How to Allocate Your Budget
Once you have determined your advertising budget, you must decide how tol allocate your budget. First, you’ll have to decide if you’ll do any institutional advertising or only promotional advertising.
After you set aside an amount to build your image (if that’s your plans for the year), you can then allocate your promotional advertising in a number of ways. Among the most common breakdowns are by:
1) departmental budgets
2) total budget
3) calendar periods
5) sales areas
The most common method of allocating advertising dollars is percent of sales. Those departments or product categories with the greatest sales volume receive the biggest share of the budget.
In a small business or when the merchandise range is limited, the same percentage can be used throughout. Otherwise, a good rule is to use the average industry figure for each product.
By breaking down the budget by departments or products those goods that require more promotion to stimulate sales can get the required advertising dollars. Your budget can be further divided into individual merchandise lines.
Your total budget may be the result of integrated departmental or product budgets. If your business has set an upper limit for advertising expense percentage, then your departmental budgets, which are based on different percentages of sales in each area, might be pared down.
In smaller business the total budget may be the only one established. it too, should be divided into merchandise classification for scheduling.
Most executives of small businesses usually plan their advertising on a monthly, even a weekly, basis. Your budget, even if it’s for a longer planning period, ought to be calculated for these shorter periods. It will give you better control.
The percentage-of-sales methods is also useful here to determine how much money to allocate by time periods. The standard practice is to match sales with advertising dollars. Thus, if February accounts for 5% of your sales, you might give it 5% of your budget.
Sometimes you might want to adjust advertising allocations downward in some of your heavier sales months, so you can boost the budget of some of your poorer periods. But this should be done only if you have reason (as when your competition’s sales trends differ markedly from yours) to believe that a change in your advertising timing could improve slow sales.
The amount of advertising that you place in each advertising medium – such as direct mail, newspapers, click through or radio – should be determined by past experience, industry practice, and ideas from media specialists. Normally it’s wise to use the same sort of media your competitors use. That’s where, most likely, your potential customers look and listen.
You can spend your advertising dollars where your customers already come from, or you can use them to try to stimulate new sales areas. Just as in dividing your appropriation by time periods, it’s wise to continue to do the bulk of your advertising in familiar areas. Usually it’s more costly to develop new markets than to maintain established ones.