Budgeting Basics and Beyond

10.4. Distribution Costs

Distribution costs are costs to sell or market products in different territories. They are the costs for activities after goods are produced and until they are received by customers.

Marketing managers are responsible for budgeting and controlling distribution costs, which include packaging, advertising, transportation, credit and collection, warehousing and storage, salesperson salaries and commissions, promotion, and market research. A comparison should be made of the trend in distribution costs to total costs. There should be coordination of distribution policies in the overall marketing plan, including sales promotion, advertising, direct selling, warehousing, storage, and transportation.

Distribution factors and selling effort should be combined in such a way as to maximize sales and profits.

There is an interrelationship between the distribution cost budget and the manufacturing and financial budgets, as well as to the sales budget. Costs should be budgeted in total and for each activity. Distribution costs and efforts should be increased in those areas providing the most profitability.

For each territory, budgeted distribution costs depend on sales effort needed per dollar of cost, potential customers, buying power, population density, size of geographic area, and competition.

The manager must decide how much to pay for each type of distribution and the timing and classification of distribution expenditures.

The distribution budget aids in coordinating ...