Advertising Expenditure Investment
The success of the every company’s advertising campaign is often a function of their investment in advertising budget. There are some that put a lot of emphasis and weight to their advertising spending as they believe that good advertising, which translates to increased sales and profits, needs to be supported with a high cash outflow. On the other hand, some companies do not spend as much money as they can on advertising because they do not believe so much in the power of paid promotional gimmicks. There are actually four basic methods on how companies—big and small—allocate their advertising budget. The most common method is setting the budget at a constant percentage of sales. For every accounting or fiscal year of the company, it sets a fixed percentage of the sales (no matter how big or small it may be) dedicated purely to advertising. This method often works for products with predictable sales pattern.
Another way of setting the advertising budget is using the industry average that most players of the market use. It is basically looking into how much the competitors are spending and then using the most common amount that works for most companies. Setting the ad funds can also be done based on the marketing objectives. For instance, if the target is to increase the number of patrons of a certain product, companies will invest a bigger amount for a highly aggressive advertising campaign. Lastly, advertising budget can be set after all other company expenditure have been allocated. Nowadays, using only one advertising investment method for the many years of a company’s operations will not promise an increment in the firm’s return on investment. With today’s recession, setting the advertising budget should be matched with the level of importance of a particular advertising plan in order to fully maximise resources and to be able to get the desired rate of return.
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