Calculating Your Advertising Budget 

  • By Balla Media
  • 05 Feb, 2017

The following information is applicable to  physical  retail locations and mobile business services. 

If you come from an accounting background, advertising is a necessary evil. If you think you can rest on the merits of your physical location alone to grow business think again.  Over the many years of working with businesses I find it fascinating how many people calculate their ad spend or don't even think of requiring advertising until it is too late. Here's what I discovered. There are businesses who may not understand the value and residual value of advertising.  

Opening a brand new business . So you have a dream and you've invested your blood sweat and tears or someone else's money to open up the most amazing shop in town. Your money has been tied up into rent, inventory, employees....the basic stuff to get you going but haven't put the money aside to  let people know what an amazing business you have.  I'm not kidding when I say that 7 out 10 new business people I meet with haven't mapped out and set aside an ad budget for their business.  These businesses need to extrapolate their annual sales and calculate what they need to spend to build awareness. 

The Old 3-5% Rule. This 3-5% rule of gross annual sales is a number financial analysts threw around in the 60's and 70's and it stuck with businesses and corporations as the norm. Here's the kicker. A ton has changed since the 60's with exponentially so many more advertising channels/outlets/streams which are available. It's harder for businesses to make noise in the market place with all the ongoing influx of distractions from news, information, entertainment delivered my digital technology. Businesses need to stand out and should be looking at a minimum of 9%-12% of annual gross sales blended with an intelligent strategy.  See below how to calculate your ad budget. 

Advertising Only During Certain Times Of The Year.   Yes there are a minute group of businesses which don't require consistent advertising all year round(e.g. ski resorts), these account for 1% of the businesses out there. However whether  you are a seasonal or year round business you still fall into 99% of businesses who need to be advertising   ALL THE TIME.  Advertising by branding all year round is essential and is the lifeline to maintain and build your business's presence in the marketplace. 

The goal for all businesses whether you want to maintain or grow market share is to stay and remain at the top of the consumers mental shopping list of options. People like to do business with names that they recognize, businesses which fit their needs, and products or services which fulfill an emotional need. It's important to push your businesses presence on a light level all year round and during your seasonal peak periods to increase the frequency of your advertising to win more market share by call to action.   Watch How To Advertise  - 7 Factors and Formula. 

Advertising Your Business Based On A Physical Location.  Watch How To Calculate Your Ad Budget .
If you are looking to maintain business then consider the lower end of the budget scale because you will always have attrition. Attrition is part of every business and you need to maintain a flow of new customers to offset customers who drop off, repatriate the old ones and maintain touch points and connectivity with existing ones. 

Use this spreadsheet:   Ad Budget Calculator   Adjust fields B2 (gross sales) B8 (Annual Lease or Cost Of Occupancy) to come up with a recommended range budget to work with.

Non-Physical Locations.
Let's say you work out of your home and you want to grow your business. You now have less overhead and more margin to build business.

Selling Products / Services On-Line:
There is a totally different approach and formula to selling products on-line. You should not use the above calculator to determine your budget for e-commerce or on-line conversions from your google campaign.  There is a whole other formula of metric based selling and it is determined by  ROAS (Return on ad spend) and CPA (Cost Per Acquisition). In many cases it's not as simple as the above calculator as there are many more variables for driving on-line sales conversions whether it's forms, sales or phone calls. Your going to be looking at Conversion Rates, Average Order Of Value and CPC.  You can utilize the following formula for calculating your on-line goals/conversions and budget which is incorporated into your overall ad budget from the Ad Budget Calculator Spreadsheet. Check out  View Google's Metric Based Selling Formula Here

Advertising - An Exciting Investment. That's right. It's an investment and it needs to approached in a way that you know it's one of your most important tools in your business's journey of growth. To not advertise is like winking at a beautiful woman in a pitch dark room.

Rob Balla







By Balla Media 20 May, 2017
I just need to clarify the headline of this ad blog when I refer to this statement as applying to local media reps and not national media reps.  This ad blog will touch the nerve of only a few sales reps,  because it holds validity. National media reps LOVE ad agencies because it's those ad agencies which drive their revenue and bonus money.  As an agency we will have the odd local client tell us that the media rep has relayed to them not use an agency because they will save money by buying direct from them.  When I come across this comment it's usually  from a business owner who has been in touch with a radio or print sales rep, and you'll see why.
 
As agencies work for the best interest of the client in terms of how ad dollars are spent most efficiently, an agency does not represent any one media but rather consults for the best fit based on a list of factors ranging from budget, type of campaign, creative, location, target audience etc.
The agency's job is to get more for the same amount of money a client would spend or less. When I refer to "More" it could apply to a more efficient schedule, bonus commercials, promotions or better rate.

