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Methods for creating an advertising campaign budget. Printing house business plan

When forming a budget advertising campaign The following must be taken into account: the stage of the product’s life cycle, its market share; geography and sales volume; level of competition in the market; financial capabilities of the organization; the costs of various alternatives (for example, the price of television advertising compared to radio and magazine ads); changes in prices for advertising in the means of its distribution; level of differentiation of a given product group; the popularity of the company itself and other factors.

World theory and practice advertising activities A number of methods have been developed for creating an advertising campaign budget, each of which has its own advantages and disadvantages. Thus, along with the simplicity of the method, its low reliability is also evident; to increase the accuracy of calculations, additional information is often required that is not available on the information services market. Therefore, in practice, the choice of method depends on the planner, his education, experience, and worldview.

All methods can be divided into two groups: traditional and new. More advanced new methods (mathematical models and experimental formulas) make it possible to determine advertising costs with a high degree of accuracy. However, in modern Russian market conditions they are often overly complex in practical application due to market instability and lack of information, therefore they will not be considered on the pages of this textbook; you can familiarize yourself with them in the sources. Let's look at the main traditional methods formation of an advertising campaign budget.

1. Cash calculation method. Many companies budget for advertising a certain amount that they can afford to spend. This method of determination advertising budget completely ignores the impact of advertising on sales volume. As a result, the size of the budget remains uncertain from year to year, which makes it difficult to plan long-term advertising activities.
2. Calculus method "as a percentage of sales." Advertising costs under this method are calculated as a certain percentage of either the amount of sales (current or expected) or the selling price of the product.

This method has a number of advantages: it is easily accessible, quite simple to use, and can be improved by varying the percentages depending on various factors. The disadvantages of this method are that the percentage of sales can only be determined based on past experience or the actions of competitors; there are no other logical grounds for choosing a percentage. When forming an advertising budget, the need to advertise a specific product and a specific sales territory are not taken into account; The budget size does not fully take into account the advertiser’s available capabilities. This method is based on the argument that sales are the cause of advertising, and not the effect.

3. Historical method. The basis of this method is the formation of a budget by revising the previous budget and adjusting it in accordance with changing conditions. With this method, the budget can be based on the previous year's budget with appropriate increases based on inflation or other market factors. However, the mistake made earlier when drawing up the budget will remain and will be transferred to the new budget.
4. Competitive parity method. This method involves creating an advertising campaign budget at the level of the corresponding costs of competitors. It is assumed that the level of costs of competitors represents the “collective wisdom of the industry”, and maintaining competitive parity helps to avoid intense competition in the field of advertising activities. But there is no reason to believe that competitors have more sensible views on the issues of forming an advertising budget.
5. Calculation method “based on goals and objectives.” This method consists of considering each objective of an advertising campaign and determining the costs required to complete it. It requires that the advertising budget be based on:
- precise formulation of advertising goals;
- identifying the tasks to be solved to achieve the goals;
- cost estimates for solving these problems;
- precise determination (quantitative and qualitative) of the audience for which this advertisement is intended;
- choice of advertising style, nature (intensive or extensive) of the advertising campaign;
- determining the nature and direction of advertising activities (a campaign to launch a product on the market; to increase the prestige of the company; to maintain the achieved sales volume, etc.);
- assessing the means (information and advertising) that can convey this advertising message to the target audience;
- calculating the cost of funds provided for the effective achievement of intended goals.

The sum of all these costs will give an approximate figure for budget allocations for advertising. The advantage of this method is that it requires management to clearly state their ideas about the relationship between the amount of costs, the level advertising contacts, the intensity of testing and regular use of the product. This method of budget formation is more labor-intensive than those described above, because in reality it requires preliminary consideration and calculation of the entire advertising campaign.

