You need to know how to allocate resources appropriately to achieve business goals when setting up an advertising campaign. Setting an effective advertising budget requires businesses to use many different methods. How to set an advertising budget? What are some budgeting methods? Please follow the article from Optimal FB below to get answers to these questions!
What is the advertising budget?
It is the amount of money a business spends on advertising products, services, or brands through different advertising channels in a certain period. Advertising activities include television advertising, print media advertising, online advertising,…
Businesses need to make a necessary financial investment to reach their target audience and achieve marketing objectives. It is also considered a measure of a business’s planned spending to accomplish its marketing goals.
Your advertising budget is the deciding factor in the type of campaign your business will create, and it impacts the strategy your brand deploys.
To determine the advertising budget, you need to choose the advertising objective. This factor will impact the advertising budget by providing information for choices such as advertising channels, target audience scale, advertising types, etc.
Additionally, you can estimate the advertising budget through a media plan or consider costs from previous campaigns.
Why is advertising budgeting important?
If you want to learn about some methods of advertising budgeting, you first need to understand the importance of budgeting.
Setting an advertising budget in advance allows you to predict costs for long-term business planning. When planning advertising, you can determine the advertising scale, number of channels, target audience reach scale, campaign duration, etc. If you do not set a budget in advance, it can cost you money. Advertising fees exceed the financial resources that the business has.
Furthermore, budgeting while running advertising helps you set specific financial goals for your team. This is the basis for you to track and evaluate the success of advertising campaigns and the goals achieved. Knowing how to budget and manage campaigns will improve economic efficiency.
When planning the budget for advertising, helps you be proactive in campaign implementation and better control costs. By monitoring all costs incurred in different campaigns and activities, you can use resources effectively and prepare financial resources for unexpected situations.
Moreover, the advertising budget affects business profits in two aspects. First, the advertising budget indirectly affects the success of advertising and sales, increasing revenue and profit. In addition, it also determines the cost that the business wants to allocate to advertising campaigns.
What are some budgeting methods?
After understanding the importance of advertising budgeting, the question arises: “How to set an advertising budget?”. There are several methods used to set an advertising budget. The choice of the most suitable method depends on the business situation and scale.
Percentage of sales method
This is one of the popular methods for setting an advertising budget. According to this method, the amount spent on advertising is decided based on sales. The advertising budget is a specific percentage of the revenue a company has.
Sales revenue can be current or projected. Sometimes, past sales revenue is also used as a basis for determining the advertising budget. This method is quite simple and safe but still has certain limitations. When the budget is decided based on existing capital rather than market opportunities.
This advertising budgeting method is only suitable for businesses with stable and predictable sales revenue. Or units that want to ensure consistent advertising spending.
Competitive parity method
Businesses will calculate the budget based on the advertising expenditure of competitors or the industry average. Depending on the business’s goals, the budget level may be equal to or higher than the average of competitors.
This method assumes that the advertising budget is correlated with sales revenue. If the company calculates a higher budget, the company will achieve higher sales revenue than competitors.
Such assumptions are inaccurate because sales revenue is not always proportional to the advertising budget. In addition, this budgeting method also considers the audience’s response to different advertisements, whether owned by the company or competitors.
Objective and task method
Business objectives play an important role, so this budgeting method is considered the most reasonable and is used by large businesses. In this case, the company sets its advertising budget based on the activities or tasks performed.
The main benefit of this method is that it allows businesses to connect advertising expenses with overall marketing objectives. To be able to set an advertising budget using this method, businesses need to set specific advertising goals. Then, it is necessary to determine the specific resources and activities required to achieve these goals. After that, businesses need to determine how much each activity will cost and aggregate them to get the total cost.
Reasonable method
With this approach, the advertising budget will depend on the business’s ability to spend on advertising. Specifically, the budget will depend on the financial resources of the business. That is, the stronger the financial situation of the company, the larger the budget for advertising.
When applying this method, businesses only allocate advertising budgets if they have allocated other expenses. I If the company has enough remaining money, the company will spend that amount on advertising. This happens because businesses lack an understanding of the role of advertising. They believe that advertising is tactical, not strategic, and therefore does not require much attention.
Market share method
Similar to the competitive parity method, the market share method builds a budgeting strategy based on external market trends. Accordingly, businesses need to balance their market share with advertising costs.
Experts say that relying solely on market share numbers may not fully reflect a business’s future goals. That could potentially lead to suboptimal budgeting decisions. Companies with lower market share will have to spend more on marketing and advertising if they apply this budgeting method.
Return on investment method
The advertising budget is determined based on the expected return on investment (ROI) of the advertising campaign. The focus is on maximizing the financial results from advertising expenses. This budgeting method is suitable for businesses focused on ensuring profitability from their advertising investments.
Negotiation method
This budgeting method will involve negotiating budgets with media outlets based on their value to the company’s advertising campaign. This approach gives businesses more flexibility and budget control.
How to plan the advertising budget for 2024
After learning about some budgeting methods and choosing a suitable budgeting method, you need to create a plan and allocate the budget properly to improve the performance of the campaign and achieve the set goals. The details of the process of planning and allocating the advertising budget are as follows:
Define overall campaign goals
At this step, you need to clearly define goals that are measurable and aligned with your business objectives.
Evaluate past advertising campaigns
Here, you should review previous advertising campaigns and pay attention to advertising costs, advertising results, and the ROI of previous campaigns. In addition, conduct A/B testing to see which combination of content and copy works best.
This will help you identify where your advertising campaigns are working and where they need improvement. From there, you can gain clear insights for future advertising strategies.
Research target audience
Take the time to research the target audience your advertising is targeting through the following criteria: location, age, behavior, interests, etc. This is a significant factor that determines the effectiveness of the advertising campaign and its impact on the budget. Because no matter how good and attractive the advertisement is, if it is not suitable for the target audience, it does not bring any value.
Determine the advertising budget
Based on the budgeting method you chose above, decide how much to spend on each ad. You need to pay attention to setting the advertising budget appropriately to ensure that the advertising is displayed and distributed to the right target audience.
Allocate the budget across channels
It would help if you decided which channels and formats will effectively reach the target audience and achieve your goals. This includes television advertising, print advertising, online advertising, social media advertising, video advertising, etc. After deciding on the channels and advertising formats, calculate and allocate the advertising budget to the channels in a reasonable manner.
Set time milestones and key milestones
Establish timelines and milestones for your advertising efforts. This will help you measure progress and make adjustments as necessary. However, you need to regularly monitor and evaluate your budget and strategy to ensure that you achieve your business goals.
Adjust advertising campaigns
Based on reviewing market conditions and the results of previous campaigns, you should adjust your advertising strategy when necessary. Adjusting budgets and targeting processes helps maximize results. This way, you can set and plan a budget to achieve goals and effectively reach your target audience.
You have the answer to what are some budgeting methods when running ads. Hopefully, this information will help you successfully implement advertising campaigns with high efficiency.
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Frequently asked questions
The percentage budgeting method is related to allocating a percentage of previous sales or projected sales to the advertising budget. It is a simple approach often preferred by small businesses due to its simplicity.
There is no specific number or formula that can calculate and evaluate what the best advertising budget is. Because the best advertising budget is the one that matches the business’s goals. Each advertising channel will have different deployment strategies and costs to meet the set goals. Based on this, you can determine the best advertising budget for your campaign. At the same time, you also need to ensure that relevant business owners and leaders can agree and approve the proposed budget.
