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How to Determine an Advertising Budget for Your Business

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As a small or medium-sized business owner, you know that advertising is crucial for promoting your products or services and reaching new customers.

But what you may not know is how to determine an advertising budget that makes sense for your company. Read on to learn more!


Before we dive into the factors that affect your advertising budget, let’s talk about what it is. What exactly is meant by “advertising budget?”

Your ad

Your advertising budget will impact the scope and scale of your marketing efforts, so it’s essential to set realistic expectations from the outset. Once you have a clear idea of your advertising budget, you can start planning your marketing campaign and allocate resources accordingly.


You already know that choosing your advertising budget isn’t a game of pick-a-number-and-hope-for-the-best. So what do you need to consider when setting the budget?

1. Your Revenue Goals

When it comes to advertising, your budget will largely be determined by your revenue goals. So your first step will be to set those goals, then work backward.

What are you hoping to achieve with your advertising campaign? Do you want to…

  • Increase brand awareness?
  • Drive more traffic to your website?
  • Generate more sales?

Once you have a goal in mind, you can begin to determine how much you need to spend on advertising to achieve it.

Of course, a number of other factors can affect your advertising budget, such as the size of your target market and the tactics needed to help us reach our goals. However, by taking a closer look at your revenue goals, you can get a better sense of the advertising budget that makes sense for your business.

2. Your Target Audience

Ultimately, your advertising efforts mean nothing without your target audience. After all, they’ll be the ones to recognize your brand, download your free resource, purchase your product or service, and so on.

Taking your target audience into full account will ensure your advertising efforts are effectively reaching the right people. So consider:

  • Who are you trying to reach with your advertising?
  • What are their needs?
  • What are their affinities?
  • How can your product or service meet them?

No matter who you’re trying to reach, it’s vital that your advertising budget reflects the needs of your target audience, and meeting them where they are in life.

3. Your Competitors

It’s also important to look at what your competitors are doing when setting your advertising budget. While we’d never advocate copying a competitor, there’s a lot to learn from competitive research.

  • Where are they placing their ads?
  • Is there a competitive advantage for you?
  • Are there any products or services they offer that you don’t or vice versa?
  • Do they have special offers?

But as a reminder, don’t get too hung up on what your competitors are doing — at the end of the day, what matters most is what works for your business.


Now that you have a better idea of the factors to keep in mind, how do you actually go about determining your budget?

One popular method for calculating an advertising budget is the percentage of sales method. To use this method, simply decide on a percentage of your gross sales that you’re comfortable spending on advertising, and stick to that number.

For example, let’s say your small or medium-sized business has gross sales of $50,000 per month. A recommended range for advertising spend would be 5 – 10% of your monthly sales. The range can vary based on the category you are in: QSR advertising would fall in the lower range, whereas home improvement would be higher. This fluctuation comes from the frequency your customer will engage with your brand and product margins.

Once you’ve calculated your monthly advertising budget using this method, you can break it down into what to spend on: creative, media buys, email marketing, etc.

Understanding how to calculate an advertising budget for your company is essential to ensure that your marketing efforts are effective and efficient. By taking the time to calculate a realistic budget upfront, you’ll be in a much better position to grow your business in the long run.

Determining an advertising budget can be a tricky task. But by taking into account factors such as revenue goals, target audience, and competitors, you can develop a budget that makes sense for your business and allows you to achieve your marketing objectives.

And if you need help determining your advertising budget, get help from an experienced ad agency, contact us!