6. Equity method. The essence of this method is that in industries where there is great similarity between goods (services), there is usually a clear relationship between market share and share in industry promotion of products. Based on this, some organizations focus on achieving a certain indicator market share, and then a certain percentage of costs is set slightly above this share for promoting products (services). For example, if an organization has a 12% market share, then it should invest 14% of the industry's promotional investment in product promotion. This method, if used by all participants in the market for a particular product, can lead to an increase in advertising costs in general structure costs due to competition in the market. Ultimately, both the organizations involved in such a struggle and consumers who are forced to pay additional costs for advertising campaigns will suffer.
7. Empirical method. The amount of spending on an advertising campaign is determined experimentally. By conducting a series of tests in different markets with different advertising budgets, the optimal volume is determined. However, with this method of budget formation, it is difficult to identify the final results of the impact of promotion methods and advertising events in particular.
8. Development of an advertising budget based on cost planning. An advertising expenditure plan is an estimate of the costs of various planned activities aimed at achieving set goals.
9. Method of calculating the advertising budget using residual funds. According to this method, the amount of the advertising budget is calculated based on the funds remaining after use for all other needs. Investments in advertising are no different from any other investments; their return on investment can be both higher and lower than other (alternative) investments. Therefore, advertising costs should be considered on an equal basis with other costs.

There are also other methods of creating an advertising budget that can also be used when developing them and planning an advertising campaign as a whole.

For more than fifteen years now, communicating with clients, I often encounter the problem of forming an advertising budget. Often, even experienced managers approach this important issue haphazardly, without taking into account many trends and changes in the media market. In Russian advertising publications, I have never found competent, interesting and practically applicable works on this topic - as a rule, everything ends in general discussions without specific recommendations. Modern Western publications are much more useful in this regard, but are not always applicable to Russian reality. In this article, I analyzed Western approaches to advertising budgeting and the possibility of their application in our country. Before we begin to analyze the principles of constructing an advertising budget, we will determine the main factors that influence this process:

Product life cycle

Introducing a new product to the market requires significant advertising costs, often exceeding the profit from its sale over a long period. Obviously: in order for the buyer to learn about the product, distinguish it from competitors and make a trial purchase, it is necessary serious investment. At the same time, the risk of failure is maximum here. After passing this stage, a decision is made on the choice of further marketing strategy- either we move forward, increasing sales volumes and advertising budget, or we defend the captured market segment, which requires lower expenses. Some companies use the third option - a minimum of advertising costs after the first stage. Their decision is based on the fact that the “memory effect” operates for a certain period of time: a person continues to buy even without advertising. Although sooner or later the demand for the product will still decrease. The higher the activity of competitors and the fewer clear individual advantages a product has, the faster this will happen, even in a growing market.

Market

Before determining your advertising budget, you need to clearly understand your market - its volume, quality and territory. It is clear that there is no point in using national funds mass media, if the main sales of goods are concentrated in the capital and three or four cities. In this case, it makes more sense to concentrate on local advertising. It is worth going to federal media (primarily TV) only when the number of regions of interest to us exceeds 15. Of course, this figure can vary greatly depending on specific areas and selected communication channels, but One must always remember: in any national campaign, some of the money will be wasted. No, and there cannot be a product or service presented in every village, every town and every city in Russia where federal channels broadcast. Therefore, in any case, all advertising costs must be assessed in terms of payback and product representation in retail outlets. When assessing the market, it is also necessary to take into account its quality, i.e. a set of demographic, social, age, property characteristics. As a rule, the wider the market, the more expensive advertising is. All advertising costs must be assessed in terms of payback and product representation in retail outlets.

Competition

Another important factor in market analysis is competition. A clear understanding of the actions of competitors, their pros and cons, knowledge of their costs and the effectiveness of their campaigns are necessary components of successful media activity. Before starting an advertising campaign for your product, it is very useful to have information on the share of costs (SOS - Share of Spends) and ratings (SOV - Share of Voice) of your competitors. Sometimes it is better to immediately abandon the launch of a new brand and its promotion than to waste money. At the same time, the more unique the product, the more consumer advantages it has and the more interesting the creative solutions in packaging and advertising, the greater the chances of success even in the conditions of fierce competition.

Profitability

The level of profitability of a product is one of the most important conditions affecting the size of the advertising budget. With minimal profitability, you can afford to spend serious money on promotion only with large volumes of product sales. Conversely, brands with high and very high added value can be advertised at relatively low cost. big sales oh, and the allocation of funds for promotion logically fits into the brand development strategy, and the risks of failure here are much less than in the first case.

