Marketing budgets play a crucial role in determining a company’s success in the market. However, deciding on the most effective budgeting method can be a daunting task for businesses. This article explores four popular marketing budget methods companies can use to create an effective marketing budget. The Percentage-of-Sales method, Objective-and-Task method, Competitive Parity method, and Affordability method are discussed. By understanding these methods, companies can determine the most suitable approach to create a marketing budget that aligns with their business objectives and resources.
The percentage-of-sales budget method is one of the simplest budget methods available. It simply ties marketing campaigns to generated revenue.
This budget method can work for businesses with consistent sales revenue each period, allowing easy budget calculation based on a percentage of sales. On the other hand, it can be more difficult to make it work in a highly volatile sales revenue environment.
The objective-and-task method is a budgeting method that considers the job to be done or, in other words, the objectives and then determines the budget needed to achieve them.
To start, the business should identify which objectives it wants to achieve during the year. Objectives could vary from expanding into new markets, increasing sales by x%, etc. These objectives are then translated into the tasks needed to achieve these objectives. For example, if the objective is to increase sales, one of the tasks is to increase Google Shopping campaign budget.
For each task, the business needs to determine the budget needed to complete it to achieve its goals.
Competitive parity method
The competitive parity budget method consists in setting a marketing budget based on what competitors are spending on their marketing efforts. This budget method assumes the company needs to spend similar budgets to remain competitive in the market.
To gather a glimpse of what competitors might be spending, companies can review financial reports (when publicly available) or consulting industry publications. After identifying the competitor’s budget, the business will allocate it among its various marketing channels.
The competitive parity budget method can be useful for new businesses. In this situation, this budget method can give a frame on what to spend in marketing efforts. However, it will rarely suit every business because of the unique value propositions and positing of each brand.
The affordability method
The affordability marketing budget method is a budgeting approach in which a company determines its marketing budget based on what it can afford to spend rather than on specific marketing objectives or competitive factors.
Choosing the right marketing budgeting method can be crucial for a company’s success. The four popular methods discussed in this article – Percentage-of-Sales, Objective-and-Task, Competitive Parity, and Affordability – all have their pros and cons. By understanding the advantages and drawbacks of each method, companies can choose the one that best aligns with their business objectives and resources. It’s important to note that there is no one-size-fits-all approach, and companies may need to experiment with different methods before finding the right fit for their needs. Ultimately, a well-planned and executed marketing budget can help companies stay competitive and achieve their business goals.
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