How to Make An Advertising Budget [With Template]

Think about your favorite brand: what do you picture? How did you find them? What makes them different from others in their industry? 

The answer to all of these questions is likely advertising. 

An effective advertising campaign has the power to influence customers, increase reach, grow demand, and — most importantly — increase sales. As such, advertising is important for any growing business. 

However, advertising can be expensive and, when done poorly, can negatively affect your business’s bottom line. 

Learn more about how to create an advertising budget so you get a better return on your ad spend. 

Interested in hiring an ad agency? Browse leading advertising agencies on Clutch. Filter based on price, location, and customer ratings to find the perfect partner for your next big project, saving you valuable time searching. 

What Goes Into an Advertising Budget? 

Advertising is the process of promoting a business or product, but there are many different types of advertising. You can choose between PPC advertising, social media advertising, over-the-top, radio, print, TV, and even out-of-home (OOH) advertising. 

Regardless of what type of advertising you invest in or what your overall budget is, here’s what you need to budget for when creating an advertising campaign. 

• Media Buying is the purchase of ad space on various channels. In addition to the cost of creating an ad, you will have to budget for placing an ad. The cost of this depends on the channel you’re using, the industry you’re in, and the audience you’re targeting. 
• Market research is the collection of data on consumer needs and preferences. This information can be used to inform your advertising strategy, so it’s an important step when creating an advertising campaign.  
• Production & creative costs such as video production, graphic design, and copywriting are essential for developing eye-catching and effective ads. While some types of advertising require more creative work than others, almost all ad campaigns require creative work to some extent. 
• Agency fees. Many businesses hire service providers such as advertising agencies, video production companies, graphic designers, or media buying companies to support their advertising efforts. Be sure to include their fees in your budget for an accurate estimate of your expenses.  

How much a business spends on each of these services, however, depends entirely on the type of advertising campaign they run, their target audience, what industry they’re in, and the length of their ad campaign. 

To create a comprehensive ad budget, companies need to break down their advertising strategy and estimate how much they will spend on each component. 

Follow these steps to create an advertising budget for your business. 

How Do You Determine Your Advertising Budget? 

1. Decide on your total advertising budget
2. List your digital marketing goals
3. Conduct market research
4. Select which ad channels to utilize in your campaign
5. Estimate ad spend
6. Calculate production costs
7. Factor in agency fees

Decide On Your Total Advertising Budget

To keep your budget in check, it’s important for companies to set aside a certain amount that they’re willing to spend on advertising. 

How much a business decides to put aside for advertising depends on their business goals, industry, and business revenue. For example, if they want to grow brand awareness and increase sales, they may want to spend more on advertising. By investing more in advertising, they’ll be able to get their content in front of more potential customers, ultimately increasing their sales. 

Additionally, your industry may have an impact on how much you need to spend on advertising. Some industries, such as law, are more competitive. For instance, the CPC (cost-per-click) for legal keywords is twice as much as the average, significantly increasing the cost of an advertising campaign. In more competitive industries, companies must pay more to compete with others in the market. 

However, spending too much on advertising is a risky strategy, especially for small businesses. If you overspend on advertising, you risk not getting the return you are looking for and put your business in a precarious position. 

In general, most businesses spend between 5%–10% of their revenue on advertising. This is a good rule to keep your business financially healthy, but how much your business spends on advertising is up to you. Companies looking to grow their brand in the near future may spend up to 20%.  

List Your Advertising Goals

Your advertising goals can have a big impact on your advertising strategy, which can influence your advertising budget as well. As such, it’s important to know what your goals are before beginning your project. 

Common advertising goals include: 

• Building brand awareness among a new audience
• Increasing web traffic
• Engaging with customers
• Generating leads
• Customer retention & brand loyalty 
• Growing sales 

You should think critically about how your advertising campaign will help you achieve these goals, and as such, what that means for your business budget. Remember that ad prices vary depending on the channel, time of day, day of the week, and geographic area. 

Considering that TV advertising is inherently more expensive than PPC advertising because of production costs and the cost to place a TV ad, many companies opt to invest in PPC advertising instead. However, TV advertising is great for generating brand recall and recognition. For companies looking to solidify their brand name, TV advertising can be very beneficial. 

Choosing which advertising channel to invest in depends entirely on your advertising goals. With that in mind, create an advertising strategy that will help your business meet its goals and create a budget accordingly.

Conduct Market Research

Market research helps companies understand their market and target demographics. In addition to helping business leaders create a successful business plan, some of the information can be used to improve the effectiveness of their ad campaigns. What you may not know is that the information you gather through these processes can impact how much you need to spend on advertising.

Market research can include: 

• Brand research 
• Marketing campaign evaluations 
• Competitor research 
• Customer segmentation research 
• Consumer research 

The results of your research may impact which audiences you plan to target, help you determine which channels will be most effective for connecting with those audiences, and pinpoint what advertising strategies your competitors are utilizing. 

For instance, consider what would happen to your ad budget if you suddenly discovered a new audience to target. Some demographics are more likely to convert and/or are more likely to buy again. While it makes sense to target these audiences, the cost to advertise to them may be significantly higher. 

