Media buying
One of the bigger challenges advertisers face is setting their media buying budget. Unfortunately, too many advertisers adopt the ‘pluck-a-figure-and-hope’ approach rather than going through a considered and robust budget-setting process.Common, Flawed Approaches
Some advertisers convince themselves they are verging on the positively scientific by basing their current media buying budget on their previous year’s budget. Other advertisers set their budget by choosing a fairly random percentage of their prior year’s sales.Both of these approaches are fundamentally unsound. The biggest limitation is that they are backward looking. Advertising is all about generating future sales, and while having some historical context may be useful, relying solely on past figures is like trying to drive a car forwards whilst looking in the rear-view mirror.
Another common approach is for advertisers to base their media buying budgets on their own estimates of what their competitors are spending. Gathering intelligence on competitors is important. In fact, it’s essential. However, uncritically copying what your competitors are doing is misguided. Who says they are following best practice?
The truth is that there is no magic formula for setting a media buying budget. However, there are clear principles, that when coupled with your knowledge and experience of your business and industry, will give you a rational basis for setting your advertising budget.
Set Your Objectives
The first question any advertiser must ask themselves is what they want to achieve. The sole purpose of advertising is to achieve a business goal. Until you can define that goal, you simply cannot set a media buying budget. Otherwise, you are merely setting yourself up for disappointment.In setting a goal, it is also critical that goal is specific. It is no good saying that your goal is to increase sales. Of course it is. You need to define things with far more precision.
For example, you need to define your goal as something like generating five million dollars in sales over the next 12 months or achieving an increase in call centre calls over the next three months of 20 percent. The more specific, the better.
To learn more about how to set your advertising objectives, please watch How To Create An Advertising Brief
Advertising As An Investment
Once you have your clear goal, you can then begin setting your media buying budget. To do this, you need to shift your thinking about advertising. You need to start looking at your advertising as an investment. It is the money that you need to spend in order to try and achieve your desired objective.So, let’s run some numbers to make things a little clearer.
What if your previous year’s advertising budget was $45,000? As always happens with budgets, we’ll top it up a little (say, by $5,000) and roll it forward into the following year. Your objective is to generate $5m in sales. On that basis, you would be expecting a return of 100 times your advertising outlay.
Now, that’s a pretty impressive return and also most likely unrealistic!
The point is, however, that it is only by setting a clear objective for your advertising that you are able to begin rationally assessing what a reasonable media buying budget should look like.
Again, there is no magic formula that will tell you to the third decimal place exactly how large your media buying budget needs to be. This is where the experience of your past advertising activities, your knowledge of your competitors’ and the like can help you. However, they are merely guides rather than alternatives for clear thinking.
Other Considerations
In following this return-on-investment approach to setting your media buying budget, there are many factors that you also need to consider. The truth is that your advertising campaign does not exist in a vacuum, and therefore, you need to consider your campaign in the totality of your circumstances.How well known is your company or product?
Generally speaking, a new business or a new product needs to work harder to capture people’s attention and build the necessary familiarity and trust than established businesses or products.
What will your competitors be doing?
The more active your competitors are, the harder your advertising will need to work to capture consumers’ attention. This is particularly true during busy times of year such as Christmas and the end-of-financial year.
How well is the economy traveling?
No matter how well known you are or how quiet your competitors may be, there is always the mindset of consumers to consider. If they are nervous, you may need to invest more in advertising to convince them to spend.