A budget needs to be drawn up, based on the description of the plan and covering in as much detail as possible, all the expenditures necessary for the execution of the plan. The budget has to be more meticulous especially in case of export marketing.
There are several methods of determining marketing budgets each with its own advantages and disadvantages. More often than not the size of the budget, and the sums of money available for different kinds of marketing activities are a management decision and hence a fact of life that marketing man or the advertising man must live with. Furthermore, there is very rarely a true marketing budget covering all facets of the marketing mix from product and package design through distribution to advertising and sales promotion marketing research and testing. Usually the budget section in the marketing plan covers only areas of advertising and sales promotion.
In modern corporation there is a budget for every activity but typically the product design budget, and sometimes the package design budget as well, are part of a manufacturing budget and thus not the control of the marketing plan. Similarly the sales and distribution budgets are under the control of the sales department. But in fact these budgets are not strictly speaking under the control of the marketing man does not mean that the corresponding activities should not form part of the marketing plan.
When it comes to determining the budget for advertising and sales promotion there are in principle two points of departure:
The task method: The cost of the different activities that have been decided upon to achieve a desired result is first estimated and the total of all activities is the budget. This method is particularly useful for the introduction of a new product the opening of a new territory or the establishment of a new method of distribution.
The result method: This determines the advertising and promotion appropriation in relation to sales of the product actually achieved during the preceding year or two sales for the period covered by the marketing plan.
The use of past sales as a yardstick has the obvious disadvantage of either carrying over the ill-effects of an abnormally bad preceding year into the new year’s sending or of setting to high a level of expenditure of sales in the past have been exceptionally good. But it does have the advantage that the money to be spent has at least already been earned.
More commonly, appropriations are expressed as percentage of the coming year’s sales revenue or as a fixed amount per unit of sales forecast. Obviously, the exact forecasting of sales is the critical elements in this method and appropriate safeguards must be stabilized to change the amount of the appropriation if sales exceed or fall short of the forecasts. Normally this is done through periodic revisions of sales forecasts and corresponding changes in appropriations. The disadvantage is that any change in sales directly influences spending.
Double Approach: Rather than applying one or other of the two basic principles of task related appropriation, the most realistic of tackling the problems would probably be to approach it from both angles at the same time. If both approaches yield the same results well and good. If there are significant differences, the marketing plan must be reviewed to see whether the same objectives can be achieved at less cost or whether certain low priority objectives should be dropped altogether.