Overall the agency acts as a strategist, gate keeper and negotiator as a partner with the client on their behalf.  As an example, a local radio rep represents usually 1 - 3 radio stations which are either independently owned or owned by a conglomerate.  Not only are radio reps in competition with people on their own team, they are in competition with other stations in the market. The rep may typically have the viewpoint that everyone is in competition with them for those available ad dollars from a business in the marketplace. Now you can see how an agency can be a bee in the resp bonnet ensuring the client's ad budget is not being over-killed and driven to the reps own stations. In many small to medium sized markets there are typically more radio and print options in the marketplace, hence these reps are slightly more pugilistic in nature when vying for ad dollars. 

As opposed to writing a long dissertation as to why some media reps prefer businesses not to use an agency to media buy allow me to bullet point it:
  • Media reps get 3 - 5% less commission if the business buys through an agency.
  • The rep is now in more competition with other stations to win the business of that client, because the agency will provide the client's criteria and will determine which station provides the best fit based on target demo, frequency, reach, added value, bonus or promotion. If a media wants the business badly enough they will go the extra bit to make it work.  Not all reps like to do the "Extra Work"
  • Some media reps will provide a proposal which is either overkill or under kill in frequency. This basically means that the business owner may be spending too much and wasting ad dollars which could be placed elsewhere or they could not be spending enough which equates to an ineffective campaign.  Those reps who overkill campaigns don't typically like an agency's involvement because it takes dollars away from their sales budget because an experienced and knowledgeable agency will compose a campaign to deliver the right frequency for the client based on the objectives. 
  • If a media grosses up the campaign when working with an agency the logic is to offset the decrease in sales reps commission and since the sales reps just needs to write up the order it's less work for them. Reps don't like it because they are making less. Station owners like it because they are making more because they pay the sales rep less. Is this logical? No it isn't, from the reps standpoint...but that's the way it is.  Those stations which sell to agencies with no gross ups make it more favorable to work with which in turn can give more value to the client.  Buying on a CPP, CPM or GRP basis is the right way to go.  

I'd just like to once again reiterate that not all local media reps look at an agency as an adversary. There are many admirable media sales reps who see the value an agency delivers to a client and station and will work relentlessly with the agency to ensure  results driven campaigns are delivered for the client. To those sales reps, the client and agency salute you and value our relationships!






By Balla Media 05 Feb, 2017
If you come from an accounting background, advertising is a necessary evil. If you think you can rest on the merits of your physical location alone to grow business think again.  Over the many years of working with businesses I find it fascinating how many people calculate their ad spend or don't even think of requiring advertising until it is too late. Here's what I discovered. There are businesses who may not understand the value and residual value of advertising.  

Opening a brand new business . So you have a dream and you've invested your blood sweat and tears or someone else's money to open up the most amazing shop in town. Your money has been tied up into rent, inventory, employees....the basic stuff to get you going but haven't put the money aside to  let people know what an amazing business you have.  I'm not kidding when I say that 7 out 10 new business people I meet with haven't mapped out and set aside an ad budget for their business.  These businesses need to extrapolate their annual sales and calculate what they need to spend to build awareness. 

The Old 3-5% Rule. This 3-5% rule of gross annual sales is a number financial analysts threw around in the 60's and 70's and it stuck with businesses and corporations as the norm. Here's the kicker. A ton has changed since the 60's with exponentially so many more advertising channels/outlets/streams which are available. It's harder for businesses to make noise in the market place with all the ongoing influx of distractions from news, information, entertainment delivered my digital technology. Businesses need to stand out and should be looking at a minimum of 9%-12% of annual gross sales blended with an intelligent strategy.  See below how to calculate your ad budget. 

Advertising Only During Certain Times Of The Year.   Yes there are a minute group of businesses which don't require consistent advertising all year round(e.g. ski resorts), these account for 1% of the businesses out there. However whether  you are a seasonal or year round business you still fall into 99% of businesses who need to be advertising   ALL THE TIME.  Advertising by branding all year round is essential and is the lifeline to maintain and build your business's presence in the marketplace. 

The goal for all businesses whether you want to maintain or grow market share is to stay and remain at the top of the consumers mental shopping list of options. People like to do business with names that they recognize, businesses which fit their needs, and products or services which fulfill an emotional need. It's important to push your businesses presence on a light level all year round and during your seasonal peak periods to increase the frequency of your advertising to win more market share by call to action.   Watch How To Advertise  - 7 Factors and Formula. 

Advertising Your Business Based On A Physical Location.  Watch How To Calculate Your Ad Budget .
If you are looking to maintain business then consider the lower end of the budget scale because you will always have attrition. Attrition is part of every business and you need to maintain a flow of new customers to offset customers who drop off, repatriate the old ones and maintain touch points and connectivity with existing ones. 

Use this spreadsheet:   Ad Budget Calculator   Adjust fields B2 (gross sales) B8 (Annual Lease or Cost Of Occupancy) to come up with a recommended range budget to work with.

Non-Physical Locations.
Let's say you work out of your home and you want to grow your business. You now have less overhead and more margin to build business.

