Let’s be honest, advertisements are annoying! They pop up in the middle of YouTube videos, in between your Spotify playlists, and during television or radio breaks. Sometimes they even end up on your social media feed and you accidentally like them, making them pop up even more! However, did you know companies spend millions upon millions of dollars creating these little inconveniences in our entertainment? These advertisements are one of the tactics companies use to promote their products and brand. Thus, this leads to the question: how much do companies spend on advertising?
Factors Influencing an Advertising Budget
- 1 Factors Influencing an Advertising Budget
- 2 Advertising Budget vs. Marketing Budget
- 3 Facebook Advertising Cost
- 4 Instagram Advertising Cost
- 5 Which Companies are Spending the Most on Advertising?
- 6
- 7 Deciding on Your Advertising Budget
- 7.1 1. What percentage of revenue should a company allocate to advertising?
- 7.2 2. How do small businesses compete with large corporations that have million-dollar advertising budgets?
- 7.3 3. What’s the difference between advertising budget and marketing budget?
- 7.4 4. How quickly should I expect to see results from my advertising investment?
- 7.5 5. Which advertising channels provide the best return on investment?
- 7.6 6. How do I determine if my advertising budget is working effectively?
- 7.7 7. Should I handle advertising in-house or hire an agency?
- 7.8 8. How has digital advertising changed traditional advertising budget allocation?
An advertising budget is the amount of money a company plans to spend on promotional campaigns and strategies over a certain period of time. During these times, the company might be selling a new product or introducing a new service. Regardless, there are a series of steps a company must take to ensure that their advertising budget is practical for their marketing goals. The first step is answering a series of important questions.
Who is the Target Audience?
When you are planning advertisements, it is important to figure out who you want your advertisements to reach. In other words, who is going to be most interested in your products or services? Figuring out the targeted demographic allows you to spend your money and resources in the right place. To do this, you can create a consumer profile to give you a general idea of your ideal customer.
Which Media Type Will You Use?
There are a variety of places that you can place an advertisement, so it is important to spend your money in the right places. To do that, you need to find out which media type (television, social media, etc.) is the best way to reach our target audience. In the past, the best way to spend your advertising budget was on print, radio, and television advertisements. Nowadays, the internet and the fast pace of social media has quickly taken over.
Another important factor to consider is the placement of your advertisement. You need to place it somewhere everyone can see. This is where programmatic advertising comes in. Programmatic advertising includes allowing your ads to be seen and automatically sells and buys advertising. Finally, blogs are another powerful form of advertising. For example, your company could act as a sponsor to a popular blogger, allowing them to write blogs and articles.
How Can You Get Consumers to Purchase?
Once you have your target consumer, it is time to figure out how to make your products appeal to them. To persuade them to buy your products, you have to understand if they are prone to emotional or rational appeals. Will a story about how your product has evoked love in a lonely person get your customers to buy your product? Or will a list of all the scientific achievements your product has achieved be more successful? These are all things to consider when budgeting your advertisements and understanding where to spend your money.
Relationship Between Expenditure and Impact
After spending all that money on advertisements, you have to wonder if your investment will pay off. Will you earn back all the advertising budget you spend off with your profits? This is an important question since you have to consider which investments are worth it.
Your Industry
While the basic concepts of advertising are the same for all companies, there are slight variations when it comes to advertising in different industries. It is always useful to research how much do companies spend on advertising in your industry and compare it to your budget.
A great resource to use is the Schonfeld survey. Every year Schonfeld & Associates, Inc. publishes a report of advertising budgets by industry and company as a percentage of their sales. There are over 4,500 companies in more than 300 industries. This is a great resource to compare your advertising budget with similar companies. While the survey is pricey, you can find them in some libraries or universities. By comparing what you spend with other companies, you can easily see if your budget is in line with the standard.
Advertising Budget vs. Marketing Budget
You might be wondering, what is the difference between an advertising budget and a marketing budget? The answer is that advertising budgets are incorporated into a company’s marketing budget. A marketing budget also includes products, price, place, and promotions. The promotional budget is what the advertising budget is a part of.