Finance

It is no secret that large transnational companies, due to redistribution financial resources between product lines, they can afford to advertise the product for a long time and actively, working “to zero” or “in the minus”. The main thing is the prospect, winning your market share, gaining loyal customers. Most Russian companies This is prevented from doing so by limited resources and high risks when introducing a new brand to the market. In the absence of the necessary financial resources, I see the most acceptable strategy as a gradual increase in advertising costs, linked to an increase in sales volume. The most dangerous thing is to join the “budget race”, since in this case strong competitors will begin to put pressure on them by increasing advertising costs and encourage them to make unreasonable expenses.

The problem of over- and under-costing

The question that primarily interests all advertisers is the relationship between advertising and sales. The approach “the more I spend on advertising, the more I sell”, popular in Russia in the nineties, is dangerous and does not take into account most trends in the modern market, namely: the unpredictability of competitors’ actions and consumer reactions to new product, the problem of market saturation in all segments. Any professional can easily give a lot of examples of inflated promotion costs. The main mistake of many advertisers is their belief that advertising sells a product. Not at all - the product is sold by the sales department and salespeople in stores, or the buyer himself chooses a specific product from many similar ones. Advertising does not sell a product, it gives the buyer information, creates an image of a specific product in his mind. trademark, its advantages, forms associations and influences choice. That's the whole point! How do you figure out how much more to spend when the brand image has already been created through advertising, associations have been formed and the buyer’s choice has been made? How to calculate how much goods can be sold for each additional ruble invested in advertising, and when investments in media promotion lose their effectiveness? I find very interesting the American (V. Ahrens, K. Ahrens) approach to the issue of the relationship between advertising expenses and the level of sales, the essence of which is that at a certain point in time, additional investments in advertising cease to influence the level of sales, moreover, when With high advertising costs, sales begin to fall. Why is this happening? There may be several reasons:

The product is outdated, you are wasting your money in a product category that is outdated or not accepted by consumers. There is only one recipe - before spending extra money, look at what is happening outside the window and whether your product has a future. Even if you invest tens of millions of dollars, you will not be able to increase your sales volume.
The consumer is “fed up” with advertising; its abundance, monotony and frequency cause persistent aversion, which transfers to the product itself.
Poor media campaign planning or poor creative decisions. You are advertising in the wrong direction or speaking to the consumer in a language they do not understand.
Competitors have entered the war for your customer, but you have failed to assess the new situation and continue to follow the established advertising scheme. In all these cases, investments in advertising sharply lose their effectiveness. True, even if none of the listed factors are relevant to you, still, as advertising costs increase, their effectiveness gradually decreases.

Conventionally: at the stage of entering the market, every million rubles wisely spent on advertising gives an increase in sales by one percent. At the maturity stage, for the same million we can only maintain the existing sales volume. But if we cut costs, sales may fall. In such a situation, it is necessary to evaluate the market prospects of the product. If it exists, then you can either be content with the existing state of affairs, periodically changing creative solutions (so as not to get tired!), or rebrand the brand, “refresh” it, thereby attracting new customers.

The main approach when building a media budget is to always check the cost of advertising against the return on investment, taking into account the following:

The impact of advertising on sales may only become apparent after some time;
If advertising costs increase at a certain stage, the level of sales will increase, but profits will decrease;
There is always a minimum advertising spend to achieve each goal: if you spend less than the minimum, then you should not expect a good result

There is always a limit, exceeding which will not affect the level of sales. Another problem that we have to face is the discrepancy between the assigned task and the allocated budget. When in a media planning brief a client writes “coverage - all of Russia, means of communication - television, budget - $200,000,” he can only be advised to weigh financial capabilities and goals. More than 20,000 different commercials are shown on Russian television every year, and the smaller the budget, the greater the likelihood of “drowning” in this huge ocean. Experience shows that for a person to pay attention to an advertising message, he must see it at least six to eight times. Based on this figure, knowing the media indicators (share, audience, reach, index of compliance with the target audience) and the cost of advertising, you can approximately calculate the minimum, less than which you cannot spend. But if you paid attention, it does not mean you remembered. And even if I remembered it, that doesn’t mean I bought it. Therefore, when planning an advertising budget, you should always take into account a great many components and think about the goal.