Selling Products / Services On-Line:
There is a totally different approach and formula to selling products on-line. You should not use the above calculator to determine your budget for e-commerce or on-line conversions from your google campaign.  There is a whole other formula of metric based selling and it is determined by  ROAS (Return on ad spend) and CPA (Cost Per Acquisition). In many cases it's not as simple as the above calculator as there are many more variables for driving on-line sales conversions whether it's forms, sales or phone calls. Your going to be looking at Conversion Rates, Average Order Of Value and CPC.  You can utilize the following formula for calculating your on-line goals/conversions and budget which is incorporated into your overall ad budget from the Ad Budget Calculator Spreadsheet. Check out  View Google's Metric Based Selling Formula Here

Advertising - An Exciting Investment. That's right. It's an investment and it needs to approached in a way that you know it's one of your most important tools in your business's journey of growth. To not advertise is like winking at a beautiful woman in a pitch dark room.

Rob Balla







By Balla Media 07 Sep, 2016
I've worked in media for over 20 years and it doesn't cease to amaze me how some media channels haven't changed in their approach to creating value when at times there is no or little value. When you are buying advertising here are some red flags to watch out for:

1) The media rep says we are so busy and running into sold out inventory but we still have some avails.
This is a common tactic. Albeit there will be times when a radio, tv station or billboard is in a sold out situation. However this is not the case all the time especially not when you happen to show interest in a buy or request a proposal. When I worked in radio as a sales rep we had 2 inventory structures. The sales managers inventory to the team and the REAL inventory. A sales manager would say to the team we are 95% sold out when in reality we would be 50-70% sold out... real estate development housing works in the same way....you'll see a sign which says a 70% sold out display on the lawn....sometimes that sign doesn't change for over a year. When a media says they are in a close to sold out situation it could be they want you to move quickly to avoid disappointment....if you ever come across this statement that "We are close to sold out" or "Ou inventory is filling up fast" you should think twice. First off do you want to be on a station where the commercial islands are just jammed packed with other sponsors and your message gets lost?? Secondly, by walking away you are sending a message that you do not buy under these conditions. When a media creates a false sense of inventory they have a self justified right to increase rates. It's a false value created by a false demand. As an agency we know there is always a way to negotiate a better rate or more efficient schedule for the same investment. There is always an alternative to the main streams to deliver highly effective cost per thousands without falling into the trap of tactics. If the station is still a good fit for your business and the investment is in line with your ROI and the CPM or CPP is in line then start your branding campaign at a timeline when there is no price pressure. Wait til the price is right. If your campaign is based on urgency or a sale you may have no other option than to but pay the piper.

2) A media may sell a sponsorship with an exorbitant value attached to the promotion or sponsorship.....you'll be apprised you can have it for a fraction of the cost. Decide with caution and don't fall into this pressure trap either. Radio, TV stations will typically run a promotion using their promotional or programming inventory. At times there may be an opportunity for clients to piggy back as a sponsor or to "own" the promotion. A station will place a value up to 2 to 3 times of there promotional inventory based on their top rate card price for a commercial...eg. If a 30 second commercial spot is sold at top rate card for $100, the station will place a value of $250 on their promotional occasion...
Within this promotional spot as a business you may receive a name mention or a tag line.....in no way is it worth a $250 value based on this case scenario. So a tv or radio station will offer a client a category exclusive sponsorhip for "XX" amount of dollars based on the promo value. If the media is providing this promotion in exchange for product for prizing then it could be worth it depending on the exposure....each opportunity needs to be assessed on an individual basis based on awareness ROI. Don't pay for a promotion until you consult with an unbiased party such as an advertising agency to determine the true ROI value. The amount you invest in whether it be cash or product investment (cash) may be better invested in a regular airtime schedule with that media or in another media.

3) We are the number 1 station with seniors who love to ride bikes on a Tuesday while eating hot dogs. Ok..so you get my point. Every media is number 1 in something. You have to carefully compare apples to apples when considering where to place your ad dollars. An experienced agency has the knowledge and expertise to analyze media schedules based on target demographic, location, reach, frequency while dovetailing your specific creative and marketing objectives.

4)Selling you more or not enough for an efficient campaign. There are sales reps which will sell you too much and reps who won't sell you enough. Buying and selling media is an art form. It's a delicate process of understanding weighing a number of variables from budget, audience, reach, frequency and of course the message. If one of these are out of kilter it could mean a waste of time and money.

Media can create awareness and drive calls and traffic to your website or retail location...just remember it can't close the business...that's what your business and your people are supposed to do. Contrarily, I have worked with clients who said they "Tried" a certain media and had no success. No response. Once I dig a little deeper I eventually find out what the real issue was. Sometimes the campaign works and the client's phone rings but the business has poor front lines, or there is a customer service issue or no one is there to answer the phone...or sometimes it's the schedule where the rep didn't give them enough frequency or the campaign ran short. Sometimes it's the creative. Creative needs to be compelling creating an emotive response....remember it's not always about price as we know...customers do not always pay based on price they pay based on convergent factors where emotion meets logic...when your business has solved a problem for the consumer or has created an emotively empathetic response which at times is priceless.





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