Different Industries
Just like advertising budgets, marketing budgets are different within each industry. For example, the Consumer Service industry has the highest marketing spending as a percent of company revenue by industry with 18.9% and Manufacturing has the lowest percentage at 2.4%. Another important part of the marketing budget is where it is spent. Since there is so much more involved with marketing than just advertising, you can split the expenses into different categories: direct expenses, brand-related expenses, marketing research and analytics, social media marketing, and so on. While these are only some of the potential areas the budget goes, this also varies from each industry.
Facebook Advertising Cost
While advertising on social media is fairly new, it is clear that some platforms are being invested in more than others. With around 91% of marketers investing in Facebook advertising, it is the dominating social media platform.
The cost of using Facebook advertising depends on which form of bidding you take as well as other factors. First off, Facebook has Cost-Per-Click (CPC) ads. These are charged per click to each link. They cost around $0.97 per click. Next is the Cost-Per-Thousand-Impression (CPM). This type of advertisement has an average cost of $7.19 and allows 1,000 users to view your Facebook ad. There are also other services such as Cost-Per-Like (CPL) which could be around $1.07 and Cost-Per-Download (CPD) which is around $5.47.
Factors that Affect Cost
While the costs listed above are for Facebook’s general services, some factors can affect advertising costs. For instance, appealing to a certain demographic can cause more money. As strange as it sounds, your advertisement might be more expensive if you are targeting the older generation or if your audience is women.
Additionally, your advertisement cost can be affected by the engagement. The price of having more impressions and clicks is higher than advertisements with less. It is recommended to have a daily budget of around $5 to make sure your ad reaches the most people.
Finally, since Facebook has many ad placements, where you want your ad can cause more money to be spent. The six different places you can put Facebook Ads are Instagram, Instagram stories, Facebook desktop newsfeed, Audience Network, Facebook right column, and Facebook Messenger.
Instagram Advertising Cost
Right after Facebook, Instagram is the second most used social media platform by marketers. Similar to Facebook they also have a variety of different ad choices. Instagram ads are known to have higher click-through rates compared to other social media platforms. The average cost companies pay for ads on Instagram is between $0.20 to $6.70, which is cheaper than Facebook. Cost-per-click ads (CPC) are between $0.20 to $2 per click. Cost-per-impressions (or CPM) costs around $6.70 for every 1,000 impressions.
Just like Facebook, different factors can impact the base cost of running an advertisement on Instagram. For instance, an ad relevance score, where Instagram judges your content on relevancy to their users, can affect how much you will pay.
Another interesting fact is that displaying ads on different days can also impact the price. For example, since more people view Instagram on weekdays, having ads on Sundays is cheaper than on Monday!
Which Companies are Spending the Most on Advertising?
While not everyone has the money to have a multi-million dollar advertisement budget, some major companies have seemed to go above and beyond with advertising spending. A data study published in 2017, listed the top 10 US Brands that Spend the Most on Advertising.
At the bottom is Samsung Electronics with $2.41 billion. At the top of the list is Comcast Corp. with $5.75 billion. As you go along the list, you will realize that the majority of them are from the customer service industry. Additionally, many of these top 10 companies have sub-companies or brands that they own. This means that as a parent brand, they must worry about all their companies’ subproject budgets as well. This is understandable considering Comcast owns Universal Pictures, which is a film studio, and advertising for films are expensive!
Deciding on Your Advertising Budget
To successfully launch products and services, an advertisement budget is needed to not overspend. While you should not go crazy like these million dollar companies, promoting yourself on social media is a good start. The proper and most efficient way to advertise comes from research and experience. Do not be discouraged with low engagement at the beginning as many social media advertisement strategies take time to see significant results.
Frequently Asked Questions About Company Advertising Spending
1. What percentage of revenue should a company allocate to advertising?
The percentage varies significantly by industry, but most companies allocate between 2-18% of their revenue to advertising. Consumer service industries typically spend the highest percentage at around 18.9%, while manufacturing companies spend the lowest at approximately 2.4%. Small businesses often need to invest a higher percentage (10-20%) to build brand awareness, while established companies might spend 5-10% to maintain market position. Factors like company size, growth stage, competition level, and business goals all influence the appropriate percentage. It’s important to research your specific industry benchmarks using resources like the Schonfeld survey to ensure your budget aligns with industry standards.
