How To Determine Your Media Budget

Overwhelming?  Perhaps.  Absolutely Necessary?  Yes!

The question of how much money to spend on media & marketing is one that is very subjective and always dependent on a number of factors relevant to a particular business and its specific needs and goals. 

Easier said than done, in fact. 

“Determining a media budget is one of the toughest concepts many of our clients try to tackle,” said Stuart Nottingham, Director of Technical Services of Management Applications Inc., of Raleigh, N.C., which has been providing companies in all industries with ERP solutions and other consultative network and business services for more than 20 years.  “Some marketing initiatives just require your time, like networking and asking for referrals, while many require a financial investment.  It's a recipe that mixes differently according to your resources and needs.”

Nottingham notes that from online marketing and print ads, to direct mail and broadcast media (radio/television spots), it's an obvious fact that you have to spend money to make money. 

Thus, it's best to first determine a general budget range to start with.  While many clients are quick to ask “how much” they should spend, Nottingham notes beginning with a range saves time in eliminating media options that don’t make sense.  Then more time can be spent planning the very best way to allocate the media budget. 

There are two general ways to go about determining your media budget, according to Nottingham 

The first way to figure your media budget is as a percentage of projected annual revenues.  With this, having access to annual national media ratio reports to help determine how much to spend is paramount.

A real-life example is a media budget for a medical practice.  In examining the ratios, the percentage range for most medical practices is 4-13% of projected annual revenue.  And in 2011, physicians who marketed their services primarily through referrals from other physicians tended to spend from 4-5%, while physicians who marketed directly to patients spent between 8-10%, because they spent more on media buys including broadcast, print (newspaper and magazines) and online pay-per-click campaigns. 

A second good way to determine a media budget is to base it on Return On Investment, or ROI.

Generally, it makes sense to figure somewhere between a 3:1 ROI (earn $3 for every $1 spent), and a 10:1 ROI (earn $10 for every $1 spent) from media. 

Larger, more established brands and consumer brands can expect to get a higher return, while smaller, less established brands, B2B service businesses and companies that are re-branding will experience a lower return.  This is a good method to use if you want to gain significant growth over the course of a year. 

For example, if you want to grow your business by $200,000 over the next year,and you are a small, but established company, you could logically figure a 5:1 ROI, so your media budget should be $40,000. 

Nottingham stresses that the sooner you carve out a media budget, the sooner you can start to truly measure and understand the impact of the spend to your bottom line results.

And ALWAYS make sure to review your budget on an annual basis and adjust the numbers as your business grows or your media mix changes.

“Especially during these days of the economic roller coaster we're riding, it's always important to keep your media budget and planning top of mind, and ready to change things as business dictates,” cautions Nottingham.