Principles of building an advertising budget

American marketers (Beauvais, Arena) identify nine basic principles for building an advertising budget:

Percentage of sales. The size of the budget is determined by comparing it to a percentage of last year's sales, or the level of expected sales for the next year, or both. This percentage is usually based on overall industry sales, company experience, or is set arbitrarily.
Percentage of profit. Similar to the previous method, except that the percentage expression is the profit (for the past year or expected for the next year).
Sales level in units of goods. Otherwise called the “method of calculating the sales rate in a specific situation”, this is another option for calculating sales as a percentage. The amount of expenses is set for each box, crate, or barrel that goes on sale. Used primarily to evaluate the activities of members of a cooperative trade or trade associations horizontally.
Competitive parity. Money is distributed in quantities corresponding to the costs of the main competitors. Otherwise, this method is called the “method of self-defense.”
Share participation in the market. The amount of expenses is distributed so that the percentage of share participation in industry-wide advertising is maintained in accordance with the percentage share participation in the market or with some excess of the latter. Often used when introducing new products to the market.
Method of matching with the task. Otherwise called the target or budget increase method, it includes three stages: defining goals, defining strategies and determining the costs of implementing these strategies.
Empirical method. By conducting a series of studies in different markets with different budgets, companies determine the most effective cost level.
Use of quantitative mathematical models. Used computer programs, developed by large advertisers and advertising agencies based on input of mathematical calculations, development history and assumptions.
Method of accounting for existing funds. An in-house approach typically used by small firms with limited capital that are trying to introduce new products or services to the market.

It is impossible to find the only correct approach. The advertising budget in the conditions of Russian reality must contain the fundamental ability to change, be as flexible as possible, and respond to ongoing changes in politics, economics, legislation, and the competitive environment. In my opinion, only a combination of several methods and the inner instinct of a businessman will help develop a budget that is close to optimal and brings real results.

There is no way to determine a media budget that is 100% suitable for you. Let's consider all of the above principles through the prism of the realities of our market.

"Percentage of sales"

The most simple, popular and up to a certain point effective method. It is calculated either based on the results of the previous year (defined as the share of advertising costs in the company’s total sales) or as a planned percentage of sales in next year. Or both approaches are combined. The main disadvantage of this method is that it is impossible to take into account market dynamics, changes in the competitive environment and a drop (increase) in sales levels. Unfortunately, in Russia there is no open reliable data on the relationship between the level of sales and the percentage of promotion costs. However, by using available data on companies' media expenditures and comparing them with information from the customs committee or published reports from advertisers (which happens extremely rarely!), one can roughly understand the value of this indicator. Of course, this method is very useful in a relatively stable market - it is understandable, transparent and easy to calculate. However, it also has very serious disadvantages.

Firstly, The “percentage of sales” method rather states the current situation in the company (and often works!), but does not answer the question: “How much money should I spend when launching a new product?”

Secondly, in the event of a drop in sales, following this method, you need to proportionally reduce advertising costs. But a decrease in sales can be caused by many reasons - the actions of a competitor, changes in the price situation, and changes in demand. In this case, blindly following this method can lead to even greater losses.

"Percentage of profit"

You can't know how much product you'll sell next year, but you know very well what your profit percentage will be per unit. The spread of profitability levels even within a specific product category is very large. But this is a known quantity. By defining the advertising budget as a certain percentage of profit and correctly assessing your market, you can plan advertising costs quite correctly and effectively. The disadvantage of this method, like the previous one, is that when using it it is necessary to combine it with other approaches and take into account constant changes in the market situation.

“Sales level in units of goods”

In essence, this method is quite similar to the two previous ones, the only difference is that the starting point is not the volume of sales or profit, but the number of units of goods sold (pairs of shoes, kilograms of sausage, bottles, cans, boxes...) As a rule, Advertising expenses for a certain period are used as initial indicators, which are divided by the number sold goods. For example, 2,000,000 packs of toothpastes were sold. $100,000 was spent on advertising, i.e. $1 for every 20 packs. Theoretically, to increase sales, you need to increase your advertising budget accordingly. In reality, this approach is practically inapplicable, because The market environment is constantly changing, and one of the main criteria for an effective advertising budget is the ability to change it under the influence of external and internal factors.

"Competitive parity"

For Russian business, in my opinion, this method is one of the most applicable.

