Budgeting

Many factors go into budgeting. Some companies do fundamental work on a percentage of sales, and there are standards for various industries and categories. Advertising should be X percent of sales, and then we make the most of that X percent of sales.

A lot of it also depends on the goal. If we want to change minds, we will undoubtedly spend more at that point in time because we are trying to offset perceptions that already exist.

Additionally, spending is sometimes reliant on the business model of the client company. Some companies sell one thing, they can put all their money behind one thing, and then they sell that one thing. That requires a different level of investment than a company that has seven divisions and seven product lines that all go to different channels and different customers. That type of company is going to have to spend more because there is a lot more going on.

Finally, a lot of it is determined by who the customer is and what the quantified population is. Ultimately, if there are seven million people in the country who might buy your product, you have to figure out how to talk to them—and there are certain costs associated with that.

A number of factors affect budgeting. It can be as simple as a percentage of sales, but more often you take in audience population, client business model, and the ultimate cost of the various media. Advertising in Indianapolis is not as expensive as advertising in Boston. If there are stores in Boston and stores in Indianapolis, we might do different things in those markets, too.

And lastly, when budgeting, always take into account return on investment or ROI. There are many ways to measure it. There are two columns. One is qualitative, the other is quantitative. The qualitative usually leads to the quantitative. On the qualitative side, many means can measure if you have changed someone’s perception. Has a larger group of people become more aware? Have we convinced people who were aware to be now predisposed? Have we caused people to get off their couches and go to our stores? Quite a number of qualitative methods and research methodologies can be used to understand whether we have changed someone’s mind and influenced the way they think. On the quantitative side, it gets down to: Have we improved sales? Have we improved profitability? Have we opened new distribution channels? Have these 10 new stores met their sales goals once we opened them? It comes down to fact. There are two fields of measurement: qualitative (what did we make people think?) and quantitative (what did we make people do?).