Ad Budget

How to determine your advertising budget

Ad Budget

Learn how to determine your ad budget from advertising and media experts who share insider tips to help you get the best return on investment and save money.

Here are the most common ways people and companies do ad budgeting:

“Here’s what we can spend.”
“Here’s what we spent last time.”
“We need to match what our competitors are spending.”
“Let's use a percentage of gross sales.” (Generally from 1 to 10%)

A better way to determine your ad budget: media scenario planning to understand your options and trade-offs

If you are planning to spend more than a few thousand dollars on advertising, hire a media planner to do media scenario planning
- Advertising media costs to buy space to place ads should represent 80% or more of your total ad budget.
- Media scenario planning is creating options for minimum, better and best media plans with trade-offs and costs for choosing different types of media and combinations of media types.
- This media scenario planning helps you make data-driven decisions about your budget by giving you options and trade-offs about your media mix (the different types of ads you'll be using like TV, radio, print, online, outdoor billboards), the timing for your advertising, and what's required to meet minimum effectiveness levels.

TIP: If you already know what type of advertising you plan to use, then go to the MarketingZone articles specifically for TV, radio, newspapers, magazine, online, outdoor billboard or search ads. You can find those in Advertising. If you are developing a budget for an ad campaign, this article will be helpful.

Start with understanding what it costs to achieve minimum advertising effectiveness levels to reach your intended target audience
- Advertising works based on reaching the right people enough times (called frequency) that they will see and remember your ad(s). As a rule of thumb, that's generally spending enough money so that your ads are seen by at least 50% of the intended target audience an average of three times during a four week period.
- A media planner will do the math to tell you what this will cost.
- If you can afford that, then ask the media planner to cost out better and best options with explanations of what more money will buy in terms of reach/frequency levels or the addition of another media channel (TV, radio, online, print, outdoor).
- You want to be able to compare minimum, better and best plan alternatives to evaluate if you pay more, what more you get and if it’s worth it.

Evaluate your choice points and consider various tradeoffs. This balancing act is more an art than a science.
- Prioritize your business and advertising campaign objectives. Trying to force your advertising to take on a multitude of objectives may become counter-productive since this makes it difficult for you to make tradeoff decisions. In addition, it will be harder for you to develop a measurement plan that can measure the effectiveness of your advertising campaign.
- Consider which business results you really want your advertising to drive. Do you want to drive impact and awareness for your brand? If so, you may want to focus more on Reach and tradeoff Frequency. Or, do you want to drive your customers to retail to purchase your products? If so, you will need to build a sufficient level of Frequency and improve your 'Cost Per Action'.

Know this:

Media scenario planning is hard to do yourself. Media planners have access to all the industry research and tools. You can hire a freelance media planner or a media buying agency to do this on a per-project basis.
Hire an objective, independent media planning agency or freelancer to do this analysis for you. Most ad agency creative teams love to make TV ads, large space print ads and flashy online ads. Those are fun projects for them to work on. Doing the analytical media math to determine what type and combination of media is most efficient and effective is not their strength.
Do this media scenario planning before you engage an agency or freelancers to create and design any ads for you. That’s important because it makes you flexible to decide if another marketing approach might work better like direct mail or events. And it also makes you “advertising media neutral,” meaning that you are open-minded to using any type of advertising media (TV, radio, online, print, etc.).
A little advertising doesn't work. There are two exceptions:
- If you have really big “news,” then a few ads work just like PR would because of the word-of-mouth. But most advertisers don’t have that important “news” which is why they’re advertising, not just using PR to get the word out.
- Paid search ads. These ads offer a direct relationship between what you pay and what you get as they charge on a per-click basis and your spending can be capped at as little as $5 per day.

TIP: template to use to create your Ad Budget

Next page - Key media terms you'll need to understand

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