Which of the below is correct about setting an advertising budget based on the affordable method

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Disadvantages
Recommended Articles
Marketing Methods
Objective and Task Method
Creating a Marketing Budget
Other Factors

An advertising budget is an amount set aside by a company planned for the promotion of its goods and services. Promotional activities include conducting a market survey, getting advertisement creatives made and printed, promotion by way of print media, digital media and social media, running ad campaigns etc

The advertising budget of a company is based on the following factors:

Type of advertising campaign that it intends to run
Selection of target audience
Type of advertising media
Company’s objective of advertising

Following steps are followed to set up this budget –

Setting advertising goals based on the company’s objectives.
Determine the activities that are required to be done.
Preparing the components of the advertising budget;
Getting the budget approved by management;
Allocation of funds for activities proposed under the advertisement plan;
Periodically monitoring the expenses being incurred on the advertising process;

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Most common methods are discussed as follows:

Percentage of Sales: Under this method, the advertising budget is set as a percentage of either the past sale or expected future sales. Small businesses usually use this method.
Competitive Parity: This method advocates that a company sets an advertising budget similar to the one that is set up by its competitor to yield similar results.
Objective and Task: This method is based on the advertising objectives under this method. Once the objectives are decided, the cost is estimated to complete those objectives, and accordingly, a marketing budget is set.
Market Share: In this method, the advertising budget is based on the market share of a company. For a higher market share, less marketing budget is set.
All available Funds: This is a very aggressive method under which all available profits are allocated towards advertising activities. This method can be used by start-up businesses that need advertisements to attract customers.
Unit Sales: Under this method, the cost of advertisement per article is calculated and based on the total number of articles, it is set.
Affordable: As the name suggested, the company sets its budget based on how much it can afford to spend.

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Strategies

Let us have a look at some strategies a company can follow.

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Social Media Marketing: One can start by making profiles of the businesses on social media platforms like Facebook and Instagram, which can help to reach out to larger audiences in a cost-effective manner.
Referral Benefits: In this strategy, you ask your customers to refer your business pages to their friends and family. You provide referral benefits and points when such referrals are buying the products. This way, your customers do the marketing for you.
Content Marketing: Start a blog and update interesting content that attracts your audiences. This strategy, combined with other strategies, will draw benefits to the business.
Email Marketing: This strategy will depend on how strong and relevant your database is.
Pay per click ad: In this strategy, you pay per ad which you run on social media platforms. Based on your selected target audience, the ad is run and reaches the audience.

Advantages

Let us have a look at some advantages a company can follow.

It helps to understand the requirements of advertising and allocating budget toward each necessary activity.
The overall advertisement expense of the company remains monitored, and it ensures that actual expense remains within a prescribed limit.
When the budget is followed, it is ensured that the advertisement activities are done as per advertisement goals only, and no unnecessary expense is incurred.
Each advertisement activity is kept under supervision and remains controlled well within budget.

Disadvantages

An inaccurate budget can attract unnecessary costs since the target of the budget would not be met.
It may be a costly affair for companies.
Since advertising costs will also be ultimately recovered from the customers, the prices of the products will increase.

Ever wondered why companies spend so much on running advertisements? Well, the company intends to attract the audiences towards their brand name by way of advertisement. Advertisement helps a company to reach out to larger audiences and introduce them to the company’s products and services. Because of this, the sales increase, which enables the company to earn more profits. It is important that before setting the advertising budget, the company’s objective is understood.

Conclusion

A company should set up its advertising budget after understanding and evaluating its advertising objectives and the need for advertising.

Marketing Methods

Four common strategies of budgeting for promotional expenditure include the percentage of sales method, affordable method, competitive parity method and objective and task method. The percentage of sales method is used by companies that prepare sales forecasts to set budgets. This method allocates marketing expenditures based on past or anticipated sales. The affordable method, on the other hand, allows a company to invest what it can afford toward advertising. Companies that use the competitive parity method attempt to match advertising spending to competitors’ budgets.

Objective and Task Method

Businesses that use the objective and task method for determining advertising expenses allocate the marketing budget based on set objectives. To use this method, a company must define the desired results of advertising and the strategies and tactics required to achieve these results. Additionally, the business must assess the costs associated with these strategies and tactics. If no financial restrictions exist, a company can build its marketing budget by examining each goal or objective and the tasks necessary to reach these objectives. A primary challenge associated with this method is the difficulty of accurately assessing the advertising costs necessary to accomplish the goals.

Creating a Marketing Budget

To develop a marketing budget using the objective and task method, a company must determine its marketing objectives and the tasks required to perform those objectives. To calculate the promotional expenditures, the business must evaluate the costs of each task. Additionally, when using this method, businesses should monitor competitors’ activities and compare internal results against industry averages. Further, businesses must specify when to make advertising expenditures while maintaining an element of flexibility. Finally, the objective and task method requires the business to monitor the actual results against forecasts.

Other Factors

Before deciding on an advertising campaign, a company should always assess current market conditions. The factors a firm should consider when creating a marketing budget include the nature of the market, the profile of target customers and the position of the company´s products or services in the market. The company also must evaluate how much profit it can expect to earn for each dollar spent on promotion. A company can also choose to combine several marketing methods to achieve the best possible results from marketing efforts.