2. How do small businesses compete with large corporations that have million-dollar advertising budgets?
Small businesses can compete effectively by focusing on targeted, cost-efficient strategies rather than trying to match large corporate spending. Concentrate on niche markets and local audiences where you can build authentic relationships. Leverage social media platforms like Facebook and Instagram, which offer affordable targeting options starting at just $5 per day. Create high-quality, engaging content that resonates with your specific audience. Use guerrilla marketing tactics, partner with local influencers, and focus on exceptional customer service to generate word-of-mouth marketing. The key is being strategic and creative rather than simply spending more money.
3. What’s the difference between advertising budget and marketing budget?
An advertising budget is a subset of the larger marketing budget. The marketing budget encompasses all promotional activities including advertising, but also covers product development, pricing strategies, distribution channels, public relations, market research, analytics, social media management, content creation, and promotional campaigns. Think of advertising as one tool within the broader marketing toolkit. While advertising focuses specifically on paid promotional messages, marketing includes all activities designed to attract, engage, and retain customers. Most companies allocate their marketing budget across multiple areas, with advertising typically representing 20-50% of the total marketing spend.
4. How quickly should I expect to see results from my advertising investment?
The timeline for advertising results varies greatly depending on your industry, target audience, and advertising channels. Social media advertising might show initial engagement within days, but meaningful business results typically take 30-90 days. Brand awareness campaigns often require 3-6 months to show significant impact. For new businesses or products, expect 6-12 months to see substantial returns on advertising investment. Digital advertising generally provides faster feedback than traditional media, allowing you to adjust strategies more quickly. The key is to set realistic expectations, track the right metrics (not just immediate sales), and maintain consistent efforts rather than expecting overnight success.
5. Which advertising channels provide the best return on investment?
The best ROI varies by business type and target audience, but digital channels generally offer better tracking and cost-effectiveness than traditional media. Facebook and Instagram advertising are popular choices, with Facebook averaging $0.97 per click and Instagram ranging from $0.20-$6.70 per thousand impressions. Google Ads can be highly effective for businesses with high search volume. Content marketing and email marketing often provide excellent long-term ROI. The key is testing multiple channels with small budgets first, measuring results carefully, and scaling up the most effective channels for your specific business and audience.
6. How do I determine if my advertising budget is working effectively?
Measure advertising effectiveness through both direct and indirect metrics. Track immediate results like click-through rates, conversion rates, cost per acquisition, and return on ad spend (ROAS). Monitor longer-term indicators such as brand awareness, website traffic growth, social media followers, and overall sales trends. Use unique promo codes, landing pages, or phone numbers to track which campaigns drive results. Calculate customer lifetime value to understand the long-term impact of your advertising investment. Set specific, measurable goals before launching campaigns, and regularly review performance against these benchmarks. Remember that some advertising benefits (like brand awareness) may not show immediate monetary returns but contribute to long-term business growth.
7. Should I handle advertising in-house or hire an agency?
The choice depends on your budget, expertise, and business complexity. In-house advertising works well for small businesses with limited budgets, simple campaigns, and team members who understand digital marketing. This approach offers more control and lower costs but requires significant time investment and ongoing education about advertising platforms and best practices. Hiring an agency makes sense when you have complex campaigns, multiple channels, larger budgets, or lack internal expertise. Agencies bring specialized knowledge, advanced tools, and proven strategies, but cost more and may not understand your business as intimately. Many businesses start in-house and transition to agencies as they grow and their advertising needs become more sophisticated.
8. How has digital advertising changed traditional advertising budget allocation?
Digital advertising has dramatically shifted budget allocation from traditional media (TV, radio, print) to online channels. Many companies now allocate 50-80% of their advertising budgets to digital platforms compared to 20-30% just a decade ago. Digital advertising offers better targeting, real-time optimization, detailed analytics, and often lower costs than traditional media. However, traditional advertising still plays a role for brand awareness and reaching certain demographics. The trend is toward integrated campaigns that combine digital precision with traditional media’s broad reach. Companies are also investing more in content creation, social media management, and marketing technology tools that support digital advertising efforts.
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