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How
much to spend?
There are many
ways to establish an advertising budget. However, there are three common
mistakes many businesses make:
Budgeting
based on habit
Many businesses
budget future advertising based on what they spent in the past, perhaps
adding a percent or more to offset inflation. This approach offers no
leverage to take advantage of opportunities or deal with competitive
challenges.
Budgeting
"what we can afford"
This approach
implies advertising is a luxury and usually means very little will be
left for it after all the "important" expenses are made. This
can allow your competition to launch unchallenged efforts to take business
away from you.
Matching the
competition
By definition,
this approach is always reactionary and prevents you from taking the
initiative and seizing additional shares of the market. Because you
must always wait to see what your competitors do, it allows them to
stay ahead of you all the time.
Fortunately,
there's a better way to determine how much to budget for advertising.
One that allows you to take the initiative against your competitors,
build "top of mind awareness" among consumers and seize opportunities.
This approach is based on applying a percentage of this year's sales
goal toward advertising. Don't use last year's sales. Why not? If last
year was a bad sales year, it will reduce this year's advertising budget,
contributing to another bad year.
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Advertising Budget
Calculator
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The budget calculator
uses the percentage of sales method to calculate advertising budgets.
The calculator uses average national figures that do not take into account
local market conditions, but it can be a good place to begin establishing
your total advertising budget for the year. Keep in mind your advertising
budget will need to be higher than the figure stated if you are a new
store, in a high-pressure business, have heavy competition, or are in
a remote location
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Sources: Schonfeld & Associates, Inc, Advertising Ratios & Budgets, June
2001; North American Retail Dealers Association, 2000; National Bicycle
Dealers Association, 2000; National Retail Hardware Association, 2000;
National Restaurant Association, 2000; National Sporting Goods
Association, 2000.
Setting an
exact budget
The Birmingham
News can help you establish a precise advertising budget at no cost.
We can analyze local market conditions for your business including store
traffic patterns, location, competition and consumer awareness to help
you create a better, more impactful budget that really maximizes your
advertising investment.
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