Budgeting Basics and Beyond

10.10. Conclusion

The marketing manager must prepare budgets for marketing costs so proper planning may occur. These costs include selling, advertising, and distribution. It is better to budget expenses based on a percentage of budgeted sales rather than on prior years' sales. What held in the past may not hold in the current year.

A thorough analysis and evaluation of marketing costs should be made to determine if they are excessive, such as by comparing each major expense category to sales. Problem areas must be identified and rectified. In this connection, the marketing manager should assign specific responsibilities to subordinates, such as salespeople, by territory or customer.

If sales are increasing due to higher sales prices but sales volume is about the same, only a few marketing expenses will increase. The work volume to process orders and the delivery costs will be about the same. However, advertising and promotion costs will increase to overcome sales resistance to the higher prices.

When sales volume increases, most marketing expenses increase, but they may not increase in proportion to sales volume. If the increased sales volume is from larger orders only and from existing customers, the collection, credit, and delivery costs will not increase in proportion to sales.