Question

Discuss the basics methods for preparing an advertising budget.

Answer 1

There are various methods through which an advertisement budget can be made and we will discuss them one by one.

Firstly the method we will talk about is based on the sales of the organization. In an organization every year there is a certain amount of sales figures. Some organizations use this sales figure as a base for making the advertisement budget. There can be the use of even the past sales of an organization for making an estimate of the advertising budget. Suppose in the past there was a sale of Rs. 5,00,000 and the amount organization spent on advertisement was Rs.5,000. From this it is quite clear that the organization made only one percent expenditure on advertisement taking sales as a base figure. The organization can follow this percentage for the present and future also or there can be some other decision made about how much percentage should be used of sales for the advertisement budget based upon the present situation of the organization.

There is another method for making the advertisement budget in which there is a total calculation done in identifying the various costs involved in the advertisement. After knowing all the costs and their purpose in detail, a proper budget is being formed. In this method the organization's other costs are also considered properly so that the advertisement budget can be made in a very accurate manner. This method is very practical in nature and the most logical.

There is one more method in which the advertisement budget is being formed by checking out how the competitors in the market are making their advertisement budget. Some organizations try to follow this method. This type of act gives an organization a little help in making their advertisement budget. But the organizations should not follow the competitors blindly. They can take only an idea of the budget of the competitors but the budget of the organization should be such that it should suit the objectives of the organization and should not affect the overall costs of the organization.

There is one more method in which the advertisement budget is being made according to the capacity of the organization. In this method, the organization spends on the advertisement only if they have the necessary funds otherwise no amount will be used for advertisement. In this method, advertisement expenditure is considered at the last and if any amount is left after meeting all the other expenses of the organization then advertising will be done otherwise not.

There is one more method of preparing the advertisement budget in which the organization takes an opinion from the experts. The experts can be internal as well as external. The internal experts are the persons from inside the organization who have a better understanding of the functioning of the organization and they know the structure of the organization very well. External experts are the persons who have knowledge of the market conditions and the different changes in the market which can happen from time to time. Both internal as well as external experts give their necessary suggestions in making the advertisement budget and help the organization in making the best budget.

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