groups are
identified. The customer groups are formed by sorting through
geographic, demographic, and psychographic variables.
Targeting involves selecting the most attractive customer
groups. Factors that influence how attractive a consumer
group can be market size, spending power, or even customer
loyalty. Once market segments are ranked, the most valuable
are targeted.
Positioning requires developing strategies pandering the target
markets. The previously completed situational analysis
provides background information to build a positioning
strategy. The purpose of the positioning strategy is to ensure
that the value proposition connects with the targeted market.
A thorough STP analysis is critical in maximizing the impact
of an advertising campaign. In addition, it is important to
formulate streamlined strategies to reduce excess costs.
3. Return on Investment
Quantifying an advertising campaign’s impact on a
company’s operating income is critical to understanding the
relationship between advertising expenditure and revenue
generation. A cost-benefit analysis is commonly conducted to
assess the net financial benefit of a project undertaken.
Steps of Budget
1. Setting advertising goals based on the company’s
objectives.
2. Determine the activities that are required to be done.
3. Preparing the components of the advertising budget.
4. Getting the budget approved by management.
5. Allocation of funds for activities proposed under the
advertisement plan.
6. Periodically monitoring the expenses being incurred
during the advertising process.
Importance of Advertising Budget
Setting an advertising budget ahead of time allows an
organisation to anticipate its expenses for long-term business
planning. Planning out your budget allows you to be
deliberate about the scale of your advertising—number of
channels, size of audience, length of campaign, and more.
Without deciding on a budget ahead of time, you may risk
either losing track of expenses and overspending on
advertising, or not having enough budget set aside to advertise
at all. Both can potentially limit your business’s ability to
grow.
Ever wondered why companies spend so much on running
advertisements? The company intends to attract audiences to
its brand name through advertisement. Advertisement helps a
company reach out to larger audiences and introduce them to
its products and services. Because of this, the sales increase,
which enables the company to earn more profits.
It is important that before setting the advertising budget, the
company’s objective is understood.
1. It helps to understand the advertising requirements and
allocate the budget toward each necessary activity.
2. The company’s overall advertisement expense remains
monitored, ensuring that actual expense remains within a
prescribed limit.
3. When the budget is followed, it is ensured that the
advertisement activities are done as per advertisement
goals only, and no unnecessary expense is incurred.
4. Each advertisement activity is kept under supervision
and remains controlled well within budget.
Advertising Budget Methods
The most common methods are discussed as follows:
Percentage of Sales: Under this method, the advertising

budget is set as a percentage of either the past sale or expected
future sales. Small businesses usually use this method.
Competitive Parity: This method advocates that a company
sets an advertising budget similar to the one set up by its
competitor to yield similar results.
Objective and Task: This method is based on the advertising
objectives of this method. Once the objectives are decided, the
cost is estimated to complete those objectives, and
accordingly, a marketing budget is set.
Market Share: In this method, the advertising budget is
based on a company’s market share. For a higher market
share, less marketing budget is set.
All available Funds: This is a very aggressive method under
which all available profits are allocated towards advertising
activities. This method can be used by start-up businesses that
need advertisements to attract customers.
Unit Sales: Under this method, the advertisement cost per
article is calculated and based on the total number of articles,
it is set.
Affordable: As the name suggests, the company sets its
budget based on how much it can afford.

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ADVERTISEMENT BUDGET

Before deciding on a specific amount, companies should

The Three Pillars of the Advertising Budget

The most common methods are discussed as follows:

Percentage of Sales: Under this method, the advertising

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