Definition, importance and tips
An advertising budget refers to the total amount a company spends on the marketing and promotion of its products or services. Setting a marketing and advertising budget can help a brand focus on goals and results.
An advertising budget is important for a successful marketing plan. Your ad budget is the amount you plan to spend on paid promotion of your brand and/or products over a set time period, such as a year or a quarter.
Businesses spend this budget to cover the cost of running the ads (usually measured in clicks or impressions), designing and producing the ad creatives, and other related expenses, such as hiring an agency to manage their ad campaigns. Your ad budget can impact the type of campaigns your brand creates and strategies your brand implements.
Setting an advertising budget ahead of time allows you to anticipate your expenses for long-term business planning. Planning out your budget allows you to be deliberate about the scale of your advertising—number of channels, size of audience, length of campaign, and more.
Without deciding on a budget ahead of time, you may risk either losing track of expenses and overspending on advertising, or not having enough budget set aside to advertise at all. Both can potentially limit your business’s ability to grow.
To determine your advertising budget, start by deciding what your marketing goals are. These goals should support your business’s marketing strategy, and can range from increasing awareness or consideration to generating repeat purchases or brand loyalty. Your goals will impact your ad budget by informing choices such as which advertising channels you use or the type and size of audience you want to reach.
Two important concepts in creating an advertising budget are media planning and media buying. Media planning sets the stage for your ad campaign, and is the process by which you select advertising channels and formats, and decide on factors such as your audience and key performance indicators (KPIs). Media buying, which occurs after you have your media plan, is the step when you purchase the placements on ad channels (media) that best serve your goals within your budget.
Your media plan—and therefore your advertising budget—should be informed by research. Awareness of industry trends and an understanding of your audience will help you make the right media choices to achieve your goals. If applicable, look at your past advertising campaigns for any insights about what did and didn’t work. Reviewing the expenses from previous campaigns can help estimate the budget you will need.
What do you include in an advertising budget?
Your advertising budget should encompass all costs associated with advertising, from start to finish. For example, production of your ad creatives includes copy, design, video production, and printing. Then there is the cost of distributing the ad in your chosen channel, ranging from cost-per-click or cost-per-mille pricing models for online advertising to postage for direct mail advertising. You also need to account for other required resources, such as purchasing software or hiring an agency.
Is an advertising budget the same as a marketing budget?
Your ad budget will be part of your overall marketing budget, which encompasses other marketing activities alongside paid advertising, such as content marketing, experiential marketing, social media marketing, and events. These non-paid marketing campaigns should be separate from your ad budget.
What is a good ad budget?
There is no universal formula for calculating a good ad budget. The best ad budget is one that fits your business’s priorities and long-term goals.
Different advertising channels set different rates for solutions, which will help you determine the best ad budget for your campaign. You will also need to make sure that the business owners and other relevant leaders are aligned and approve your proposed budget. For example, the budget allocation for advertising may be based on a variety of factors, such as the business’s annual revenue or how your advertising goals rank in terms of the business’s overall priorities.
You monitor your ad budget by monitoring ad performance. Whether or not a campaign is performing well depends on what your goals are. Once you know your goals, you can choose the KPIs that will help evaluate the performance of your ad campaigns. This will determine which metrics you should focus on.
Some metrics, such as sales attributed to advertising, can be monitored and evaluated in the short term. Here are two examples of performance metrics based on sales that are commonly used to evaluate ad campaigns.
What is ROAS?
Return on ad spend, or ROAS, is a metric that measures how much you got out of the cost of your ads. You calculate ROAS by dividing your ad-attributed revenue by your ad spend. For example, if you spent $100 on an ad campaign that generated $500 of ad-attributed sales, your ROAS would be 5 ($500 divided by $100).
A higher ROAS indicates a better performance when you are measuring success based on ad-attributed sales. Keep in mind that if you are prioritizing brand awareness or repeat purchase rate, ROAS would not be the most illuminating success metric, and the ad campaign with the highest ROAS isn’t necessarily the most successful one.
Advertising cost of sales, or ACOS, is a metric that represents ad spend as a percentage of sales for Amazon Ads campaigns, such as Sponsored Products or Sponsored Brands. You calculate ACOS by dividing your ad spend by your ad-attributed revenue, and then multiplying by 100 to get a percentage. For example, if you spent $100 on an ad campaign that generated $500 of ad-attributed sales, your ACOS would be 20% (divide $100 by $500 to get 0.2, and then multiply by 100 to get 20%).
A lower ACOS indicates a better performance when you are measuring success based on ad-attributed sales. However, just like ROAS, ACOS is not the only measure of success and may not even be one of the primary metrics you use for your ad campaign, depending on your goals.
However, if your goal is not directly tied to sales—such as driving brand awareness—then the impact of your advertising isn’t as immediately or directly visible through sales.
No matter which metrics you use, monitor them regularly for the duration of your ad campaign. You should also look at post-campaign results to evaluate overall performance, but don’t wait until the ad campaign is over before you check on it. In-flight measurement allows you to identify trends and optimize accordingly, or pivot away from a campaign that isn’t performing.
If you’re new to Amazon Ads and just getting started on advertising, you may be interested in additional resources. We offer the following resources to help you understand your budget options for sponsored ads products like Sponsored Products and Sponsored Brands.
- Read our guide on how to plan and set up your advertising budget for Sponsored Products.
- Watch our short videos on budget rules for Sponsored Products and how to use them.
- Our Introduction to bids and budgets webinar is designed for beginner advertisers and will guide you through the basics of budgets for sponsored ads campaigns.
- Once you are comfortable with the basics of sponsored ads budgets, our Tips for optimizing your budgets and bids webinar can help optimize your budget with more advanced tactics.