Advertising budget

The advertising budget of a company is the budget to cover the expenses for the planned advertising measures in a period. The planning period is generally one year.

Definition / explanation

The budgeting of the advertising expenditure can take place simultaneously or successively. With simultaneous budgeting, the volume and the distribution of the budget on advertising objects, advertising media and advertising media are determined at the same time. With successive budgeting, the total amount of advertising expenditure is planned first.

In the second step, the budget is distributed among advertising items, advertising media and advertising media. In practice, successive advertising budgeting is common, as there is currently no practicable model for simultaneous decision-making. The volume of the advertising budget is determined using heuristic methods. These are simple decision-making rules that are shown below:

Orientation towards sales

Alignment with sales is the most common practice in practice. The advertising budget is determined according to a fixed percentage of sales for the past or future period. The average turnover of several periods can also serve as a basis for assessment. The percentage of advertising expenditure can be given by tradition or determined by the customs of the industry. Otherwise the percentage must be determined intuitively.

This planning process is scientifically unsustainable, because sales are not the cause of the advertising, but a possible effect. The alignment with sales results in procyclical advertising. During the boom, a large amount of money is spent on advertising; during the recession, advertising expenditure is reduced. In times of recession, however, anti-cyclical advertising would be appropriate. Companies that keep their advertising expenditure constant or even increase it during this time can achieve above-average sales and / or market shares.

Alignment with profit

The advertising budget is determined according to a fixed percentage of the profit of the previous period, the planned profit of the following period or the average profit of several periods. This method is also problematic because there is no causal relationship between profit and advertising expenditure. The tax base is also ambiguous, as there are different profit terms.

Alignment on the heel

The advertising budget results from this method by multiplying the planned sales quantities of the individual products by a certain advertising cost amount per unit and then adding them up. The per-unit method is very time-consuming for extensive product ranges and, like the percentage methods, is not scientifically tenable.

Alignment with liquidity

The advertising budget is then a residual amount from the freely available means of payment, ie when the other costs are covered and the planned profit is achieved.

This method is also questionable as there is no causal relationship between the available funding and the advertising impact. In addition, there are procyclical tendencies here as well. In a boom there is ample funding for promotional purposes, while in a recession there is little available.

Alignment with market share

Bei diesem Verfahren wird der Werbeetat nach dem bisherigen oder geplanten Marktanteil des Unternehmens bemessen. Wenn eine passive Wettbewerbsstrategie verfolgt wird, ergibt sich das Etatvolumen dadurch, dass die gesamten Advertising expenses der betreffenden Branche mit dem Marktanteil des Unternehmens multipliziert werden. Bei aktiver Strategie wird der Werbeanteil des Unternehmens höher sein als dessen Marktanteil.

The advantage of the so-called advertising share / market share method is that the advertising budget is based on the market. The disadvantage, however, is the relatively high demand for information when a company offers many products in several industries. The entire advertising expenditure of the respective industries and the market shares of the corresponding products must be acquired by market research institutes.

Alignment with the competition

According to the so-called competition parity method, the advertising budget of a company is based on selected key figures of the relevant competitors. The following can serve as a basis for assessment:

  • Advertising share of the competition in relation to sales
  • Advertising share of competition in relation to profit
  • Average advertising expenses of the competition

The advantage of this method is that it takes into account the advertising of the competition. A comparison of your own advertising expenses with those of the competition provides important information about your own situation. However, the advertising figures of the competition are not clear criteria for determining your own advertising budget, as the individual competitors are each in a different situation. Another disadvantage is the relatively high information requirement when using this method.

Alignment with the advertising goals

The starting point for determining the advertising budget are the company's diverse advertising goals. Then it must be planned which advertising measures are necessary to achieve the individual goals and how much costs are incurred. The sum of the planned advertising media and advertising media costs represents the necessary advertising budget.

The so-called goal-task method is a sensible approach to determining the advertising budget. However, there can be certain difficulties in determining the necessary advertising costs because advertising expenditure is an investment. Therefore, due to the use of advertising, advertising effects can still occur in later periods. The planning of the advertising effects and calculation of the corresponding costs should be coordinated by your own advertising department with the advertising agency involved.

Die Bestimmung des Werbebudgets ist ein Teil der Entscheidung, welche Aufgaben die Werbung im Rahmen der gesamten Communication policy zu erfüllen hat, wie viel für die Kommunikationspolitik insgesamt ausgegeben werden soll und welchen Stellenwert die Kommunikationspolitik im gesamten Marketing-Mix haben soll. Das umfassende Entscheidungsproblem ist also die Bestimmung des optimalen Marketingbudgets.

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