Advertising budget is not an exception to the general budget. It is the translation of an advertising plan into money. It includes a large body of information embracir.g sales goals, product facts, marketing information, competitive situation, creative platforms and rough examples of treatment. While preparing an advertising budget, the person who is entrusted with this function must observe two fundamentals:
(i) Budget must be constructed with the financial capabilities of the company otherwise the plans set will remain unexecuted due to shortage of funds.
(ii) It must specially contain the details on the allocation of funds to specific operations.
ADVERTISING BUDGET PROCESS
1. Collection of Data and Preparation of Budget. The advertising department is responsible for the planning of advertising work after getting information from various sources. Determining the size of the future advertising appropriation is the first step in preparing the advertising budget. The budget must be allocated among different market segments, time periods and geographical areas depending upon the market potential within that segment, period or area.
2. Presentation and Approval of the Budget. The next step in the budget making process, after it is developed by the advertising head in consultation with the agency personnel is to present it before the C.E.O. for approval.
3. Budget Execution. The important task undertaken for this purpose is the purchase of authorised time and space over the media and the agency handles the job for and on behalf of advertisers. The costs of advertising production such as making television commercials can also be significant elements in the overall expenditure of advertising.
4. Control of Budget. It is the duty of advertising manager to see whether actual advertising expenditures coincide with the budgeted expenditure or not.
A procedure must be evolved which brings information about current expenditure to the advertising manager.
METHODS OF APPROPRIATION
Simply stated, every manufacturer sets apart a sum of money to be spent on advertising which is referred to advertising appropriation. The amount is not fixed arbitrarily but is determined on some scientific basis.
The following methods are more commonly used in determining the size of advertising budget or in making appropriation for advertising :
1. Advertising as a Percentage of Sales. Under this method the amount to be appropriated to advertising is arrived at by multiplying the value of past year’s sales or projected sales for the budget period with a predetermined percentage. Different percentages may be fixed for different products, territories etc.
Advertising allocation = x% x Sales.
2. Return on Investment Method. In this method, advertising expenditure is considered as an investment rather than an expenditure. This approach is no doubt correct, as the return one gets from advertising is generally spread over a period of time. Thus, return on investment method is no doubt a scientific way of approaching the problem because it correlates the sales and the profit generated by advertising.
3. Competitive Parity Method. It is common to monitor the marketing programme of competitors. As a part of this activity, firms assess the advertising efforts of major competitors and industry as a whole. This practice may tend to set company advertising budgets by matching competitive spending in some way.
4. ‘Objective and Task’ Approach. Under this approach, the amount to be spent on advertising is determined keeping in view the predetermined objectives. This involves three steps-i) define the objective, i.e., the sales target to be achieved, or increasing brand awareness, say, by 26 per cent, (ii) outline the tasks, i e., the specific means and media of attaining the objective, and (iii) determine the cost of accomplishing these tasks. This approach seems to be logical and on the basis of postwar survey in the U.S.A. was found to be the most widely raised by the advertisers. However, the most important problem is to determine what objectives are worth the cost of attaining them.
5. Marginal Approach. It is possible to apply the basic principles of marginal analysis to selling expenses including all forms of advertising, direct mailing, calls from salesmen, etc. In other words, it will pay to increase spending on sales promotion so long as the added cost of each increment of sales promotion effort is less than the additional gross profit it adds. This method of determining sales promotion expenditure e much superior to the crude rule of thumb methods still in common use.