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Lesson 7: Marketing Budgets
Lesson 7
Objectives
The objective if this course is to understand how to develop a
Marketing budget that meets objectives and how to manage action
plans
Lesson 7
Topics
1.How to budget
2.Types of Budgets
3.Managing timelines and action plans
What is a Budget?
• A budget is a statement of desired performance expressed in financial terms (BPP, 2010).
• It is a plan of what the organization or department is aiming to achieve and what it has set
as a target.
• It is a plan for a defined period of time expressed in financial terms to be referred to and
used as a control tool throughout the budget period.
Benefits of budgeting
• Facilitates planning – by requiring that all marketing activities are planned and costed for in
advance
• It ensures that the marketing manager is accountable and responsible for funds allocated to
his/her use
• It provides motivation of staff or managers it is allocated to
• Is a way of evaluating performance of the marketing team
Approaches to setting the marketing budgets
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Arbitrary estimation
Affordability
Competitive parity
Historic basis
Percentage of sales or profit
Objective & task
Share of voice
Cost-volume-profit ( marginal analysis)
Experiment & Testing method
Arbitrary estimation
• Least scientific
• Based on manager’s experience and knowledge of trends,
industry, market etc
• Relies on gut feelings
• Quick and easy with no research costs
• Risky method due to lack of basis
Affordability
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Based on what organization can afford and may be having
Resource available determine communication activity applied
Used by SMEs and NGOs
May encourage spending even if not necessary
Does not encourage need for justification or mktg
communication objectives
Competitive parity
• Matching spending of competitor
• Tries not to outspend competition
• May be case of ‘blind leading the blind – it assumes competitor has
made perfect budget decision
• Reactive and lacks direction – doesn’t take into account
organization’s marketing objectives and opportunities
• Creates pressure to spend up or down to competitor levels thereby
reducing ability for market exploitation
Historical basis
• Based on previous expenditures e.g last year, two years ago etc
• Ignores possible changes in environment or organization’s
objectives
• Where advertising budgets are derived from media rate cards
encourages acceptance of costs without negotiation
Percentage of sales or profits
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Current or budgeted sales revenue for the year may be used
Is quick and easy to apply
Controls spending which is based on revenue
% applied often depends on organization’s objectives, type of
market or industry, competitiveness of market
• Doesn’t consider objectives / opportunities to increase sales or
profits by reducing communication spend
• May have detrimental effects on sales – if sales reduce and may
need communication to jump start – this may not be possible and
sales may decline further
Objective and task method
• Most logical and appropriate
• Based on three main steps – determine mktg communications
objectives, determine tasks to achieve the objectives,
determine cost of each task
• Simple and linked to objectives
Share of voice
• Based on total advertising expenditure of players
• Organization determines share of voice it desires to have –
above or below competition; that determines the spend
Cost-volume-profit
• Involves calculating impact of additional spend upon results (sales
& profits)
• Answers questions on benefits generated by additional or marginal
communication expenditure and what value of sales can be
attributed to marketing expenditure
• The questions are complex and many variables may impact sales
e.g competitor pulling out of market when firm is running
promotion - not easy to determine additional sales due to promo
or pulling out of competition
• May be used to fine-tune communication budget to maximize net
benefits ( total benefits minus total costs)
Information sources for budgeting
• Information can be sourced either internally or externally. Internal information is that which
exists within the organization and can be retrieved on need basis. They include sales
figures, marketing reports, price lists, and customer information. They can be stored
electronically or in forms of files within the organization.
• External information requires getting access to such at a cost and is usually from customers,
suppliers, research organizations, publishers, websites etc.
