Budgeting Basics and Beyond

Chapter 10. Marketing: Budgeting for Sales, Advertising, and Distribution

Before presenting the budgeting aspects for a marketing department, it would be informative to review Exhibit 10.1, which shows the usual organization of a sales division.

A marketing manager needs a promotion and advertising plan, selling expense plan, and marketing plan. Coordination should exist between the sales plan and the marketing plan. Sales promotion expenses should be budgeted by product, activity, media, territory, and salesperson. Authorization may be needed for unusual marketing expenditures.

Direct costs are directly traceable to a nonfinancial manager's segment, while indirect costs are general charges that are allocable in some way to each segment. The unit cost of an operation equals total expenditures divided by units of measure.

The manager should consider cost per order received, cost per order filled, cost per item handled, cost per customer account, transportation cost (e.g., auto, plane, train) per month, and cost per mile by category.

The number of salesperson calls and sales per call should be budgeted and then compared to actual calls and sales per call. Variances should be analyzed.

The manager should determine if a large percentage of products, orders, or customers generate a small portion of sales. Marketing expenses typically increase in proportion to the amount of customer orders and products, not sales dollars. A change in sales mix can have a significant effect upon profitability. ...