A Short Guide to Advertising Spend

I am often asked how much a company should spend on advertising annually. Obviously my immediate answer is lots! However, to try and actually be helpful, I have written a short guide to advertising spend.

There are three means of establishing the right advertising budget for you, and that greatly depends on a number aspects.

A typical response is to work out your companies latest annual profit and times it by the average industry spend on advertising. These rates are as varied as the multitude of products and services available in the modern market, and generally come down to the nature and competition of the industry. The confectionary industry is known to have one of the highest spends on advertising at around 18.1%, with industrial manufacturing companies often at the bottom with rates as low as 0.2%. This form of advertising, though easy to work out, should only really be taken as a guide. Often simply breaking the mould can result in a greater market share or increased profits.

The key factors to consider are the size of your company, its age, the competition and whether it sells to businesses or consumers. Consumer based industries will often need a higher ad spend than business to business. They are influenced more by shifts in consumer culture and can be strongly influenced by fads and seasonal fluctuations and therefore need additional spend to retain customers and generate new ones. If your company is new, you may wish to spend more money on generating initial interest and creating a brand presence that will be invaluable later on in your company’s future. You may wish to generate more advertising presence than your competitors, which could certainly be a costly affair, but may make you the market leader. Once all these factors have been considered, a percentage of revenue can be put aside and used for advertising spend. This is a much more in-depth means of calculating a figure for spend and you may wish to take advise from a consultant or speak at length with your advertising agency.

The final means, and perhaps most relevant, is to ask yourself a few questions.

1 – Who are you targeting?
2 – What is the most effective means of targeting this audience?
3 – How much will it cost?

If the answer to 3 is too large a sum, then you will need to re-evaluate 2 or even 1. One of the advantages of digital advertising is that you get more for your money. Television and national paper advertising is not necessarily the most cost effective method of promoting your brand or products. Some of the most successful marketing campaigns have been viral, such as the Trojan contraceptive adverts. It is important not to fall into the trap of viewing advertising as additional spend. It can be lost income if not carefully planned. Having said that, it is also equally important not to simply grab a figure and run with it. Work out various strategies and the potential revenue generation from running with them. Also look closely season to season to evaluate whether increases or decreases in spend are mirrored in sales. In the end the right amount is bespoke to each company, though many consultants would certainly advise between 10 and 15 percent for SME’s. It is always worth talking to someone with an outside perspective, 10 to 15% of your revenue sounds like a lot, but loosing the additional and repeat business advertising can bring more than makes it a worth while investment.

Finally, be aware of the size of your company. SME’s may not benefit from simply plugging your brand. An effective brand image is key to your companies success, but initially focus on direct response forms of advertising such as CRM’s and Search Engine Campaigns. They are cost effective and deliver financial results.