There is no exact answer to how much you should spend on advertising. What you spend will depend on your promotional objectives, your target customers, the characteristics of your product or service, and the type of business you are in.
Several methods for deciding on a budget are used successfully by small businesses. Here are some of those methods: The percentage of sales method is probably the most frequently used. A percentage of projected sales revenue to be devoted to advertising is predetermined. Suppose you learn from your trade association that firms similar to yours allocate five percent of revenue to advertising. You’d estimate the amount of your sales for your first year of operation to determine what your advertising expenditures should be. Let’s say your sales for card printing business are very low especially on business cards. Then you have to pay more attention to get more sales. You need to allocate a proper budget for advertising to generate more sales.
The fixed dollar per unit method uses an absolute dollar amount in the advertising budget for each unit of product sold or produced. You’d have to estimate how much it would take to sell each unit and then set your advertising budget for the year. A business card printing shop owner who plans to print 500 cards might estimate a cost of $1 to sell each card. The advertising budget would be $500.00. The fixed dollar per unit method like the percentage of sales method represents formula thinking. It ignores the goal that advertising must achieve- to bring in sales.
Matching competition can be viewed as a defensive way to develop your advertising budget. Spending as much as your competitors assumes that your advertising strategy should be similar to theirs. It also assumes that your competitors know the right amount to spend. And it’s pretty nearly impossible to find out how much your competition is actually spending in any case. This is not the method you must use.
The affordable method isn’t really a method at all. It simply answers the question: how much am I willing to spend on advertising? Business owners who use this procedure as a basis for deciding on an advertising budget don’t truly understand the function of advertising. Of course, there are practical limits to how much you can afford. The Can I afford approach is the self-fulfilling prophesy.
Advertising leads to sales. The amount you spend on it should be keyed in some way to the amount of sales you want. Suppose an entrepreneur is willing to spend only a small amount on advertising during the first year of operation. At the end of the year, meager sales and disappointing profits- the results of the inadequate advertising program- might lead to even less money being budgeted during the second year. This method of developing an advertising budget could result in the ultimate failure of the business.
As a practical matter, the amount you decide to spend on advertising should be related to your planned sales targets and the objectives for your advertising program. This means you should carefully assess your firm’s need for advertising and set specific objectives before you make your budget. The advertising objectives must be based on your sound understanding of the target audience and identification of the outcomes the advertising must produce. At this point you can determine the costs of reaching your objectives. In this way, the budget results from what you want to achieve rather than your achievement being limited by what the budget will permit.
Kaye Z. Marks is an avid writer and follower of the developments in business cards
industry. Order business cards
online with PrintPlace.com.
Article By: Kaye Z. Marks