A Marketing Budget refers to the estimation of costs required for promotion and marketing of goods and services. It involves allocation of money to different marketing and promotion activities for the future period.
It is determined on the basis of –
- Marketing objectives of the business
- Competitor`s Marketing Strategies
- Previous year budget
- Sales Volume and Revenue
- Return on investment
A business may prepare one or more than one budget for different activities like research budget, advertising budget, distribution budget etc. Many organizations simply prepare their marketing budget on the basis of their previous year`s budget or on the basis of their next year`s expenditure. However, there are many methods or basis of preparing a marketing budget like:
- On the basis of previous year`s budget
- On the basis of return on investment
- On the basis of all expenditure
- On the basis of a fixed percentage of sales/revenue
- What the business can afford
- On the basis of competitors budget
Marketing budget is influenced by many factors such as –
- The financial position of the business
- Consumer demand
- Product Life cycle
- Changing marketing objectives
- Responsiveness and effectiveness of previous marketing strategy
- Competitor`s budget and marketing strategy
Process of Creating a Marketing Budget
The five steps involved in creating a budget for marketing are:
(1) Determining the budgeting approach – A top to bottom or bottom to top approach may be used to create a marketing budget.
(2) Selecting the target market and marketing mix – It involves segmenting the market into homogeneous groups, determining the potential target customer groups and then deciding the marketing mix elements to target those groups..
(3) Gathering relevant information – Relevant information about the product, tastes and preferences of the target market and the marketing mix elements is collected through various primary and secondary sources.
(4) Estimating cost of marketing – It involves estimation of the total cost of marketing activities. A marketing budget includes all the costs involved in implementing a marketing strategy like cost of:
- Marketing Staff
- Market Research
- New product development
- Thriving competition
- Personal selling
- Selling promotion
- Communications etc.
(5) Finalizing the budget – A budget draft is sent to the finance department or the top management who review, revise and finalize the marketing budget. The budget is reviewed from time to time and adjustments are made according to the changing marketing environment and needs of the organization.