Marketing Budget

Marketing must contribute to the profitability of a business – how much profit it makes. The marketing budget presents the cost of the marketing plan. It can include the cost of distribution and different marketing actions such as advertising or market research. The annual marketing budget shows what the marketing department is planning to spend over the year. Management may ask the marketing team to justify or modify the budget before giving approval,

There are several approaches to setting the marketing budget – that is, fixing spending on marketing – for example, investment in research or advertising:

• the affordable approach. The company forecasts revenues (predicts the amount of money it expects from sales), deducts costs, and allocate a part of the remaining funds to promotion. Marketing is considered as a cost that can be cut (reduced), depending on what the company can afford – that is, how much money it has left.
• the percentage of sales approach. A percentage of current or anticipated sales (what a company expects to sell) is allocated to marketing actions. Typically, the percent of net sales is spent on promotion.
• the objective-and-task approach. The company costs out, or calculates, the cost of reaching its marketing objectives. For example, new products will need large advertising budget to build awareness.
• competitive parity. Competitor investment is tracked, or monitored, and used as a rule of thumb (a guideline) to set the promotion budget. The objective is to beat (spend more than) or match (spend the same as) the investment of competitors.

Whichever approach is chosen, marketers need to respect the budget – that is, not go over budget (spend more than planned) or be under budget (invest less than planned).

Marketers are accountable for – that is, responsible for – their budget. They must demonstrate that their marketing actins are cost-effective (productive relative to the cost) and not a waste of money. The marketing plan establishes how to measure the return on investment (ROI) or the cost-effectiveness of different marketing actions – the amount of profit made based on the amount of resources needed to make it. Monthly, quarterly and annual reviews of performance against budget measure projected, or forecast, results against real performance – how the company actually performed. Many companies use statistics called marketing metrics to quantify the performance of their marketing activities. They can include items such as market share, advertising spend or response rates for direct marketing.

Comprehension questions:

1. What does marketing budget present?

2. What does the annual marketing budget show?

3. What approaches to selling the marketing budget do you know?

4. What are marketers responsible for?

5. What does the marketing plan establish?