One of the most difficult jobs as a small business owner is determining how much to spend on your advertising plan. Trying to decide how much advertising is enough, can be daunting.
Traditionally, ad budgets were set as a percentage of sales. A sales goal was determined and a percentage was assigned for advertising. Sometimes the number was determined from industry standards.
The problem with this technique is that it is based on the idea that sales cause advertising instead of advertising results in sales. If sales should increase year to year, the ad budget goes up. But if sales decrease, the ad budget is lower at a time when it should probably be higher.
Another method for determining ad budgets is based on competitive spending. Competitive spending reports are available through many local broadcasters. These reports provide an estimate of competitive spending across radio, TV, and newspaper and are specific to advertisers and industries.
Deciding to spend based on competitor's budgets in an attempt to increase market share can be effective if the products and or services are similar and the marketing goals are compatible.
To determine your ad budget there are 5 questions to consider.
1. What is the role of your advertising? Is it expected to do the sales job alone? Drive customers to your store or website? Build brand awareness? If it is expected to do all the sales, it should be much higher than if it is part of a combination of marketing elements.
2. What are your short and long term goals? Your ad budget is really an investment if your goal is to build an image rather than make immediate sales.
3. What are your profit margins? Products or services with high profit margins can mean bigger ad budgets.
4. Are you advertising a new business or product? Competing with established brands or companies will mean higher budgets to impact your target audience.
5. How much are your competitors spending? It may mean you need to spend as much or more than your competition to meet your goals.
Establishing a reasonable budget is never easy, but often is limited by the dollars available to advertise. If your budget is smaller than you would like, it is extremely important to allocate your dollars effectively and efficiently. Success will mean bigger budgets as your business grows.