Promotional Budget: How They Work, Changing Dynamics

Promotional Budget

Investopedia / Yurle Villegas

What Is a Promotional Budget?

A promotional budget is a specified amount of money set aside to promote the products or beliefs of a business or organization. Promotional budgets are created to anticipate the essential costs associated with growing a business or maintaining a brand name.

The budget is often set according to a percentage of sales or profits for an established business, a percentage of startup costs or use of funds in the case of a startup, a percentage of raised funds in the case of non-profit or a foundation, in order to maintain an expected growth rate.

Key Takeaways

  • A promotional budget refers to money earmarked for the marketing, advertisement, or sales of a product or brand.
  • The amount to budget to promote a new or existing product will depend on business analytics, market research, and anticipated return on investment.
  • Changes in the advertising landscape have moved promotional dollars away from print advertising and toward web-based or social media campaigns.

How Promotional Budgets Work

The advertising and marketing of a business represent costs that most businesses have a tough time predicting, which is why a percentage method might be used. A promotional budget could be increased in anticipation of new product lines are set to release in the near future.

High promotional budgets can reduce profits during the period such assets are expended. Companies may allow for such higher costs based on an assumption that sales or awareness will increase among customers.

Promotional budgets usually include money put toward advertising across mediums such as radio, television, Internet, and print. A company’s promotional budget can include expenses for email campaigns, social media outreach, and outdoor signage.

The promotional budget might also go towards hiring outside experts and consultants who develop the campaigns and place ads in the appropriate media and locations. This can include contracting marketing intelligence firms to interpret data that shows how dollars spent on marketing translate into new or recurring business for the company.

Online advertising spending in 2019 was $125.2 billion, almost double the spend on television at $70.4 billion.

The decision-making process at organizations continues to evolve when it comes to allocating funds for promotional budgets. Budgeting strategies change as public attention continues to shift away from older, traditional media such as print to focus more on digital, online, and mobile media.

Based on a PwC report, 2019’s online advertising spend was $125.2 billion, almost double the spend on television at $70.4 billion, with Google and Facebook having a combined 70% digital ad spend market share.

The Changing Dynamics of Promotional Budgets

While the overall size of a company’s promotional budget might not have changed, the way the money is divided up may have. For instance, money previously dedicated to advertising through television might now include campaigns that reach people on smartphones.

The shifts that occur with promotional budget trends can have a direct effect on media industries that rely on those proceeds. A reduction in advertising dollars for newspapers and other print media, as companies directed those assets instead toward digital media and other outlets, contributed to a decline in the newspaper and magazine industries.

Companies regularly measure the return on investment from their promotional budgets. The results often have a significant impact on where companies continue to put their funds. For example, a company will likely change its strategy if a billboard campaign fails to attract attention at the same time social media marketing messages increase sales. In many cases, the promotional budget at the company will be adjusted to favor more investment in social media.