Determine an advertising budget

1. Conduct preliminary research on your target market to understand how, why, and where they shop.

Knowing your ideal consumer is essential in deciding your marketing approach, which will, in turn, affect your budget. A brilliant marketing campaign aimed at the wrong audience will not succeed.  Identify customer demographics, needs, and how and where they shop. Research how to best engage your target audience, like their preferred media. Based on your product or service, determine whether they will respond best to an emotional appeal or an intellectual appeal.

2. Consider the Maximum Spend method, which sets aside enough funds to run your operations, and diverts the rest of your funds to advertising.

This is appropriate for startups expecting significant advertising ROI. Be prepared to transition to a different budgeting method when you notice returns beginning to diminish.

3. Try the Competitor Costing Method to find where your competitors advertise and how much they spend.

This is appropriate for large, prosperous businesses. Costs can be significant depending on your industry. Yet, you will remain competitive since your spending matches your competition, and you’ll increase your earnings. Estimate the cost of your competitors’ campaigns to determine your budget.

4. Try the Goal-Based Costing method to define your advertising objectives and the tasks needed to meet them.

Objectives may include reaching new customers, making sales, or building a social following. This method can be risky if your objectives prove not to be effective. Run a small test campaign to gauge initial consumer response beforehand.

5.  Use the Percentage of Sales method and reserve 2-5% of the previous year's gross sales for the upcoming year's advertising budget.

This is the safest method for determining your advertising budget. Because this method is dependent on past performance, it may not be ideal to use in a fluid marketplace. New startups may benefit more from allocating 5-7% of their previous year’s gross sales.