Firstly, You can get fairly reliable data on the advertising costs of your main competitors. Secondly, Using surveys and research, determine where we are in relation to competitors, how well we are known and bought. Thirdly, Knowing other people's advertising costs and comparing them with sales information, you can draw conclusions about the effectiveness or ineffectiveness of your media costs. Data from research companies on media budgets are very arbitrary, as they do not take into account discounts, surcharges and taxes. But knowing the pricing procedure for advertising media, you can quite accurately calculate the real costs for each of your competitors. A number of Western authors call this method the “method of self-defense”, which for Russian practice not entirely true. When introducing a new product to the market, you analyze not only its potential and competitive environment, but also the successes and mistakes of opposing companies. If you plan to capture a significant market share, then at the entry stage your costs should be significantly higher than the average costs of other players, since in reality you are not yet a competitor to them - no one knows your product. This method is often called an “advertising attack” - a powerful, calibrated media impact on all consumer groups over a certain period of time. You quickly enter the battle, and very quickly everyone to whom the advertising message is addressed will learn about your brand. However, as in war, such an attack must be very well prepared, namely:

Your brand must be in demand and appeal to consumers;
Your product is on the shelves;
Inventory or production allows for a significant increase in supply;
Your sales team and your dealers know when and how the advertising campaign will be carried out.

I find the method of analyzing cost effectiveness per unit of market share quite interesting. The lower the advertising costs per unit of market share, the more effective the advertising is.

"Share participation in the market"

This method is used primarily by companies that aim to achieve a certain market share by spending a corresponding percentage of their budget on advertising. The author of the method, J. Peckham, states that “when a new brand is introduced, the advertising budget should be one and a half times the market share expected in two years. This means that if the company expects to achieve 10% market share in two years, then It should spend approximately 15% of industry advertising dollars in the first two years." Thus, the method assumes that in order to maintain or increase the market share of a product, the advertising budget must always exceed the industry average.

In practice, especially in our country, this method should not be considered other than as an exclusively theoretical construction, because the potential dangers from its use exceed its effectiveness. Why?

Firstly, it is impossible to take into account the growth of media inflation, which sometimes reaches up to 30% per year. However, no one guarantees that the volume of this market will increase proportionally.
Secondly, we cannot know the plans of our competitors. It is quite possible that their budgets will significantly exceed ours, even taking into account the expected advance.
Thirdly. The ratio of market shares between companies is a constantly changing value, which does not always directly depend on the volume of advertising investments. There are always many other, subjective and objective factors, administrative, economic and political processes that influence the market share of a product.

Conclusion: You can know about the existence of the method, but using it in our reality is not recommended.

"Alignment with the task"

One of the most interesting and practically applicable methods for determining the advertising budget. It sets out the main goals and how advertising can be used to achieve them. Otherwise, this method is called “targeted”. It is fundamentally important that advertising in this case is considered as part of a marketing strategy that influences product sales.

The method consists of three stages.

Stage 1. Defining the goal

Based on production volumes, potential, market volume, existing sales level, analysis of the competitive environment, certain quantitative marketing goals are set. At the same time, it is important to realistically assess your capabilities and the current market situation.

Stage 2. Define strategy

In other words, developing a program of goals. It is the program for achieving goals, not the concept of an advertising campaign. The fact is that the concept of an advertising campaign also involves setting a budget. In this case, we determine HOW and WHAT needs to be done to achieve the intended results. Using Data marketing research, analyzing our own as well as others’ successes and mistakes, understanding the mechanism of advertising’s impact on our consumers, we plan options for advertising impact that take into account the reach of the target audience, seasonality, types of media carriers, and the required number of audience contacts with our message.

Stage 3: Cost Estimation

After determining the goals and strategy, a project cost of our program is drawn up. It may turn out that the amount will be significantly higher than our initial plans and not economically feasible. In this case, you need to either adjust the goals (lowest risk), or accept the fact that at this stage the profit from the project will be minimal. In practice, both approaches are applicable; the only criterion in their use is time. If the goal is to quickly achieve maximum advertising indicators (rating, frequency, coverage), then the inevitable costs are very high. But the effectiveness of advertising can be felt very soon.

