Fall ushers in the start of the budgeting season – that time of year when the planning and budgeting starts for the next fiscal year. More than any other subject, the one concerning the establishment of budgets is most often discussed.
Some of the commonly used methods of budgeting include:
- Percentage of Sales: This method applies a percentage figure of part sales or the forecast of future sales. The percentage often ranges from one-half of one percent to five percent. This method is popular because it is easily controlled. However, there is usually no relationship between the amount of the budget and the amount need to accomplish the goals.
- Competitive Comparison Method: In this case, the company establishes a budget based on what competitors are spending for similar products or by approximating the industry spending average. Since sales objectives and marketing objectives can vary considerably from one firm to another, matching competitor’s expenses may be an exercise in futility.
- Objective Task Method: Here, budgets are formulated based on specific tasks and objectives established for the product. By reviewing past expenditures, and analyzing expenditures in specific markets, the company should be able to formulate a reasonable approximation of what is considered an appropriate expenditure.
- Affordable Method: This promotion budget is established based on what the company can afford to spend. The amount varies year to year thus making it impossible to measure any impact. Consequently, this hinders long-range planning opportunities.
Factors That Can Impact Budgets
Consider some of the factors that can impact budgets:
- Is it an industrial product or service or a consumer product or service?
- Is it a commodity or a specialty product or service?
- Consumer media is more plentiful, however it is usually more expensive.
- Specialties are easier to promote than commodities.
- What is the marketing mix?
Industrial Products vs. Consumer Products
Industrial promotion usually features a company’s capability or an Original Equipment Manufacturer’s (OEM) product. It is often supported by sales promotion in the form of direct mail and/or trade shows. Sales support comprises catalogues, brochures, specification sheets, etc.
With consumer products, it is more difficult to promote brands from the same company unless a particular brand has achieved a high degree of recognition, for example, Tide Detergent. However, this is a great opportunity to use branding to increase value for other company products and multiply the accrued benefits to the bottom line.