For many businesses, coming up with a marketing budget number is simple math. They determine the percentage of sales revenue that they are willing to devote to advertising and promotion and multiply that percentage by last year’s sales or this year’s projection.
The percentage of sales method fits the bill for many organizations because it reflects what they feel they can afford, based on projected sales and anticipated profit. The problem with this method is that it allows existing conditions to drive the promotion of the business. In a sense, the marketing budget becomes the victim of circumstances and not the driver of desired revenues based on goals and objectives.
Developing a budget based on goals and objectives and the associated tasks in achieving them is more appropriate for many businesses. With this method, the role of the marketing budget is reversed and viewed as a necessary component of reaching goals and objectives, and thus, the driver of sales revenue. If the goal of an organization is to increase revenue by $100,000/year, for example, then management may justify devoting a fixed amount of money for promotion based on multiple factors, like profit margin, market share, and strategic direction.
For companies who haven’t revisited the method for determining their marketing budget in a while, it’s time to take another look. Circumstances change, and the mix of media outlets and their associated costs have changed, as well.