Local businesses must strategically plan their advertising budgets to stay competitive in 2024. It’s all part of the buying cycle. This guide explores various methods for determining advertising expenditures, recognizing that there’s no one-size-fits-all approach. What is best for your business?
Percentage of Sales Method:
Overview: This method allocates a fixed percentage of total sales revenue to advertising. The percentage may vary based on industry standards or historical spending trends.
Pros:
Easy implementation and adjustment based on business performance.
Cash flow friendly.
Cons:
It’s not ideal for start-ups or seasonal businesses.
This may result in insufficient spending for significant sales growth.
Objective and Task Method:
Overview: Businesses define specific advertising objectives and allocate budgets based on the tasks required to achieve those goals. For instance, a plumbing service aiming for a 20% revenue increase might plan tasks like radio ads, social media campaigns, and promotional offers.
Pros:
Allows strategic budget allocation tied to business objectives.
Cons:
Requires a clear understanding of advertising goals, which is challenging for inexperienced marketers.
Competitive Parity Method:
Overview: Businesses set their advertising budget to match or be proportional to their competitors’ spending in the same industry.
Pros:
Provides a benchmark against industry competitors.
Cons:
Assumes competitors’ budgets are accurate and doesn’t account for individual business needs.
Affordability Method:
Overview: Businesses set advertising budgets based on affordability after covering operational expenses and desired profit margins.
Pros:
Ensures advertising aligns with overall financial health.
Cons:
It may limit business growth and lacks goal orientation.
ROI-Based Method:
Overview: Businesses allocate budgets based on expected return on investment (ROI) from advertising, requiring tracking and analyzing past campaign performance. Here is an excellent guide to ROI marketing.
Pros:
Ties advertising spend directly to measurable results.
Cons:
Requires reliable data and time for interpretation, not suitable for inexperienced marketers.
Fixed Sum Method:
Overview: Businesses allocate a fixed sum for advertising, regardless of sales or competitive factors.
Pros:
Simplicity and ease of implementation.
Cons:
It may not align with business goals or industry standards.
Seasonal Fluctuations:
Overview: Businesses adjust budgets based on seasonal trends or peak demand periods.
Pros:
Allows flexibility based on business cycles.
Cons:
This may result in inconsistency if not carefully monitored.
Expert Consultation:
Overview: Businesses seek advice from marketing experts to determine an appropriate budget based on industry standards, market analysis, and business goals.
Pros:
Leverages local expertise and industry knowledge.
Cons:
It can involve an additional budget for consultation fees, requiring well-thought-out goals and business insight.
Combining these methods or a custom approach based on specific business needs often proves most effective when setting advertising budgets. Regular quarterly evaluations and adjustments based on performance, market conditions, and evolving business goals are crucial for success. Remember what Ben Franklin said: “If you fail to plan, you are planning to fail!”
Jeff Caves is a sales columnist for BSM working in radio and digital sales for Cumulus Media in Dallas, Texas and Boise, Idaho. He is credited with helping launch, build, and develop Sports Radio The Ticket in Boise, into the market’s top sports radio station. During his 26 year stay at KTIK, Caves hosted drive time, programmed the station, and excelled as a top seller. You can reach him by email at jeffcaves54@gmail.com or find him on LinkedIn.