• Some information sources include:  Accounting records
 Sales figures
 Electronic Point of Sale (EPOS)
 Headcount
 Consultants and outsourcing costs
 Exchange rates – important especially where an organization is involved in cross border
trade
Accounting Records
• Accounting ledger shows what has happened in the past which
may be used to predict future events
• Stock control systems which include purchase orders, goods
received notes and goods returned notes can be used to show
speed of delivery and quality of supplies
• These records can be retrieved from within the company
records and used in budgeting
Sales Figures
• Past sales levels and anticipated sales levels are important
budget information sources
• Where sales are anticipated to go down, such information can
help management decide on whether to reduce marketing
budget or enhance it, with a hope that this action will improve
sales from the affected brand or product line
• Marketing manager must lead management in this area
Electronic Point of Sale (EPOS)
• Are devices that include Bar Codes readers
• They record and manage stock movement at point of sale and
also provide detailed sales figures
• They can be used to analyze performance of various product
types at the retail outlets
Headcount
• This refers to information about staff levels within the
organization or engaged in marketing activities
• It is a relevant cost of every firm
• The number of marketing staff, their associated salary levels
within a given budget period among other staff will often have
an impact upon costs
Consultants and Outsourced costs
• Certain marketing activities may need to be outsourced from
marketing consultants e.g Advertising agency, Research agency,
Media agency, Suppliers of promotion materials etc
• These need to be fully budgeted for within the budget period
Exchange Rates
• This is important where a company operates in more than one
country or sources its products or services from other
countries or continents
• The study of exchange rate movement must be captured in the
budget as it is likely to affect the cost of doing business
• Fluctuations are to be catered for and projected rate applied in
budget
Deriving Marketing Budgets
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Procedure for preparing budgets to be formalized and to indicate: People responsible for preparing budgets (Budget committee)
Order in which budgets should be prepared
Deadlines for budget preparation
Marketing Budgets are driven from the marketing activities the
organization expects to undertake within a given period.
• The marketing activities are derived from the company and or
marketing objectives for the period.
Steps in deriving budgets
• Determine the Marketing objectives
• Develop strategies for realizing the objectives
• Come up with specific tactics based on the marketing
strategies chosen
• Determine cost of every tactic that will be applied
• Come up with time lines for the activities / tactics
• Control the budget
• Measure achievement against budget
Sales Budget
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Prepare a preliminary sales estimate based on: Previous sales
Expected growth forecasts
Forecast of general business conditions
Potential markets for each product
Production capacity
Sales Budgets cont…
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Adjustment of the preliminary sales estimated based on: Demand and pricing factors
Seasonal demand and or capacity considerations
Cash flow considerations
Profitability expectations
Smooth production loads
Overall strategy of the business
Selling Expense budget
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Salaries and commissions
Travelling (car maintenance costs, petrol, insurance etc),
Entertainment
Staff recruitment, selection and training
Communication costs e.g telephones, postage etc
After-sales-service
Royalties and patents
Office equipment – laptops et
Advertising Budget
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Print media - Trade journals, magazines, Posters etc
PR (costs of release, entertainment, media briefings etc)
Advertising agents commissions
TV adverts, Radio adverts – include production costs
Staff Salaries or wages for staff directly involved in activity
Media space - mall and wall branding etc
Billboard advertising, street signs etc
Sales Promotion Budgets
• Exhibition – Space, equipment, staff, transport,
accommodation, etc
• Literature – Leaflets, catalogues, posters etc
• Samples and other give aways
• POS displays, window or show room displays
• Special offers – e.g discounted prices, two for the price of one
etc
• Direct Mail shots – enclosure, postage, design costs etc
Research and Development Budget
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Market Research – Design, development and analysis costs
Packaging and product research
Sales analysis and research
Economic surveys
Product planning
Patents etc
Distribution Budgets
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Warehousing costs – rent, rates, lighting, heating
Transport – Trucks, pick-ups, vans etc
Fuel – motor vehicle running costs
Packing costs – loading of vehicles for deliveries and general
sales
• Warehouse / depot staff costs
Example – XYZ LTD
• Company XYZ’s objectives is to increase its overall market share
within the juice industry by 15% in 2014. It has come up with
strategies to realize this and these include growing each of its juice
brands through Sales Promotions, enlisting more distributors for
better market reach, introduction of new juice variant, advertising
through Television, Radio, Billboards and Posters. It will also be
involved in PR and publicity activities by sponsoring events and
media briefing.
