Advertising costs are totally within your control; the amount you spend on an advertisement constitutes an important part of your marketing budget and depends on the factors such as the volume, channel for advertising, and your target groups.

Advertising expenditure varies from company to company, business to business and also from market to market.

So what are the various approaches for setting an advertising budget?

Budgeting at a fixed percentage of sales

Companies with a stable sales pattern, keep their advertising budget in proportion to the sales they make. If there is a decrease in profits, they slash the advertisement budget and vice versa. The advantage is that the company can avoid an 'advertising war' and keep the budget consistent with the sales volume. On the flip side, however, this policy could backfire in the long run. This method works on the premises that all sales are a result of advertising. But profits can be low because of other factors and in any such scenario cutting down on the advertising budget would further bring down sales.

Budgeting based on industry average

Percentages set aside for advertising are fairly consistent within an industry. According to this method, you can figure out the ratio of budgeting expenses to the sales within your industry sector. You can then set your budget in proportion to what is the accepted norm in the particular sector. However, you should use the ratio as a yardstick to set aside your budget. Your decision should ultimately depend on your particular situation and you may, therefore, be required to spend more or less than the specific ratio.

Budgeting according to task requirement

As per this method, you can set your budget based on the marketing objective. For example, your advertisement can aim at creating brand awareness, pushing sales, informing existing customers, or attracting potential ones. The budget, in this case, will vary from objective to objective.

Budgeting within financial limits

As the name itself suggests, this method of setting the budget depends on the amount the company can actually afford to spend on an advertising campaign. If your budget is limited, you can choose a cheaper channel of advertisement. For example with print advertising, pick up cheap advertising deals through late space opportunities which may arise from advertiser cancellations.