How to Calculate and Create an Advertising Budget

Advertising | |By: Denise DeSimone

Creating a budget is one of the most important components of a successful ad campaign…along with determining your target audience, telling your brand story… Can you see where I’m going with this? Your eventual success requires you to pay attention to multiple moving parts and pieces, all of equal importance.

Here’s the thing though—you can’t stay within an advertising budget unless you’ve created one. And you can’t create an advertising budget without calculation and forethought. I promise it’s not too difficult.

Here are some methods that will help you create a realistic advertising budget that sets your campaign up for success.

1. Percentage of Gross Sales

This one is fairly easy. Take last year’s gross sales and allocate a percentage of that figure as your advertising budget—most businesses will set aside between 2 and 5%.

This is a very safe and extremely straightforward way to calculate advertising budget while mitigating your risk of running into the red.

Keep in mind, this method relies on using your past sales data, so if you have a newer business or a start-up, it may not work for you.

2. Product Price

In this equation, you’ll multiply how much a specific product costs by how many you want to sell. For example, if my product costs $1.00, and I want to sell 1,000 products, my advertising budget would equal $1,000. Here, the cost of selling the product will rely on your experience and industry averages.

This method works best for businesses that sell a range of products or for those that can only supply a limited number of products per year.

3. Goals and Objectives

You can create an advertising budget by looking at your marketing objectives and determining the costs of meeting them. If you can’t afford to carry out all tasks, prioritize them and focus on the most important ones.

This is a great way to determine the precise costs for your campaign. On the flip side, you run the risk of leaving zero wiggle room in your budget if your campaign runs into any issues.

4. Industry Standard

Using the industry standard is an excellent option for businesses with predictable sales patterns. But, you could miss out on opportunities by ignoring local market forces and changes.

Benefits of Using an Advertising Agency

If you’re struggling to determine the best course of budget action, it’s worth investing calling for backup. Advertising professionals can help you set a reasonable budget, and you can leverage professional expertise to create an effective advertising strategy to maximize that budget. Most businesses are more likely to achieve a higher ROI with an advertising agency than if they go it alone.

Remember not to over-extend yourself financially, even if you feel the campaign is worth the investment. All campaigns will carry some level of risk, so if the worst happens, you don’t want to be left in the red with no way out.

Unlike many other business costs, your advertising costs are not set in stone. If you don’t have a plan in place, those costs can quickly spiral out of control. Set your advertising budget upfront so you can ensure you stick to it.

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