By increasing the size of your target audience, you will also increase the number of impressions your ad has. As a result, the cost of your campaign overall will increase. 

Finally, knowing how much other companies in your industry can give you a strategic advantage over your competitors. As many advertising mediums follow a bidding method, you will need to compete directly with other companies in your industry for keywords and ad space. With an accurate estimate of how much your competitors spend on advertising, your estimate will be more accurate. 

Without conducting thorough market research, it would be difficult to accurately estimate how much you will spend on advertising. The additional information will also inform your advertising strategy and help you attain a better return on ad spend (ROAS).  

Select Which Types of Advertising & Ad Channels to Utilize In Your Campaign

Advertising costs can change depending on the ad channel you employ. Therefore, it’s important that you know which advertising channel(s) you plan to use and what percentage of your advertising budget will go towards each platform. 

Here are some of the most popular types of advertising for small businesses:  

Digital Advertising 

• Pay-per-click (PPC)
• Social Media Advertising 

Video Advertising 

• TV Advertising 
• OTT Advertising 
• Connected TV advertising 

Audio Advertising 

• Radio advertising 
• Podcast advertising 

Print Advertising 

• Magazine advertising 
• Newspaper advertising 
• Out-of-Home (OOH) advertising 

While you may prefer one type of advertising over another because of its ability to help you reach your goals, small businesses may also need to consider their own cost limitations. Some ad campaigns are more expensive to run than others, so they may not fit your budget. 

Going back to the comparison we made before, the budget for a TV advertising campaign can look very different than a PPC ad campaign. To create a PPC budget, you’ll have to estimate the number of clicks your ad will get and multiply by the cost per click (CPC).  

In comparison, TV advertising usually charges a flat rate to place an ad. How much it costs depends on when the ad is airing, how many people, and the market in which it aired. On top of that, you also have to account for video production costs. 

No matter what your business goals are, there is an advertising strategy that can fit your budget. 

Estimate Ad Spend

Once you’ve created your advertising strategy, you can estimate how much you will spend on placing an ad. Calculating this depends on the advertising channel you’re using and their pricing model. 

Some, such as PPC and many social media platforms, charge based on the number of clicks an ad gets. Known as cost per click, the company gets charged a flat rate each time the ad is clicked. 

If you’re using one of these advertising channels, you can forecast the cost of your campaign by multiplying the cost per click by the number of expected impressions and the click through rate of an ad on that platform. 

CPC x Impressions x CTR = $ Estimated Ad Spend

Luckily, many digital marketing platforms can also help you cap your ad spend by limiting your budget. If you plan to use one of these channels, you can set a budget and your ad will no longer appear once that limit has been reached. 

Other ad mediums, such as TV, OTT, and most print ads use a pricing model based on the cost per mille (CPM), or the cost of an ad per 1,000 impressions. To estimate how much you will pay to advertise on these platforms, multiply the CPM by the number of impressions it is likely to receive. 

CPM x Impressions = $ Estimated Ad Spend

This will help you estimate how much it will cost to advertise on each of these platforms. When budgeting, you can use this information to allocate your ad spend accordingly. 

Calculate Creative & Production Costs

You should also set aside a set amount for developed ad creative. Whether you invest more in social media, TV advertising, radio, or even Google Ads, you will need to develop creative content to catch the attention of your audience and convert them. 

Ad creative can include: 

• Photography 
• Videography
• Graphic design 
• Copywriting 
• Animation 

Of course, some creative costs are more expensive than others. Creating a concept for a video, taking it through pre-production, scripting, hiring actors, filming, and editing a commercial video often takes more work than hiring a photographer to take product pictures for social. Nevertheless, be sure to include all creative costs in your budget. 

Factor in Agency Fees

If you need to hire an external service provider to manage your ads, develop creative, or buy media, you should include agency fees in your advertising budget as well. 

Most advertising agencies charge hourly rates for their work that do not include the cost of running the ads themselves. 

Hiring an advertising agency can be beneficial for many small businesses who do not have the internal resources to run their own ad campaigns. They’re able to help their clients manage their ad spend, pick the channels that make the most sense for their advertising goals, and develop creative that appeals to their audience. 

As a result, many companies find that they earn a higher return on their ad spend (ROAS) when they hire an ad agency. 

Advertising Budget Template

Download the Advertising Template for Your Budget

What Factors Impact Advertising Costs? 

The cost of running an ad can change due to several factors. Here are a few things to consider when developing your advertising budget.

• Location 
• Industry 
• Target audience 
• Length of ad campaign 

By considering these factors, you will be able to create a more accurate budget for your advertising efforts. 

Plan Ahead Before Creating Your Advertising Budget 

Advertising can be a costly expense, but it’s an important part of growing your business. While ad prices vary depending on the channel you choose to advertise on, your location, and industry, target audience, and more, you can control your ad spend with an appropriate budget. 

By planning your advertising strategy and breaking down the costs of each component, you can accurately estimate how much you spend on advertising and keep your expenses relatively reasonable. 

Interested in hiring an ad agency? Browse leading advertising agencies on Clutch. Filter based on price, location, and customer ratings to find the perfect partner for your next big project, saving you valuable time searching.