Setting and Allocating

Budget, Various Methods

of Budgeting
BEN MATHEWS
T4 MBA
Definition

"Advertising budget is an estimated amount an

organization decides to invest in its promotional
expenditures over a period of time. An advertising
budget is the money a company set aside to
accomplish its marketing objectives.“

Depends On :
• Frequency of the advertisement
• Competition and Clutter
• Market Share of the Product
• Product Life Cycle Stage
Factors to be considered while budgeting
• Product Life Cycle. The products which are selling and are in the
mature stage of PLC require less expenditure. Where as the
products in the introductory stage of PLC or new products
require much heavier expenditure to create awareness.
• Market share: Companies which have high market share
usually require less for advertising.
eg: Apple products.
• Advertising frequency: Number of repetitions
needed to put
• Competition:- A product which facing high competition
have to spend more on advertising.
• Product substitutability:- Commodities like beer, soft
drinks, cigarettes etc require heavy advertising to
establish a different image.

Product Hidden product

life cycle Product Purchase Product qualities
durability Differentiation frequency price
PROCESS OF DEVELOPING AN AD
BUDGET
• Setting advertising objectives

• Determining the task to be performed to achieve

the objectives.

• Preparing advertising budget.

• Approval of the top management.

• Allocation of advertising budget

• Monitor and control

COMMON METHODS FOR SETTING AD
BUDGET

 AFFORDABLE METHOD

 PERCENTAGE-OF-SALES METHOD

 COMPETITIVE-PARITY METHOD

 OBJECTIVE-AND-TASK METHOD
AFFORDABLE METHOD

 The name itself gives an idea about this method.

 The amount which is affordable by the company will

be taken as the budget for advertising.

 It is mostly used by small businesses.

 Eg: If a company is willing to spend 3 lakhs for
promotion purpose, then it will be the advertising
budget of that particular company.
PERCENTAGE SALES METHOD

 It is a commonly used method by

large and medium-sized companies.

 Allocation of budget depend upon the

total sales figure. i.e high sales =high
budget ,low sales =low budget.

• The sales may be current, or

anticipated. Sometimes, the past
sales are also used as the base for
deciding on ad budget.
 For example, the last year sales were
Rs. 3 crore and the company spent
Rs. 300000 for advertising. It is clear
that the company has spent 1% of
sales in the last year
COMPETITIVE PARITY METHOD

 In this method the company is spending the same

amount on advertising as their competitors.
 Organizations following this approach
compare their advertising spending with
that of its competitors. As the organization
is aware of how much its competitors are
spending in advertising, it can logically
decide its advertising budget either equal,
more, or less to that of the competitors.
 It helps to prevent promotion wars
OBJECTIVE TASK METHOD

• The most logical budget setting method is the

objective and task method whereby the company
sets its promotion budget based on what it wants
to accomplish with promotion.

• It focuses on the advertising task that is to be

achieved.

• Advertising objectives are fixed after intensive

market research.
• THANK YOU