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Setting An
Advertising Budget
July, 2010

 

 

Many of my clients come to me with a long marketing wish list. When the question arises regarding budgets, the blank stare back from across the table tells me that they haven’t incorporated marketing as a viable part of their business plan. Setting advertising, marketing, and sales budgets help to keep the business on target with its projected financial goals. The fuzzy area is that these projected numbers are just that, hazy and unclear. For new businesses, the numbers are based on best guesses and some strategic estimation on what the overall market has seen. The true results may be tragically off – a very scary prospect. It’s no wonder that advertising and marketing are often the last items up for consideration.

Where to begin?

Start with your monthly operations budget and sales revenues. The cost of your advertising will be covered by increased sales, so it’s important to plan advertising efforts at the times when your target market wants to purchase most. Depending on the type of business you operate, you can spend anywhere from 1% to 20% of your sales. Pharmaceutical companies can spend upwards of 20% of their overall budget on advertising and promotions while large blue chip automobile manufacturers like Ford will only spend 1% of their sales to advertise. For example a boutique bath soap company will need to spend higher on consumer-focused advertising efforts than a business to business service-based company might.

The Small Business Administration (SBA) and SCORE recommend two ways to calculate advertising budgets.

  1. Fixed percentage of sales - How much money do you need to promote the sale of a certain product at a given price? The SBA uses the example that if you spend $10 of the selling price of an item that cost $300 on advertising, then you should be willing to spend $3,000 in advertising to sell 300 units and generate $90,000 in sales.

  2. Flat percentage - The other way is to set aside a flat percentage of your total projected sales revenues for advertising. So if you plan to dedicate five percent of your revenues and you expect to bring in $100,000 in sales that year, you would spend $5,000 on advertising.

Once you have a handle on the total amount you can budget for advertising and promotions, you need to calculate the best time to launch your marketing efforts over the next 12-18 months. The SBA has free sample worksheets and templates that you help you budget for advertising.

Additionally, there are several other options for creating a budget amount:

  1. Competitor Match – A little research and a fair amount of cash on hand are required for the business to match or even exceed what the competition is spending on advertising. This thought process also excludes the effectiveness of the advertising in lieu of straight frequency and amount of advertising.

  2. Residual – After all expenses, whatever funds remain are used for advertising. This approach is short sighted as in a bad year, very little advertising will occur and in a good year an excessive amount of marketing and advertising will be run. Again, this method does not take into account target markets, sales projections or even the launch of a new product or service.

Marketing a Consulting Firm

A small nursing educator firm wanted to launch some of their instructional games at conferences and their web site but didn’t really know where to begin. They knew that their web site was out of date and didn’t market them or their products as effectively as it could. After gathering advertising options, they listed the possibilities along with the base costs in order of their preferences.

Advertising

Revised web site with e-commerce - $6,000

Print Advertising in Niche nursing journals -

full page - $8,520
½ page - $5,500

Direct mail to purchased list of registered nurses -

list - $4,000, letter printing - $12,000

Marketing flyers - $1,000

Display for conferences - $300 ea, (need 3)

Online ad banners w/American Journal of Nursing - $1,125/min. monthly flight

Social Media - free to use, but requires time to manage.

Promotions

E-mail offers - $50/month

Free product sample coupon - $50/month ($0.10 ea)

In reviewing the business budgets, the owners decided that print advertising in the targeted niche publications was cost prohibitive. Their first priority was to revamp their web site including the addition of a new e-commerce shopping cart tied directly to their accounting and distributions systems. The time saved on accounting and distribution tasks would repay itself in less than one year and allow for new product development and additional speaking engagement bookings. A new web site would also enable the duo to inexpensively send e-mail newsletters and promotions to those who had subscribed either at previous conferences or online at the old site.

It is important to mention the inherent value of Search Engine Optimization (SEO) in improving web site visibility on search engine rankings like Google and Yahoo!. As long as the web site is being redesigned, now is also a perfect opportunity to rewrite the site with SEO in mind. Make sure the content is ‘keyword’ rich based on terms that potential visitors would type into a search. If you’re unsure how to do this yourself, there are numerous SEO agencies that can provide assistance.

Since the firm received the bulk of its sales through nursing conventions and symposiums, they agreed to increase their branding presence with new trade show banners, a branded table cloth and marketing flyers promoting their new product line of educational games.

Now that the new web site is operational, the owners also decided to step into social media. Tools used would include starting a blog, implementing a Twitter campaign, a YouTube channel where promotional speaking engagements could be viewed and brief ‘Nursing Minute” segments would be available, and building a Facebook page where contests, appearance schedules and other educational articles could be posted. To help manage the social media effort, a local college intern would be brought in to help assist with the day-to-day articles and posts while each of the partners would agree to post to Twitter and Facebook from the road. The addition of Skype and WebEx abilities would enable the firm to hold online conferences and face-to-face post-conference follow up sessions with clients also reducing travel and increasing communication with their clients.

If you have decided that advertising is the best way to reach your target audience, it’s now time to consider what type of buy you will make. Let’s review the lingo so you know what you’re agreeing to and where to find the greatest potential discounts.

Frequency Discounts

Advertising success relies heavily on three things; a good offer, a good ad and repetition. Many advertisers will offer discounts based on the total number of advertising time/space purchased.

Per Inquiry

This arrangement allows the advertiser to pay for advertising based on response and sales rates.

Help if Necessary

The advertiser is allowed to continue advertising until a ‘break even’ has happened.

Cash Discount

Some advertisers will provide a discount for advance cash payments or payment within 10 days.

Remnants and Regional Editions

If you’re in a niche market like the nurse educators, you’ll find the ad rates significantly higher than other publications. The good news is that sometimes there will be regional editions that have space available at a discount or ad spaces that are left unfilled, called remnants. These remaining spaces are offered at a significant discount, often 40 to 50% off, very close to publishing time.

Barter

For years, radio was famous for working barter deals with their customers. Trade your services for air time and it’s a win-win for both parties. Today, the barter deals are a little less common, but they do still exist in the right markets. Ask your sales representative what opportunities are available.
Setting budgets can help your business run more efficiently, increase sales, and even alleviate stress because you’ll know where your business stands and what to expect in future months.

To learn more about setting an advertising budget, talk with a Fiducial Advisor by calling 866-FIDUCIAL or visit the web site at www.fiducial.com.