In another case, when a strategy of long-term market entry and gradual gain of share is adopted, the selected program is stretched over time so that advertising costs fit within economic indicators companies. It is always necessary to carefully analyze the results of each stage of the campaign, for which, even at the stage of its development, it is necessary to prepare criteria for evaluating effectiveness. The advantage of this method is that it is maximally adapted to market changes and has both logical and mathematical justification. The disadvantage is that it is very difficult to determine in advance the amount of funds to achieve the goal, however, when combining this method with others, you can get a good result.

"Empirical Method"

On the one hand, it is a very expensive method, because when using it you need to experiment with your own money, conducting trial campaigns, using various types advertising in different volumes or build advertising communications based on your own vision and understanding. On the other hand, with proper analysis of data obtained through trial and error, it can give very good results.

When should it be used? When you cannot assess the preferences of the target audience or when you are introducing a completely new product or service to the market. This method is often used when advertising expensive real estate and B2B projects. Target Audience- people with high and very high levels of income. They do not participate in surveys, do not answer questionnaires - in general, they extremely do not like anyone to interfere in their lives. But they read newspapers, listen to the radio in the car, visit restaurants and clubs. In this case, a generalized image of a potential buyer is drawn up, the possible range of his interests is determined, and work begins on placing advertising that he may see.

Then, analyzing the results obtained (calls and purchases), the most effective types of advertising and the costs for them are determined.

Conclusion: The method is inappropriate when promoting mass goods or services, but can be very successfully used in cases where it is impossible to predict the effectiveness of advertising investments.

"Quantitative mathematical models"

I've seen several examples of advertising budgets being built using data on the consumer's expected response to communication and behavior. Moreover, there are a number of formulas that allow, from the point of view of their authors, to create an optimal advertising budget.

The simplest of them, the Powers formula, looks like this:

P = S(L)(M) - (UF + OF + V[S][L] + T[E])

Where R- expected profit; S- increase in sales (expressed as a share of baseline sales); L - basic level sales in monetary units;
M- product profitability coefficient (profit per unit of production, expressed as a share of the selling price of a unit of production); U.F.- costs associated with paying for contractors’ services; OF- current fixed costs; V - variable costs; T- probability of termination; E- termination costs.

I think comments are unnecessary.

Conclusion: the method will only work in the sterile conditions of a frozen market. It is based on assumptions that may be false or on data that cannot be obtained. In Russian reality it is practically inapplicable.

"Accounting for existing funds"

Unfortunately, this is a very common method in Russia. The budget is determined based on the financial capabilities of the company for a specific period after taking into account all other expenses. The concepts of “goals” and “prospect” go to the farthest level: if money remains in the company, it is spent on advertising, if not, then there is no advertising. As a rule, the level of advertising from such advertisers is appropriate. One thing is gratifying - there are fewer and fewer such companies.

Advertising budgeting

In the majority large companies, the advertising budget is drawn up a year in advance, which allows, firstly, to correlate advertising expenses with the planned financial activities, secondly, get the best conditions for advertising on TV, radio, and in the press.

If the seasonality factor has a strong influence, the budget is approved for a specific season (at the same time, conditions for advertising placement, as a rule, are still received for a year). The main thing in all approaches is not only obtaining better conditions, but also the possibility of making changes to the budget allocation, its adjustments and additions depending on changing market conditions, actions of competitors, changes in strategy. Managing the advertising budget is usually the responsibility of the marketing/advertising manager or the advertising agency.

Conclusion. Harmonious budget.

Errors and distortions in the distribution of funds, even with a properly planned budget, happen very, very often. As a rule, the reason for this is either a lack of understanding of the principles of the impact of advertising or the transfer of knowledge and ideas about budgeting from other areas of business to advertising.

Alas, sometimes I observe a situation where the budget is made “for the first person”: those channels and publications are taken that, first of all, are watched by the manager, and not by the target audience.

Thus, when speaking about a harmonious budget, I mean an optimal budget in terms of amount, developed based on the conditions/competitive environment and the chosen marketing strategy:

a budget built on the basis of clearly formulated objectives facing the advertising campaign;
budget that takes into account effective coverage of the target audience;
a budget in which the distribution of costs is carried out taking into account their profitability and efficiency;
budget, each element of which is a necessary part of the company’s overall marketing mechanism;
a budget that can be adjusted following changing business conditions.

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