How To Calculate Your Advertising Budget

How To Calculate Your Advertising Budget

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Advertising is an Investment, Not an Expense

How much should you spend on your yearly advertising budget?

Ask 10 companies and you are likely to receive 10 different answers.

The process of determining an annual advertising budget can certainly be a challenge. Spend too much money on advertising and you could put the financial future of your company at risk. Spend too little on advertising and you will not bring in enough new business to stay in business. It is a delicate balancing act that you must learn to master to succeed in business.

Factors Affecting Advertising Spend

A variety of factors can affect the amount of money that you choose to allocate to your annual advertising budget. If your business happens to be seasonal in nature, then you will naturally spend less money during the off-season to advertise your business than you would during the peak of your season. Advertising costs can also vary according to industry and even according to the region of the country in which your business is based.

Advertising as a Percentage

Many companies find that the most effective method for establishing an advertising budget is to establish it as a percentage of the total amount of revenue that the business brings in. The beauty of this method is that it ensures that advertising is actually based on profits.

Unfortunately, the drawback to this method is that it can be difficult to establish if you are just starting out in business. If you are a new business, you might opt to keep the starting point for your ad spend relatively low and then increase your investment in advertising as profits increase.

Another method for calculating your advertising budget is to base it on the percentage of your profit margin on the products that you sell. If you want to ensure that you do not spend more money on advertising than the profit that you bring in, this can be an effective way to do so.

Don’t do it this way…

Whatever method you choose for determining your annual ad budget, do not make the mistake of spending what you think you can afford.

Throwing too much money at advertising can be risky. Being too conservative because you think you cannot afford to invest in advertising can keep your company from growing.

As you can see, there is more than one way to determine an annual advertising budget. What works for one business may not work for another. The key is to find a method that works for your business while ensuring that your company is receiving the exposure it needs to continue growing.

If you’re not comfortable with creating your own ad budget, then contact us.

We’ll guide you through our process of setting concrete goals and realistically allocating funds towards proven strategies that can achieve them.

Most importantly, we will ensure that progress toward those goals, and ultimately ROI (return on your investment) is measured so that you’ll know exactly what is working, and what isn’t.

 

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