How To Break Down Your Advertising Budget – Example
If you’re an advertising veteran, you may practice breaking down an advertising budget frequently. On the other hand, if you’re not experienced with it, it can be daunting. Every time we talk to a new client we end up having to work out their budget so these are tips to keep focused on.
What Costs Are Associated With An Advertising Budget?
- Staff Resources (Client-Side)
- Agency Management, Creative Direction, and Strategy
- Content Production Talent
- Paid Media Vendors & Set-Up Costs
For the sake of this article, I’m going to leave off the staff resource calculation. This is more about how you should think about working with us, and where your money goes. We found that being transparent about these things makes it easier to talk about what you get in return.
Agency Management, Creative Direction, and Strategy
No matter how big an advertising agency is, somebody wears these hats for you on your project. Here’s what each department has to be responsible for:
- Client Relationship
- Internal Project Management
- Media Buying
- Creative Direction
- Art Department Management
- Technical Talent (Copywriting, Design)
- Goal Setting
Take a look at that. When you go to a big agency each one of those individual bullet points is a specialization. If you have a budget of $50,000,000 per year and you give that to an advertising agency they better put some talented people on it, right? That makes sense of course. However, on the smaller scale of advertising budget you may not require that many people however the cost of doing business with an agency like that invariably goes up. In other words, there is a definite trade off between where your budget has to be balanced to retain the value on both sides.
REMEMBER: You still have to pay for creative production (unless the agency who buys your media includes that but then you’re still paying for other talent) and oh yeah…the actual cost of media.
Many agencies have and include some creative talent in the cost of their media buying. In the early days of advertising that 15% transparent commission *included* art. Actually, often times to win bids agencies would provide spec (i.e. speculative) work in order to prove their art would work best. Then the actual media buy was where they made their money. So if they had to hire additional creative talent to finish a piece of art that cost could be completely lost. Hey, agencies have to live right?!
On the other hand, a lot of media buying agencies don’t have creative talent on staff, so they get that from their vendors – who you may or may not ever meet. We do have creative talent in-house (you are reading the words from one of them now) however that’s additional time and brain power dedicated to your account so yes, that factors into the cost of working with us.
Paid Media Vendors & Set-Up Costs In Your Advertising Budget
You’ve already seen that you can be paying for a lot of talented people to deal with your account, plan what to buy, do the buying, manage the people doing all of that work in addition to direct creative and strategy for what to make and place. Now we have to actually procure the placements for the media we are going to produce. Set-up costs can include the hard cost of printing your vinyl for the OOH installation, physical media, etc.
Many advertisers have negotiated with media vendors on their own account. That is a common and typical thing, but at a certain scale you need an agency to do that work for you. It’s not about understanding it. Think about it this way: if your budget for advertising is $120,000 you can walk that to the media vendors yourself and buy whatever you want. Few of them would refuse an order like that.
However, our agency may have (10-20) clients at your buying scale. That means we represent about $1,200,000 – $2,400,000 in orders to those same vendors. Therefore the vendors are incentivized to give us the best possible deals on any project, so we keep bringing other projects to them. It’s an economic ecosystem that supports these different sides of the business.
$120,000 Budget Sample
This is not how every project goes. I should caveat this section with that. Let me say this another way: if you come to us with $120,000 you will not necessarily get this exact same breakdown. Please remember this is simple a sample. An example. This is one way we could break down a similar budget. Okay. Did I say that enough times to make it clear? Hopefully so. Let’s move on…
- Agency Management, Creative Direction, and Strategy (10%) = $12,000
- Content Production Talent (15%) = $18,000
- Paid Media Vendors & Set-Up Costs (75%) = $90,000
Our budget for you with our vendors is now $7,500/per month (paid as $22,500 in quarterly installments) to distribute. This is the kind of scale we’re going to look at when presenting our proposal to you so we know where we’re headed.
That’s the place where agency management, creative direction, and strategy are doing their work on the front end. With this kind of model we are able to leverage a tremendous amount of influence on the product offering we get for you. At this rate we are fairly compensated, and therefore incentivized to provide unbridled fervor in representing your advertising.
So Where Would We Spend Your Advertising Budget?
This budget is appropriate for a company doing below $5,000,000 in annual revenue. That means the reach of our campaign will likely only be able to stretch comfortably within the geography of 1 city. Or less. Depending on where your target audience actually is you may be pumping a lot of your advertising into a few zip-codes. Or, if you’re in a B2B industry we may be placing in more of a trade-based way as compared to based on geography. Though digital advertising platforms allow you to target and distribute to billions of people? You still should generally win at home first. That’s our philosophy.
For the sake of argument, let’s say this $120,000 advertising budget is for a consumer-facing business of some kind. That $90,000 of media we’re going to buy will have to be targeted at who we believe are your most likely customers. To do that inevitably we’re going to narrow down to where people live, work, or entertain themselves. That way we can reach them through the media we can place when they’re most likely to engage with it the way we want them to.
- Print: Local newspapers still provide a valuable service, and most of them extend online now.
- Mail: The “open rate” for print mail is almost 100% even to this day, so you shouldn’t avoid it.
- OOH: You can’t “unsubscribe” from them and they create a very powerful effect.
- Audio: This helps create word of mouth since people will hear your name.
Why not video?
Like I said before, this is a sample budget. If you truly believe in video we can lean more heavily on that medium; and change the distribution platforms we use. However, the cost of that content production is much higher than copy, design, and audio. That means we may end up having less to spend on purchasing the actual distribution. These are all variables that get accounted for in our agency management, creative direction, and strategy planning prior to execution.
You COULD Think Of It Like…
If we have ~$7,500/month to spend on your distribution, it may break down evenly across those (4) channels described above. That means that we’re actually spending about $1,875 per channel per month. Our vendors think about it that way, which is how we spread the wealth and budget your spending. Obviously it’s not always this equally distributed, and given the outcome we’re after it will definitely have to change. However, for budgeting purposes, or for round estimating this should help.
One reason this is beneficial for you is to get grounded. You should not expect to market yourself to (50) states with a budget of only $120,000 per year. It could certainly be done, and generating PR (where you actually don’t pay for the distribution) may be a better bet in that case – but the chances it will work dramatically reduce.
Think Of It Like Painting…
If you spread a coat too thin, you just have to hit the wall with another coat. Well if you only have enough paint to do a single room, you are better off painting that one room really well. Otherwise you may just end up with a very thinly painted house which won’t look great. Whenever you watch one of those house shows on TV the couple has their expectations shattered a bit. This happens all the time with client expectations of how advertising media and creative should work.
Education & Trust Are Key
We treat you and your money with respect. When you entrust us with your advertising budget it is our chief aim to create a meaningful ROI on that investment. One of the ways we can do that best is by educating you. Educating you on our process, on the industry in general, on your competition, etc.
When we can create an environment where education and trust are present, amazing things are possible. Optimizing an advertising budget is a practice, which means that there are always new things to learn. We are here to ensure you get your money’s worth and are completely satisfied.
Advertising works but there are no silver bullets. That’s why it’s important for us to find multiple outlets to promote your message and multiple forms of media production to distribute. Keep this in mind and please feel free to reach out with any specific project or campaign you have in mind.