• The company budget will include the following:
XYX Limited activities
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Sales Promotions
Bundle offers (Buy Three packets of 250 ml and get one extra free)
Use of push girls in the supermarkets to issue give a ways
Placement of POS materials to communicate the offer
Use a marketing agency to list the new product in shops while up lifting from the new
distributors
Advertising
Develop a Television commercial and communicate it on 4 stations
Develop Radio advertisement and air on 3 FM radio channels
Rent 20 billboards to communicate brands
Develop product catalogues for distribution to company distributors
Use road shows Printing of POS materials to communicate the offer
Production of POS materials to communicate the offer
XYZ Ltd activities
• Public Relations & Publicity
 Sponsor sports days in four private school (buy trophies, sampling and selling
juices)
 Engage in cleaning of Nairobi River twice within the year (invite media and post
photos in the dailies for publicity
 Launch a new product at Intercontinental hotel inviting the media for coverage
(provide meals, drinks and give gift hampers to the media and other guests)
• Personal selling
 Appoint new distributors – place an advert twice in two daily newspapers
(Nation and Standard) – half page
 Hire 6 sales assistants to up lift products from new distributors
 Hire 20 merchandisers to oversee supermarkets and distributors
MARKETING BUDGET FOR XYZ LIMITED
Activity
Period
January
Tactic
Promoters for 10 days
Juice samples
Round neck T shirts
Polo shirts
Corporate Shirts
Hire Marketing agency
Jan-Dec
July
Merchandising Services
Sales Promotion
Personal selling
October
PR & Publicity
February-May
Advertising
New product Launch
Hotel room hire
Meals and drinks
50 Gift hampers
MC Hire
Sponsor Heart Run
Media Briefing
Sponsorship amount
PR Agency
Branding materials
TVC production
February-May
July-October
July-October
July-October
July-October
July-October
July-October
Radio commercial production
July
A2 self- adhesive stickers
January-December
January - December
June-Aug
Market Research
May - Aug
Madvertising Agency Jan - Dec
Media Agency
Jan-Dec
Marketing War-chest
Total
No. Required
No. of days
10
20
5,000
5,000
3,000
1,000
20
365
1
1
1
1
1
1
1
1
Airing TVC (NTV)
Airing TVC (Citizen
Radio advert (Kiss)
Nation FM
Classic FM
Capital
Bill boards for 10 months
Research Agency Fees
NPD costs
Focus groups, samples etc1
Monthly Retainer
Monthly Retainer
Cost per item (Ksh)
Total Cost
200,000.00
1,000.00
150,000.00
30.00
500.00
2,500,000.00
850.00
2,550,000.00
1,500.00
1,500,000.00
1
85,000
85,000.00
300,000
300,000.00
50,000.00
300,000.00
60,000.00
50,000.00
50,000.00
300,000.00
60,000.00
50,000.00
500,000.00
2,000,000.00
1,000,000.00
2,000,000.00
1,850,000.00
500,000.00
2,000,000.00
1,000,000.00
2,000,000.00
1,850,000.00
250,000.00
250,000.00
3,500,000.00
4,000,000.00
1,000,000.00
1,000,000.00
1,000,000.00
1,000,000.00
3,500,000.00
4,000,000.00
1,000,000.00
1,000,000.00
1,000,000.00
1,000,000.00
3,000
30.00
90,000.00
20
1
1
125,000.00
250,000.00
850,000.00
30,000,000.00
250,000.00
850,000.00
4
12
12
200,000.00
200,000.00
100,000.00
800,000.00
2,400,000.00
1,200,000.00
6,243,500.00
68,678,500.00
BUDGET MONITORING
• Budgets help marketers to set financial goals.
• They also provide a way to review actual performance against these goals.
• Actual performance, however, will never be exactly the same as the
budget. It may come close, fall short, or exceed the budget.
• The marketer’s job is to monitor the budget to answer the following
questions:
- How close did the business come to the budgeted figures?
- What adjustments, if any, should be made to the current year’s budget?
- What adjustments, if any, should be made to budgets in future years?
- What changes, if any, should be implemented to improve performance?
Budget monitoring cont…
• The budget should be monitored on a regular basis throughout the year:
quarterly, monthly, or even weekly.
• Consistently reviewing the budget will help manager to identify problems before
they cost the business too much time or money.
• How often you review the budget depends upon your confidence in the figures
and the risk associated with not meeting the budget.
• Reviewing the budget often assures the business that all is on track.
• When the business is not able to meet budgeted figures, start by reviewing the
business strategy that formed the basis for the budget.
• Questions to ponder - Did you misunderstand the market? Did you have too little
information? What do you know now that will change the budget in the future?
Can you still plan for profitable performance based on this business strategy?
Budget Monitoring cont…
• You will need to take a hard look at the budget figures, paying close
attention to the major components of profitability—Sales, Cost of
Goods Sold, and Operating Expenses.
