About the shopping-therapy or what is ‘communication budget’?

The question whether “to do business” and “to make money” are two different manners of saying the same thing is the subject of another article, which you certainly won’t read here. What is certain, however, is that money is a major factor in business and during the last years in many other fields such as education, health care, politics and art as well. In different parts of the world, the relation between money and the relevant sector has developed at a different time and has a different proportionality.

Here we will mainly review the part money plays in business but each of you may make their personal references to other realms as well, based on personal experience. Can you do business without a budget? What is the importance of communication for accomplishing business goals? According to data from Statista, the German paid portal about statistical data, the companies with the largest budgets allocated to advertising are Procter & Gamble, Ferrero, Volkswagen, followed by Telekom and L’Oréal (in 2017). The figures vary according to the scale of the business or according to the amount of investment in a new business, according to the ambition and goals of the public personality or political party, etc. In general, size does matter in these endeavors as well. Determining “how much we should spend” for advertising, PR, for communication can happen in several ways. There are no rules, however, telling us whether we should spend money at all for some of the above. There are only consequences of the decision taken.

I will list 4 methods of how to determine the budget for communication activities.

Option 1: The % Method

A lot of managers determine the sums for advertising based on the company turnover/revenues. Although this method is widespread, it has its variations. They, in particular, depend on the branch: in industry and strategic businesses like pharmaceuticals, power engineering, transport, construction, the communication expense, this percentage may vary between 10% and 20% of revenues. In the field of services, the percentage rarely exceeds 6-7%, while in small companies the owners typically allocate an average of 2% for advertising.

Option 2: Necessity Method.

This principle is most often applied when: а/ starting up an activity or b/ upon laying the foundations of communication activities in business. Usually the amounts are larger during the first months compared to the following years. Starting a business, we need a new logo, website, personnel recruitment, overall corporate design … in general, we want to make a show and, confidently raising the curtain, make a spectacular appearance. This costs us an amount of the overall budget.

Option 3: Goal-setting method

This is the option where the assistance of a communication consultant or an entire team of marketing experts can be so valuable. According to the goals that you have clearly and specifically set for your business, the consultants will determine not only the size of your communication budget but also its allocation in time: you want a better image, you want more customers on weekdays, you want more Instagram followers or an expansion of your team until the end of the year. We will review this method in detail here throughout the months to come.

Option 4: The “Per Person” Method

Per person because regardless of whether we sell dog food, look for new customers for our office or more visitors to the new picture gallery, it’s all about people. This method determines the communication budget on the per-person basis: gallery visitor, follower of a social channel, customer. In all cases, the costs for communication are inevitable if we want to be successful as a business endeavor or institution. The costs should desirably be at least covered by the revenues so that every participant in the process is happy.

Now, for the finale of this so commercial and real article, here’s a joke: A man in depression visited his psychiatrist (shrink): “Doctor, I need your help. I am not in a good mood, I have no appetite or desire for entertainment.” The doctor asked him if he had bought something recently. The patient said he hadn’t. “Well, you should. It will have a positive effect.”

On the following day, the doctor asked the patient if he went shopping and he answered, “Yes, Doc. I spent 1000 lev (Bulgarian currency)”. “This is a serious amount. What did you spend it on?”, asked the shrink. “I bought 500 euro.”

This article uses information from www.wirtschaftswissen.de and www.de.statista.com.