Ontario business

How to Allocate your Budget

Once you have determined your advertising budget, you must decide how you will allocate your advertising dollars.

First, you will have to decide if you'll do any institutional advertising or only promotional advertising.

After you have set aside an amount on which to build your image (if that is your plan for the year), you can then allocate your promotional advertising in a number of ways. Among the most common breakdowns are:

Departmental Budgets

The most common method of allocating advertising dollars is the percentage of sales. The departments or product categories with the greatest sales volume receive the biggest share of the budget.

In a small business or when the merchandise range is limited, the same percentage can be used throughout. Otherwise, a good rule is to use the average industry figure for each product.

By breaking down the budget by departments or products, the goods that require more promotion to stimulate sales can get the required advertising dollars. Your budget can be further divided into individual merchandise lines.

Total Budget

Your total budget may be the result of integrated departmental or product budgets. If your business has set an upper limit for advertising expense percentage, then your departmental budgets, which are based on different percentages of sales in each area, might be pared down.

In smaller businesses, the total budget may be the only one established. It, too, should be divided into merchandise classifications for scheduling.

Calendar Periods

Most executives of small businesses usually plan their advertising on a monthly or weekly basis. Your budget, even if it is for a longer planning period, should also be calculated for these shorter periods. It will give you better control.

The percentage-of-sales method is also useful to determine how much money to allocate by time periods. The standard practice is to match sales with advertising dollars. Thus, if February accounts for 5% of your sales, you might give it 5% of your budget.

Sometimes you might want to adjust advertising allocations downward in some of your heavier sales months, so you can boost the budget of some of your poorer periods. But this should be done only if you have reason (as when you competition's sales trends differ markedly from yours) to believe that a change in your advertising timing could improve slow sales.

Media

The amount of advertising placed in each medium - direct mail, newspapers, radio, the Web etc. - should be determined by past experience, industry practice, and ideas from media specialists. Normally, it is wise to use the same sort of media your competitors use. That is most likely where your potential customers look and listen.

Sales Areas

You can either spend your advertising dollars in areas where your customers already frequent, or you can use them to stimulate new sales areas. Whatever you choose, remember that it is usually more costly to develop new markets than it is to maintain the ones that are already established.