Advertising Budgeting

21/03/2020 3 By indiafreenotes

An advertising budget is an estimate of a company’s promotional expenditures over a certain time period. More importantly, it is the money a company is willing to set aside to accomplish its marketing objectives. When creating an advertising budget, a company must weigh the value of spending an advertising dollar against the value of that dollar as recognized revenue.

An advertising budget is part of a company’s overall sales or marketing budget that can be viewed as an investment in a company’s growth. The best advertising budgets and campaigns focus on customers’ needs and solving their problems, not company problems such as an overstock reduction.

A budget is an expression in monetary terms of the forward plan and the proposed activity. Advertising plan includes, sales targets, product facts, marketing information, competitive situation, creative platform, copy treatment etc. The advertising budget is the translation of an advertising plan into monetary form. It states the amount of proposed advertising expenses and informs the management of the organisation the expected cost of executing the advertising plan.

The advertising budget should concentrate on the following two aspects:

  1. It should be constructed considering the financial strength of the organisation.
  2. Specific operational activities should be identified and detailed allocation of funds should be specified.

The budgetary process should follow the steps listed below:

  1. Preparation of budget
  2. Presentation and approval of the budget
  3. Execution of budget, and
  4. Monitoring and controlling of the budget,

Advertising Budget and Goals

Before deciding on a specific advertising budget, companies should make certain determinations to ensure that the budget is in line with their promotional and marketing goals:

  • Target consumer: Knowing the consumer and having their demographic profile can help guide advertising spend.
  • Type of media that is best 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.
  • 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.
  • Expected profit from each dollar of advertising spend: This may be the most important question to answer, as well as the most difficult.

Importance of Advertising Budget

The objective of a company which markets its products is to earn profits and increase brand awareness. Advertising objectives of a company is purely dependent on the advertising campaign, type of customers, advertising media and what the company wants to achieve. Hence, for any marketing activity that a company wants to do, it has to spend some money. This is why advertising budget is important. It helps in understanding the objectives. The costs, helps to formulate strategies and generate profits by increasing the overall sales.

Factors Affecting Advertising Budget

Advertising is one of the variables which affect sales and hence the profit earned. It is therefore difficult to calculate the amount to be allocated for advertisement budget. Also the budgeting depends on various other factors like:

  1. Degree of competitiveness in market: Monopoly/Duopoly/Oligopoly

A monopoly firm does not have to worry about the promotional spends as it is the only player in the market. For duopoly, where market is dominated by two dominant players, the promotional budgets would be high to outperform each other. In an Oligopolistic market, where the market is cluttered and there are many players, promotional spends has to be higher as the frequency of advertisements has to be increased to get noticed among so many players. Thus depending upon the competition the advertising budget is set.

  1. Market Share: Market leader/Market Follower

The advertising budget for a market follower will be decided by the tactics of the market leader. To improve market share one of the investment is to increase promotional spent. Thus, where a company stands is a deciding factor in advertising budget

  1. Product life-cycle stage: Introduction/growth/maturity/decline

The advertisement budget would be higher at the introduction and growth stages as it has to introduce the product in the market and establish itself among the competitors so the frequency of advertisements would be high and so would be the budget. As the product reaches maturity and decline stages the promotional spent would be lower.

  1. Advertising Frequency

An ad can be played only once or can be be multiple times. Also, it can be daily, weekly, fortnightly, monthly etc. Depending upon the requirement, the advertising budget is altered.

Advertising Budget Process

There are certain steps which can be followed in creating an advertising budget. They can be explained as below:

  1. Understanding advertising objectives based on the goals which have been set by the company.
  2. Determine the tasks, ad campaigns which could be done.
  3. Formulating, evaluating and preparing the breakup of advertising budget.
  4. Taking approvals form the senior management.
  5. Allocation of funds for different activities under the advertising budget.
  6. Monitoring and controlling the expenditure and revising it for better profit.

Process of Advertising Budget:

The advertising budget is a statement of the advertising plan in financial terms. It is the allocation of available funds to various advertising functions after determining the total funds available for advertising pur­poses during a specified period.

The budgetary process involves:

  1. Prepara­tion,
  2. Presentation,
  3. Execution, and
  4. Control.

1. Preparation:

The total expenditure on advertising is estimated on the basis of the information of markets, product, pricing, image, message and media. The determination of the total funds is the first step in budget­ing, which is known as budget appropriation. The determination of ad­vertising appropriation depends on the existing sales, the unit of sales, and the expenditure on advertising and affordable capacity.

After determining the appropriation, the next step is to specify the expenditure to be incurred on each function of advertising. The allocation of appropriation to different advertising activities in made on the basis of the contribution to advertising and the attitude of the management.

Thus, the total budget is cut into small budgets for each advertising function. Advertising budgets are prepared for each market segment, time and geographic area.

2. Presentation:

The budget prepared by the advertising manager is presented to the marketing manager who decides the rationale and the contribution of the budget components. The budget is modified on the basis of the prevailing marketing conditions and management requirements.

The top executive may also fix the budget and budget components. The financial manager is consulted before this decision is taken. The budget is modified in the light of sales forecast, sales opportunities and the role of advertising in capturing the market share. The advertising plan is then formulated for the final budget.

3. Budget Execution:

The execution of the budget is done through routine activities. The cost of advertising, production, purchase of adver­tising time and space and other functions are considered. Constant sur­veillance and periodic checks determine whether the advertising norms are implemented and budgets properly utilised.

The budgets are prepared in the light of the normal marketing conditions. If the conditions change, the budgets are changed accordingly. Contingency funds are provided in the beginning, which are used during times of need.

4. Control of Budget:

The advertising budget should not be less than the advertising expenditure. The expenditure is compared with the provision in the advertising plan. No larger amount should be spent unless the advertiser is constrained to do so in the light of existing conditions. The planned expenditure and the actual expenditure should be on parallel lines.

The budgeted expenditure on advertising should be used only for advertising purposes and not for other purposes. Since sales promotions include several functions other than the advertising function, the adver­tising budget should be used only for the advertising purposes and not for other sales promotion strategies that is, on personal selling, merchandising, packaging, public relations, etc.

There should be a separate budget for each sales promotion strategy. When the budget is exhausted by other functions, the phenomenon is known as budget attrition, which should be avoided. There are some combined expenditures on sales promotion which may be drawn from the advertising budget.