One of the methods is to find out what the company can afford in a given business situation. However, according to this method, advertising opportunities are usually overlooked because the advertising expenses are considered to be unaffordable. For Eg.- for a start-up company, investing in advertising would cost a lot.
Percentage of Sales method:
The advertising spend can be some percentage of the sales revenue of the company.
For example: a 2% advertising spend decided on a Rs.50 Lakh p.a. revenue company would come out to be Rs.1 Lakh.
Percentage of Profit method:
The ad spent percentage is related to profits instead of sales, wherein profit provides even more assurance than sales.
Competitive parity method:
The method takes the total budget to be allocated for advertising to be at par with hat of competitors to prevent any price wars. For Eg- HUL and ITC spending nearly equal on their personal care category advertising.
Returns on Investment method:
In this method,all the profits generated by advertising are compared with the cost of the funds and a proportional ad budget is decided.
Objectives and tasks method:
Advertising objectives are decided upon for the coming budget period and all the costs that would be incurred for achieving these objectives are calculated in terms of the tasks to be performed.