Whether you're selling a product or service to a select group of consumers, creating a marketing plan helps outline how you will inform, persuade or remind the customers about what your business offers. An essential part of this plan includes coming up with a budget for advertising expenditures. While each company's advertising budget may differ, there are several factors that can affect even the smallest advertising budget.
Projected Annual Gross Sales
When entrepreneurs prepare to create advertising budgets for their businesses, it's important to take projected annual gross sales into account. This method helps protect entrepreneurs from spending too much or too little on advertising. "Entrepreneur," an online resource and magazine for business owners, suggests calculating your minimum and maximum advertising budget figures by calculating 10 percent and 12 percent of your projected annual gross sales. Then, multiply each figure by the markup you make on your average sales transaction. This figure can vary year to year depending on both your company's performance and your product markups.
Marketing objectives vary across organizations and can greatly affect what appears on a company's advertising budget. Determine which marketing objective will help you reach your annual business goals. Marketing objectives might include obtaining 5 percent more repeat customers, experiencing growth each month or increasing annual sales by 10 percent. The objectives you come up with help you define marketing strategies and tactics, which ultimately give insight into how and where you advertise, both of which are things that can affect your budget.
While one business is targeting customers whose annual household income is at least $500,000, another business may target recent college graduates who make at least $33,000 a year. The target market you're trying to reach has an impact on your advertising budget. Once you define your target market, you gain insight on how to reach them learning information such as what they read, where they shop, who they get advice from, their needs and wants and what motivates them to buy.
Types of Media
A print advertisement in a local publication may cost less than running an online advertisement with a popular, credible website. The types of media you select to promote your product, whether it's radio, print, web, email, billboards or direct marketing, can impact your advertising budget.
Time of Year
Advertising pricing may change during different times of the year, such as a new season or during popular holidays. While some advertisers may offer discounting, others will increase their prices if they feel their readership or viewership may peak during specific times or events. If you're trying to place an advertisement in a magazine's most popular issue of the year or a television commercial during a highly televised event, such as the Super Bowl, you can expect a change in the amount you spend to promote your product or service.
Product Launch vs. Existing Product
If you're introducing a new product to the market, consider this as you create your advertising budget, as it may affect how much you spend. When products are launched, business owners often go into overdrive coming up with various ways to advertise and promote their new product or service to potential clients. This may cause an advertising budget to be higher than it would be for a product that customers are already aware of and have purchased in the past.