How Should I Start To Develop an Advertising Budget

Knowledgeable SCORE advisors offer free business advice and helpful how-to's in order to help small businesses succeed in the Williamsburg community. Have a business question you'd like answered?

Advertising is not merely a business expense; it’s an investment in building sales. The future of any business hinges on how well you plan and implement your advertising program. Yet many small business owners confess to not knowing how much to budget for advertising or how to best allocate the advertising dollars. Here are a few basic steps toward creating an effective advertising budget.

• Know the advertising norms for your industry. It is common for a small business to budget its advertising expense as a percentage of estimated sales. Industry trade journals are a great source of data on the average advertising expenditures for different types of businesses.  Spending more or less than industry norm is not necessarily a problem, as long as the owner has a reason for doing so.

• Verify that ad rates are measured appropriately for your business. Most rates are based on the cost per thousand for the advertisement, meaning your cost for reaching 1,000 people or homes.  However, be careful to insure that the rates are reflecting your target market.  For example, even a discounted rate for a TV ad reaching the entire Hampton Roads metro area probably isn’t cost effective for a business whose potential customers live mostly within ten miles of Williamsburg. If you are only paying for exposures within your market area, you could be better off using a medium that might be three or four times the cost per thousand of TV.

• Evaluate advertising effectiveness. Here the owner seeks to separate advertising-driven sales (or new prospects, or whatever the advertising goal was) from those of all other exogenous events affecting the business. This is definitely the most difficult step, but it is worth the effort.  Your tactics will differ if your goal is a short-run increase through a sales promotion instead of a longer-term push to raise sales. You also must take other factors into consideration, such as whether your goal is foot traffic, higher sales or a specific average dollar value per sale. 

In the challenging economic environment we are in, many small businesses are quick to cut advertising as a means of reducing budget pressures.  While this is understandable, it also creates an opportunity for those other businesses which are prepared to move forward with a well-planned advertising campaign. Advertising drives revenues and we’ve never met an accountant that could show us how to get a dollar to the bottom line if it didn’t start on the top line.  Happy Selling!

If you have questions about this or other business subjects, call SCORE at 757-229-6511 or e-mail info@SCOREwilliamsburg.org to arrange for a free and confidential appointment.  The Williamsburg SCORE office is located in the Williamsburg Chamber and Tourism Alliance Building at 421 North Boundary St.