Your advertising budget will usually be a proportion of your total marketing budget. From the point you consider using an advertising agency you should have a clear idea how much it is.
The type and volume of advertising you want will determine how high your budget should be set. Remember though, to allow for your other marketing needs, such as PR or promotions.
Consider whether you want:
a one-off advertisement or an ongoing campaign
business-to-business or consumer advertising
traditional advertising like press, outdoor, TV and radio
local or national advertising
online advertising like search, social media and display
However, remember that an agency should advise you on which types of media best suit your objectives. Once you know what you can afford to spend, what you want to spend it on and over what period, any agency you engage should work to this.
Measuring effectiveness
You need to consider, together with your agency, how you will measure the effectiveness of your advertising. Only then will you be able to determine whether you are getting value for money. Sometimes it is even possible to have a payments-by-result agreement with an agency.
Although traditional advertising is not an exact science, there are many ways you can measure effectiveness. For example, before-and-after market research on brand recognition or simply monitoring sales by asking customers how they heard about your business.
Online advertising can be measured more precisely. You can see exactly how your advertising spend led to sales. See measuring your online marketing.