Affordable Method

Definition

The affordable method is a budgeting approach in advertising where a company allocates funds to advertising based on what it believes it can afford after covering its other expenses. This method is often used by small businesses or startups that may have limited financial resources, focusing on spending whatever remains after meeting operational costs. The challenge with this approach is that it may lead to inconsistent advertising efforts, as budgets can fluctuate significantly from period to period based on overall financial health.

5 Must Know Facts For Your Next Test

1. The affordable method is particularly common among small businesses that have unpredictable income streams, making fixed budgets challenging.
2. Using this method can result in underfunding for advertising efforts, which may limit the effectiveness of marketing campaigns.
3. Because the budget is determined after other expenses, this method can lead to missed opportunities for strategic advertising investments.
4. The affordable method does not take into account market competition or advertising goals, potentially leading to less effective outreach.
5. Businesses using this method often find it difficult to establish consistent branding and marketing presence due to fluctuating budgets.

Review Questions

• How does the affordable method compare to other advertising budgeting methods in terms of planning and predictability?
  • The affordable method lacks the planning and predictability found in other budgeting methods like the percentage of sales or objective and task approaches. While it allows flexibility in spending according to available funds, it can lead to erratic advertising strategies due to budget variations each period. In contrast, methods like the objective and task method are more structured, focusing on specific goals and ensuring sufficient funds are allocated for effective advertising.
• Evaluate the advantages and disadvantages of using the affordable method for a startup company.
  • For a startup, the affordable method can be advantageous because it allows for flexibility and minimizes financial risk by only spending what is available. However, the significant disadvantage is that it may result in inadequate funding for crucial marketing efforts, preventing the startup from gaining visibility in a competitive market. This inconsistency can hinder brand recognition and growth, making it challenging for startups to establish themselves effectively.
• Propose how a business could improve its advertising outcomes while using the affordable method by incorporating elements from other budgeting approaches.
  • To improve advertising outcomes while using the affordable method, a business could integrate aspects of the objective and task method by setting clear advertising goals first before determining how much funding can be allocated. By defining specific objectives such as target audience reach or sales conversions, they could prioritize spending on activities that drive results. Additionally, employing insights from the percentage of sales method could help them establish a baseline budget tied to revenue performance, allowing for better forecasting while still adhering to their available financial resources.

Related terms

Percentage of Sales Method: A budgeting technique where a company determines its advertising budget as a fixed percentage of its sales revenue.

Objective and Task Method: A budgeting approach that involves defining specific advertising objectives and then estimating the costs required to achieve those objectives.

Return on Investment (ROI):

A performance measure used to evaluate the efficiency of an investment, calculated by dividing the net profit from the investment by the cost of the investment.