So it’s a new year- “Twenty-ten”!
New resolutions, new intentions, and new business development efforts…
For those on a calendar year, new ad budget…

How much did you budget for advertising? 

Most businesses spend between 2-5 percent of gross sales from previous years, although it varies by industry. For example, large consumer companies may range as high as 30 percent, while industrial niche businesses may spend less than 2 percent.

How much should you spend on advertising? Well, I wish I could give you that perfect formula that would guarantee results, but I can show you some proven methods:

1) Percentage of Sales
The most widely used method of establishing an advertising budget is to base it on a percentage of sales. By using the percentage of sales volume, you keep your advertising in a consistent relationship to your sales volume, which is primaril what your advertising should be affecting. You can select the percentage figure to use (i.e. 2 percent of sales volume) by investigating what other businesses in your industry are doing. These percentages are fairly consistent within a category and are easy to find on (http://www.marketresearch.com) You can also check out this ratio of advertising spending to sales in your industry by seeking your trade magazines, associations or consult the Census Bureau and Internal Revenue Service reports. Keep in mind, this is a sound method for stable markets, but if you want to expand market share, you’ll probably have to use a larger percentage of sales than the industry average.

2) Objective and Task
The most difficult method for determining an advertising budget is this approach, yet it is also the most accurate. To establish this method, you need a coordinated marketing plan with outlined objectives based on a complete survey of your markets and their potential. You set the specific objectives, determine the best media to reach your target audience and how much each advertisement will cost and how many it will take to get the results you want. You repeat this process for each objective and total your costs and you have your projected budget. Of course most likely, you can’t afford to advertise as much as you like, so it is a good idea to rank your objectives.

3) Historical
The easiest way to set an advertising budget is to base it on what you have spent historically. Typically, companies take last year’s budget and add 10 percent for inflation to come up with this year’s budget. The advantages of this method is it’s simplicity and the fact is financial management finds this method very acceptable. The disadvantage is that it does not accurately reflect your goals, objective, economic factors, market conditions, or current plans.

Now, best for last. The JUVE recommended approach:

4) JUVE Sensible Approach
We combine a couple of methods for one wise solution. First use the percentage of sales method to set an upper and lower limit on your budget. Next, take an objective look at the competitive environment, the marketplace, and your existing operation to decide whether you should go with the upper or lower limit. After you have evaluated the sales environment and established a budget range, allocate that money to achieve to specific tasks that will accomplish your planned objectives. For example: A direct mail campaign of 1,000 mailed may cost you $1 per piece and past experience gives you a 6 percent response rate (60 inquiries per 1,000 pieces mailed) and 1 out 10 inquires become new accounts. So, to achieve six new accounts, you need to budget $1,000 for direct mail efforts.)