How to Establish an Advertising Budget
Every effective advertising campaign starts with establishing a proper budget. Would you ask a home builder to build you a home without providing a budget? Of course not. The same goes for advertising.
This guide will help you establish a reasonable budget for a long-term campaign strategy. These principles don’t necessarily apply to short-term promotional budgets.
What is the average in your industry?
Providing a one-size-fits-all guide to establishing a budget wouldn’t be much help. Every industry is different and a quick Google search of your industry’s advertising trends is the first step to getting it right.
For example, according to Statista McDonald’s spent about 1.5 billion dollars on advertising media in 2017 and had 23 billion in revenue. That’s a 6.5% advertising budget.
However, statistics show that the industry average for restaurants is only 2% of sales. Why such a big disparity between what McDonald’s spends and the industry average? Just like the big global brands, there are many variables to consider when establishing a budget that may put your business below, at or above your industry’s average.
How competitive is your marketplace?
One reason McDonald’s budget is higher than the national average is because of heavy competition. Maintaining or increasing market share in a crowded market of heavy-hitting competitors requires more effort and thus, more money.
In contrast to the fast food industry, when Chipotle arrived on the “fast casual” dining scene, it was relatively free of direct competitors. They used to be almost arrogant about how little they advertised. Those were the good old days when margins were high and competition was low. Since the explosion of new fast-casual concepts over the last decade or so, things have soured for Chipotle and it’s not just about E-coli problems. As a result, guess who’s spending more on advertising now? You guessed it. Chipotle.
While establishing a benchmark for your budget that is based on the industry average is helpful, don’t forget important variables like market competition.
Where are you in the business life cycle?
Are you a new player in the market? You will likely have to go above and beyond the average to achieve enough market share to survive. It’s no wonder that one of the reasons why new businesses fail so often is because they run out of cash before they reach a sustainable revenue level.
On the other hand, what if you’re a well-established brand in your market? Doesn’t that mean you can spend less? In some cases, sure. However, McDonald’s has “awareness” gushing out of their golden arches, but they still spend much more than average to ensure they hold on to what they’ve got.
Generally speaking, if you have a well-known business, revenue is growing steadily and competition isn’t fierce, you are probably safe in sticking with the industry average. Be careful not to rest on your laurels though. There will eventually be someone who sets their sights on your share of the market pie and you don’t want to be caught off guard.
Establishing a budget for a long-term advertising campaign is not optional. At least it’s not optional if you want to enjoy any kind of lasting success. The budget is absolutely essential if you want to achieve your goals.
There’s also something very satisfying about creating a budget, planning a campaign based on that budget and letting the process play out. It’s much less scary than trying a little bit of this and a little bit of that.
I’ve worked with many businesses over the last fifteen years. The ones who have budgets ALWAYS end up more satisfied. The ones who haven’t had budgets usually stop or significantly reduce their advertising efforts because “it just doesn’t work.”
Interested in getting more information about creating an advertising budget for your business? Feel free to contact us. We’d be happy to help!