• Exceeding the budget by a great deal implies that the budget was
either too easy or inaccurate.
• Whether you exceed or fall short of the sales figures will require
that you review each of the major components of profitability to
determine where the variations occurred.
• When you discover the reasons for your discrepancies, form a more
accurate future budget that will be more helpful in guiding your
financial plans.
BUDGET TIME LINES
• Involves planning the timing and sequence of marketing
activities (scheduling).
• Schedules help to specify the sequence of the activities and
tasks involved which should be included in the budget.
• The schedule tells the manager when each activity is due, what
has already been completed, and the sequence which the
activities need to follow.
Schedule Network Analysis
• This is a graphic representation of the project's activities, the
time it takes to complete them, and the sequence in which
they must be done.
• Formats commonly used in scheduling include: - Critical Path Analysis (CPA)
- Project Evaluation and Review Technique (PERT) and
- Gantt Charts .
Critical Path Analysis(CPA) and PERT
• Critical Path Analysis (CPA) or the Critical Path Method (CPM) is the
method of project planning that is applied in realizing marketing
activities.
• It consists of well - defined and clearly recognizable activities which
help the manager to plan all tasks that must be completed in the
implementation of a marketing activity.
• CPA and PERT act as the basis both for preparation of a schedule
and of resource planning
• They allow the manager to monitor achievement of marketing
objectives, strategies or activities
CPA benefits
• The essential concept behind Critical Path Analysis is that you
cannot start some activities until others are completed.
• Some activities may need to be completed in a sequence, with
each stage being more-or-less completed before the next stage
can begin.
• Some activities may not dependent on completion of any other
tasks. They can be undertaken at any time before or after a
particular stage is reached.
- These are non-dependent or parallel' activities.
CPA and PERT
• PERT on the other hand is a method used to analyze the
involved tasks in completing a given project, especially the
time needed to complete each task
• It therefore identifies the minimum time needed to complete
the total project.
• Whereas CPA looks at shortest routes to undertaking and
completing tasks using minimal costs, PERT looks at completing
the same activities within the shortest time possible.
• The two can be applied alongside each other
CPA and PERT illustrated
Example
• One of Company XYZ’s objectives for 2014 is to introduce a
new juice variant, pack it in Tetra Pak packaging and introduce
the same to the market within the year. The juice will be
packed in 250ml and 1 litre packs.
• Use a CPA to determine activities to be undertaken while
including sequence complete with the time lines of the same
Activities
• Research (3 months)
- consumer research – focus groups on likely variant
- lab tests for required variant
- focus groups to sample products
• Packaging Design – advertising agency – 2 months
• Production of packaging material – 1 month
• Advertising communication production – 2 months
• Production and packaging of the new juice variant – 1 month
• Product launch – 1 day
• Promotion activities – 3 months
Sequence of activities
• 1 and 2 can run concurrently
• 3 & 4 can run concurrently with 4 beginning just after 3 has run for
a while but 4 ending few weeks or days after 3 is completed to
enable pack to be used in promotion
• 5 is not dependent on 4 but on 3 which must be completed before
5 commences
• 6 is dependent on 5 and can not start until 5 is completed.
• 6 and 7 happen together and 7 extends for longer after 6 has long
ended
Question
• Come up with own scenarios of any marketing projects and
corresponding sequence of activities needed in realizing the project
actualization
• Use CPA charts to illustrate sequence of the activities
Gantt Charts
• Gantt Charts are used to display final plan using Microsoft Project, other
project software or even an excel spreadsheet for projects of low
complexity.
• A Gantt chart is a type of bar chart developed by Henry Gantt in the 1910s
• It illustrates a project schedule.
• Shows the start and finish dates of various activities.
• Show the dependency (i.e. precedence network) relationships between
activities.
• Gantt charts can be used for scheduling different activities including
tracking company-wide budgets, marketing function budgets and
marketing activities, among others
XYZ Limited
New Juice introduction plan
Activity
Jan
Feb
March
Research
X
X
X
X
X
Pack Design
Pack Production
Advert Production
Product manufacturing
April
May
June
July
Aug
Sept
X
X
X
X
X
X
X
Product launch
X
Promotion activities
X
Question
• Use Gantt charts to progress on marketing projects and
activities in their previous work (above)
End