Establishing and Allocating

Advertising Budget

By- Akriti Bhattarai

 ADVERTISEMENT BUDGETING

Concept of Advertisement budget

 It is a statement of future estimated expenditure for advertisements efforts.
 An expenditure of a company’s promotional expenditure over a certain time period.
 Not same for all the companies.

Items of advertising expenses

a. Media costs
i. Media mix choices
ii. Media scheduling
b. Advertisement construction
c. Advertisement agency costs
d. Advertisement department cost
e. Advertisement research costs
Need of advertising budget

i. Facilitate the advertising program

ii. Achievement of advertising goals
iii. Control tool
Process of setting the advertising budget

1. Setting objective
2. Budget preparation/ Task to be performed
a. Marketing communication plan
b. Advertisement appropriation
i. Percent of sales
ii. Affordability
iii. Competitive parity
iv. Objects & task

c. Allocation to itemized expenses

2. Budget approval
3. Budget implementation/Allocation
4. Budget control
a. Expenditure control
b. Commitment control
c. Management control
Factors affecting advertising budget size

1. Objectives of advertising
2. Size & extent of the market
3. Stage in product life cycle
4. Funds available
5. Competitor’s spending
6. Approach to advertising
7. Nature of product
8. Media mix
9. Environmental forces
Approaches to advertising budgeting

Budgeting procedures-
1. Top-down budgeting-
 Top managements sets the spending limit
 The communication manager prepares the master budget and divides according to activities and
brands.
 Hands over the budget to different divisions and department for execution.
2. Bottom up budgeting
 Prepares brand specific budget in terms of brand specific communication objectives
 Involves the communication manager, the account specific and ad agency personnel.
 Total advertising budget is approved by top management
Methods for establishing advertising budget

1. Percentage of sales method

 Most commonly used method. Based on past years’ sales or present year’s estimated sales
 Dedicates a fixed percentage of past sales revenue to advertising
 Small businesses often use this method because it is simple to implement
2. Objective & task method
 Defining the advertising communication objectives to accomplished
 Deciding specific strategies and tasks necessary to achieve them
 Estimating cost involved in putting these activities in operation
 The total of these cost is taken as base to determine the advertising budget
 It is realistic & effective. It is a bottom – up approach method.
3. Competitive parity method
 Based on the principle that organization is at par with competitors
 Method based on what company expects its competitors to spend
 It operates under assumption that competitors have similar marketing goals and executes
them
4. Affordable method
 Advertising budget is based on what organizations think they can afford to spend on
marketing
5. Incremental method
 A percentage is added to previous year’s ad expenses
6. Return on investment method (ROI)
 Advertisement spending is regarded as a long term investment to gain return
 Advertiser spends on advertising until the return on investment is a normal rate of return
 Simply balancing the amount of advertising to the profits generated from advertising
7. Pay out plan method-for new products
 The aim is to spend heavily to achieve increased awareness and product acceptance
 It estimates the investment value of advertising by linking it to other budgeting method
 The idea is to fix of the budget of advertising on the basis of the expected revenues that it
will obtain in future