Ways to Determine Your Advertising Budget

Advertising provides many benefits, whether it’s a small business, a new venture, or a large, established company. A challenge for many marketers from businesses of all sizes is calculating their marketing budget. Any ad campaign from radio to digital should be based on business performance and ROI. But, the question is, how do you get started? 

You know you need to expand your advertising, but you aren’t sure how much to allocate your new budget. By following a few practical tips, you can choose an optimal budget that allows you the freedom to implement your plan without breaking the bank. Once you know how much you want to spend, you can determine the right channels to meet both your business and financial goals. Let’s look into these tips in more detail. 

Determine How Much You Can Spend  

Before you can determine the budget to allocate to each channel, you have to know how much money you have to work with. Start with this easy three-step process to determine your minimum and maximum allowable ad budget: 

1. Multiply 10% and 12% of your expected annual gross sales and multiply by your average transaction gross markup. Remember that we are talking about the gross markup expressed as a percentage, which is the difference between the selling price and the cost. Don’t confuse that with the margin, which is the markup divided by the sales price expressed as a percentage. To calculate your markup, divide your gross profits by your hard cost. 
2. Subtract your annual expenses for your office or retail space from each of the two adjusted numbers from step 1. 
3. Your two totals represent the upper and lower bounds of ad spend for the year. 

You may be tempted to follow a standard percentage to determine your ad budget. However, not considering your occupancy expenses and your markup can misstate how much you should be spending.  

Allocate Spending to Your Preferred Channels  

Now that you know how much you must spend, it’s time to determine the best channel for your goals. Many new marketers or business owners can easily be tempted to use a shotgun approach and purchase ads on as many channels as possible. This haphazard approach can backfire and cause you to spend money on ineffective marketing. Instead, it’s best to start out focusing only on one channel until you’ve established how to track your ad performance before branching out into a multi-channel strategy.  

Radio  

Radio advertising is a highly cost-effective way to grow your business by increasing brand awareness with local audiences. You get the benefit of a ready-made engaged audience by placing ads during popular radio shows with beloved radio hosts. Radio is an excellent way to increase traffic to your store or website, as well.  Benefits of radio advertising include: 

• Reach – Radio reaches 272 million US consumers each week, representing 92% of adults in the nation. That proportion of reach has remained constant since the mid-1970s and has risen to reach more people with the growth in population. 
• Targeting – Each station and genre reaches a specific audience or niche. Radio advertisers can use that to their advantage to target different geographic areas, psychographics, or demographics. 
• Cost-effective – Radio ads return an impressive ROI due to their relatively low cost, averaging $12 in sales for every $1 of ad spend. 
• On-demand – Radio is not only mobile, but it is accessible at any time from anywhere. From lounging on the beach to working offshore and everywhere in between, listeners can continue working, gardening, driving, cleaning the house, or exercising while enjoying their favorite stations. 
• Brand awareness – Frequency is the key to firmly implanting your brand in the minds of consumers. A study from Microsoft determined that between 6 and 20 exposures to audio messages are ideal for brand awareness.  
• Measurable – Radio ads are highly measurable. Because they are quick and easy to implement, they are easy to change if they aren’t working. 
• Synergy – Radio works incredibly well with other mediums. The synergy it creates makes it an ideal part of a multichannel strategy. 

Digital Marketing  

Another extremely cost-efficient method of advertising is digital marketing. SEO, SEM, social media, and email are excellent ways for new businesses or those just getting into advertising to get their messages to their target audiences with even a modest budget. Just like taking the right steps to determine your overall marketing budget, prioritizing your digital marketing tactics is an excellent place to start planning your digital marketing strategy. Understanding who your target customer is, where they spend their time, and knowing what content resonates with them will help point you to the best platform for optimal engagement.  

Different approaches can work better than others, depending upon your goals. For instance, a short-term campaign may work better with paid ads. Paid ads give you control of when you start and stop them, but the catch is that once you stop paying for them, you lose any momentum from that particular ad. Long-term campaigns have time on their side, so content marketing such as blog posts, videos, and interacting with your customers on social media may be a better and more budget-friendly alternative.   

Determine Your Ad Budget Then Take Steps to Optimize It 

Taking steps to determine your ad budget is only the first step, albeit a critical one. Once you have a good idea of what you can spend, you need to choose the right medium to reach your target audience. If your business is just starting out, focus on one channel like radio or digital before branding into an omnichannel strategy.  Finally, evaluate your budget periodically and increase it based on how your business grows.