A promotional budget gives you a blueprint for spending the money required to get your message to the right target market and to bring in sales. While several methods exist for creating a promotional budget, combining tactics may work best to come up with the most accurate budget. You must also identify the types of media you want to use and their costs to determine which promotional activities to include in the budget.
Past Sales Data
If you’ve been in business for at least a year, one of the simplest methods of creating your budget involves reviewing your past year’s sales. Tally up the total amount of sales your business made in the past 12 months. Then decide what amount to use to promote your business during the next year. While the same budget as the previous year may work just fine, if you want to improve sales, look at increasing your budget so your message gets in front of more prospects.
Projected Sales Data
Businesses with less than a year’s worth of sales data may choose to forecast their sales for the next year. Once you determine how many sales you hope to make, choose a percentage of that amount to spend on promotion. While there is no one answer as to how much a new company should spend, Bloomberg Businessweek recommends reviewing your industry to determine the typical ratio of advertising to sales. Reviewing information provided by public companies can also help you decide on an amount. At a minimum, plan to spend at least 10 percent of your projected sales on promotion, says Entrepreneur.
The competitive-parity method of developing your budget is key to improved branding and keeping your name in front of prospects and customers. This method involves setting a budget that is comparable to your competitors. Since competitors are unlikely to share with you how much they spend, you must find other means of getting information. For example, look for a competitor’s advertisements in the local paper. Check the publication’s advertising kit to determine the cost for the ad size and figure out how frequently they place ads to calculate how much is spent on that publication.
The objective-based method gives you a logical, well-researched method for setting your budget, starting with first reviewing the objectives of your marketing plan. Then start looking at the types of marketing activities required to achieve those objectives. The types of activities depend on the target market you want to reach. Talk to your customers or survey prospects to find out how they hear about products or services similar to what you sell. Then, determine the costs of those activities to set your budget.
Traditional promotional activities such as television, radio or print advertising, typically require more money than budget-friendly e-mail, Internet and viral marketing campaigns. For example, national newspaper advertising costs an average of $28,000 for a half-page ad, according to Webpage FX, a marketing and web design firm. (see Ref #4) Compare that to sending targeted email marketing messages to interested buyers at a cost of $.05 to $3 per person.